by John M. Curtis
(310) 204-8700

Copyright May 1, 2009
All Rights Reserved.

                Saddled with billions of debt, Chrysler Motor Company filed for Chapter 11 bankruptcy in Manhattan, after negotiations with bondholders and some of nation’s biggest hedge funds fell apart.  When President Barack Obama faced the press in a primetime news conference yesterday, he hoped that Chrysler could avoid bankruptcy.  He was particularly upset with hedge funds unwilling to forgive some of Chrysler’s debt, a prerequisite to a viable restructuring plan.  Treasury officials reportedly offered hedge funds $2.5 billion or about 25 cents on the dollar.  When they rejected the government’s offer, Chrysler had no option other than Chapter 11.  Bankruptcy offers the 84-year-old No. 3 U.S. automaker the chance of a stunning rebirth in partnership with the Italian carmaker Fiat.SpA, one of Europe’s best-selling line of technologically advanced fuel-efficient cars.

            Fiat abandoned the U.S. market in 1988, eventually withdrawing its upscale line of Alpha Romeo cars in 1995.  Committing itself to building new Fiat models under the Chrysler name in existing Chrysler plants, give the Italian car giant foothold in the world’s No. 1 auto market.  “It’s a partnership that will give Chrysler a chance not only to survive. But to thrive in a global auto industry,” said Obama from the White House.  Barack was perturbed by bondholders and hedge funds’ reluctance to take the government’s generous offer, promising to far exceed a bankruptcy judge’s disposition of company debts and assets.  French car giant Renault, that hasn’t sold cars in the U.S. for 30 years, promises to be green with envy, promising to increase market share for the Italian car company. Fiat was guaranteed a 20% stake in Chrysler, with benchmarks to eventually exceed 50%.

.            Chrysler entered into a strategic partnership with Daimler Benz AG 1998, doing nothing to combine both design and production of Chrysler products.  Chrysler languished badly behind GM and Ford, with a ho-hum lineup of vehicles offering little in the way of stylish, technologically fuel-efficient cars.  Adopting Fiat’s lineup dramatically changes Chrysler to models destined to compete favorably with popular Japanese lines.  Fiat’s involvement promises to be far more dramatic than when Lee Ioccoca Chrysler helped Chrysler the last 1970s through its first bankruptcy and government bailout.  Fiat’s advanced European car line promises to be a winner in the U.S., where American tastes have morphed from gas-guzzling SUVs to stylish fuel-efficient cars.  Chrysler CEO Robert Nardelli agreed to stay on during a  “surgical” bankruptcy lasting about 60 days.

            Iococca expressed regret over Chrysler’s bankruptcy but saw a silver lining.  “It pains me to see my old company, which has meant so much to America, on the ropes,” said Iococca in a written statement.  “But Chrysler has been in trouble before, and we got through it, aid I believe they can do it again.”  Today’s bankruptcy plan and partnership with Fiat promises to be far more dramatic than in Iococca’s day.  Fiat’s CEO Sergio Marchionne planned to spend for time with Chrysler employees, explaining plans for modernizing and retooling factories.  Marchionne plans to “re-emerge quickly as a reliable and competitive automaker.”  Bankruptcy court Judge Arthur Gonzalez will face an angry mob of bondholders and hedge funds when he attempts to discharge Chrysler’s $6.9 billion in debt.  Hedge funds were the main stumbling block, forcing Chrysler into Judge Gonzalez’s courtroom.

            Chrysler’s partnership with Fiat should provide a blueprint for GM’s eventual bankruptcy and reorganization.  GM should explore partnering with France’s Renault S.A. a close competitor with Fiat for Europe’s fuel-efficient car market.  Renault formed a partnership with Nissan in 1999, enabling the French carmaker to produce more reliable vehicles.  With Nissan already well entrenched in the U.S., partnering with GM might have less advantages.  On the other hand, capturing GM’s U.S. car market could markedly expand worldwide market share for the combined Renault-Nissan partnership.  Partnering with GM would land Renault-Nissan GM’s Opel AG, among the best-selling stylish fuel-efficient cars in Europe.  GM’s Saturn division, which recently announced plans to close, utilizing Opel imports and platforms to manufacturer GM’s most popular U.S. car line.

            Chrysler’s partnership with Fiat will provide the concepts and manufacturing standards needed to compete with the Japanese auto industry.  GM should look for a partner to provide the blueprints needed to market competitive cars inside the U.S.  When U.S. credit markets are restored and the economy picks up, Chrysler’s new entity will hit the ground running.  GM must follow Chrysler’s lead and partner with another proven winner like Renault-Nissan, enabling the iconic U.S. car company to adapt to a changing marketplace.  “If you have the president of the United States who wants something to happen, I think anything’s possible,” said University of Michigan bankruptcy specialist, seeing brighter days for Chrysler.  When GM’s day of reckoning happens June 1, Chrysler should provide the blueprint for life after bankruptcy.  Only bankruptcy can afford both automakers new life.

 About the Author

John M. Curtis writes politically neutral commentary analyzing spin in national and global news.  He's editor of OnlineColumnist.com and author of Dodging The Bullet and Operation Charisma.

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