Chrysler Gets 30 Days to Close Deal with Fiat

Obama’s auto task force has determined that Chrysler is not viable as a stand-alone company. If the Auburn Hills-based automaker cannot form an alliance with another company, it may have to resort to restructuring through bankruptcy court.

The task force has agreed to aid Chrysler by providing it with working capital for the next 30 days as it attempts to finalize a partnership with Fiat. It would consider loaning the partnership up to $6 billion if the deal is finalized and if Chrysler makes more substantial debt reductions and concessions.

However, Chrysler’s original deal with Fiat has been restructured. The Italian automaker’s stake in Chrysler has been reduced from the original 35 percent. Part of the restructuring also guarantees some U.S. employment. Finally, Fiat won’t be able to obtain a majority stake in Chrysler until the $6 billion loan is repaid.

The task force disclosed that Chrysler will close two assembly plans and five engine plants by 2014. Chrysler had originally planned to close some engine plants as it phases out four old V-6 engines to make way for its new Phoenix engine, but the plan now calls for more to close than expected. So far Chrysler has not identified which plants would close or given a more definite timeframe.

It will reduce its structural costs by 29 percent by the end of this year from 2007, and its total salaried headcount will fall 60 percent by 2010 compared to its year 2000 level according to the government.

If Chrysler is unable to finalize the partnership with Fiat and make further cuts and concessions, it will be forced into a short term “surgical” bankruptcy. The government has also started a program funded partially by GM and Chrysler that would back the warrantees of the two automakers in to boost consumer confidence.

Source: The Detroit News