Chrysler to Close 5 Plants, Sell All Assets to Fiat

 

Attorneys for Chrysler LLC said the company will file a motion by Saturday morning to sell substantially all of its assets to Italian automaker Fiat Group SpA, but that won’t include eight plants, including five that the automaker revealed it will shutter by the end of next year.

While Chrysler faced its first hearing Friday in Manhattan bankruptcy court, court documents showed the ailing automaker plans to close five more plants in Michigan, Missouri, Ohio and Wisconsin that employ about 4,800 people. Chrysler said they will be offered jobs at other plants.

Two of the other plants that won’t be part of the revamped company were already closed last year, and the other was already slated to be replaced by a new factory.

The eight plants would be left out of a deal for Italy’s Fiat to buy the U.S. carmaker’s most valuable assets in bankruptcy. Instead, the “new Chrysler” would lease the plants then shutter them by December 2010.

“While some facilities may close, substantially all Chrysler employees will be offered employment with the new company,” Chrysler spokeswoman Dianna Gutierrez said. “Employees currently located at a facility identified for disposition will be offered a position at one of the facilities sold to the new company.”

A series of motions approved at Friday’s swift and short hearing launched a chain of events designed to ensure that Chrysler’s bankruptcy process is the quick and “surgical” one the company and the U.S. government have promised.

Another hearing in Manhattan bankruptcy court was scheduled for Monday morning, where Chrysler attorneys will ask Judge Arthur Gonzalez to let the ailing automaker start using $4.5 billion in loans from the Treasury Department to keep operating under bankruptcy protection.

Chrysler attorney Corinne Ball, of the firm Jones Day, said the $4.5 billion in loans and the sale to Fiat represent “an important lifeline” for Chrysler’s dealers, supplies and customers.

“We have to move at a good speed throughout this proceeding,” she told Gonzalez.

Gonzalez wasted no time, opening the meeting with just five words: “Please be seated. Debtor’s counsel?”

After an attorney representing Chrysler’s dealers started describing their role in the automaker’s survival, Gonzalez cut him off twice, then said, “I think you’ve gotten your point across.”

By the end of the hearing, the judge had decided six motions in about an hour.

Ball noted that the company’s restructuring efforts have the support of its dealers, suppliers and most of its lenders.

“I don’t think that any American can doubt that these are extraordinary times,” she said. “And we are quite mindful of the view of many experts that no car company can survive in Chapter 11. To that we say, ‘yes we can.’”

In court documents, Chrysler said it would close the Sterling Heights, Mich., plant that makes Chrysler Sebrings and Dodge Avengers, and the Conner Avenue plant that makes Dodge Vipers in Detroit. The St. Louis North plant that makes Dodge Ram pickups would also close.

Chrysler’s Twinsburg, Ohio, parts stamping plant and Kenosha, Wis., engine plant would also close.

Two other plants that will be left out of the Fiat sale are the St. Louis South plant and an assembly plant in Newark, Del., that were idled last year. Another plant, Chrysler’s Detroit Axle plant, is already scheduled to be replaced by a new factory near Port Huron, Mich.

Chrysler, the nation’s third-largest car manufacturer, filed for bankruptcy protection Thursday after a group of creditors defied government pressure to wipe out the automaker’s debt. The company plans to emerge in as little as 30 days as a leaner, more nimble company, with Fiat potentially becoming the majority owner. In return, the federal government agreed to give Chrysler up to $8 billion in additional aid, on top of the $4 billion the company already has received.

In the early morning hours before the hearing began, attorneys and other observers lined up outside the bankruptcy court for the Southern District of New York under overcast skies with coffee and rain gear in tow of hopes of securing a spot inside the courtroom.

The large, windowless room filed up quickly, and two overflow rooms with video and audio feeds were opened to accommodate the crowds.

Gonzalez approved Chrysler’s motion to allow the automaker to pay $48.8 million in employee and contract worker pre-bankruptcy wages, benefits and businesses expenses. The motion also references an estimated $86 million in employee vacation benefits that it may not ultimately have to pay.

Gonzalez also approved Chrysler’s motions that will let it continue to honor its warranties and continue its current banking practices.

The hearing was briefly halted after a woman standing in the warm and stuffy courtroom apparently fainted.

Eventually, Gonzalez will have to reach a decision on the creditors that hold $6.9 billion of Chrysler’s debt.

Four banks holding 70 percent of the debt agreed to a deal that would give the creditors $2 billion. But a collection of hedge funds refused to budge, saying the deal was unfair and would only return a small fraction of their holdings.

President Barack Obama on Thursday chastised the funds for seeking an “unjustified taxpayer-funded bailout” after Chrysler and his auto task force cleared the company’s other hurdles. Along with the Fiat deal, Chrysler adopted a cost-cutting pact with the UAW this week.

The White House said Chrysler could come out of bankruptcy in 30 to 60 days. Under normal circumstances, it would be difficult to complete such a large bankruptcy so quickly.

But John Pottow, a University of Michigan professor who specializes in bankruptcy, said the government’s level of involvement is much greater than in a typical corporate bankruptcy.

“If you have the president of the United States who wants something to happen, I think anything’s possible in bankruptcy protection,” he said.

Chrysler’s bankruptcy filing is the latest step in a drastic reordering of the American auto industry, which has been crushed by higher fuel prices, the recession and customer tastes that are moving away from the gas-guzzling SUVs that were once big money makers.

The government already has sunk about $25 billion in aid into Chrysler and rival General Motors Corp.

GM faces its own day of reckoning on June 1, a date the administration has set for it to come up with its own restructuring plan. GM has announced thousands of job cuts, plans to idle factories for weeks this summer and has even offered the federal government a majority stake in the company as it races to meet the deadline.

Like at Chrysler, debt may be the stumbling block. GM has asked its unsecured bondholders to exchange $27 billion of debt for a 10 percent stake in the automaker. The creditors balked, saying that would leave them with just pennies on the dollar and that they deserve a majority stake if they give up their claims.

When Chrysler emerges from bankruptcy, the United Auto Workers union will own 55 percent of the automaker and the U.S. government will own 8 percent. The Canadian and Ontario governments, which are also contributing financing, would share a 2 percent stake.

Under the deal, Chrysler would gain access to Fiat’s expertise in small, fuel-efficient vehicles. The U.S. automaker eventually wants to build cars that could get up to 40 mpg, far more economical than its current fleet focused on minivans, Jeep SUVs and the Dodge Ram pickup.

In exchange, Fiat would initially get 20 percent of the company, but its share could rise to 35 percent if certain benchmarks are met, and Fiat said Thursday it could get an additional 16 percent by 2016 if Chrysler’s U.S. government loans are fully repaid. Fiat would also gain access to the North American market through Chrysler factories and dealerships.

Fiat CEO Sergio Marchionne said he was preparing for Chrysler to “re-emerge quickly as a reliable and competitive automaker.”

The Fiat deal and bankruptcy cap a disastrous time for Chrysler.

Chrysler lost $8 billion last year and its sales through March were down 46 percent compared with the year-earlier period, leading some auto industry analysts to question whether Chrysler can survive even in bankruptcy.

But company executives told reporters Thursday that Chrysler vehicles with Fiat’s fuel-efficient technology should reach showrooms in 18 months.

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Associated Press writers Stephen Manning in Washington, Tom Krisher and Kimberly S. Johnson in Detroit, and David N. Goodman in Warren, Mich., contributed to this report.

5/1/2009 3:30 PM BREE FOWLER AP Business Writers NEW YORK