So the inevitable has happened. The first of the big three to go bust is Chrysler, now officially in Chapter 11 Bankruptcy. But it’s not all doom and gloom.
President Barack Obama announced the Chrysler bankruptcy late yesterday, but said that huge strides had been made recently to keep Chrysler viable in the long term and to protect US auto workers jobs.
With Government help, the Chapter 11 proceedings will be swift, so swift in fact that the whole sales stream will be uninterrupted, and the US Government is chipping in $7.5 billion to ease the process. An immediate casualty of the process is that Chrysler’s CEO and VP will step down.
Chrysler will effectively shut down for the 30-60 days the bankruptcy process will take, but in the current climate there are more than enough cars in stock to fulfil demand. One problem is parts suppliers, who will suffer badly from the stoppage, so again the US Government is providing help.
Fiat will initially get a 20% stake in the ‘New Chrysler’. However, this will increase once certain objectives are met. They must provide Chrysler with access to its global distribution network to allow Chrysler to be a viable car exporter. It must provide a car platform capable of achieving 40mpg to be produced in the US, and it must produce a fuel efficient engine ‘family’ for use in Chrysler vehicles to be manufactured in the US.
None of these requirements are onerous for Fiat, and their fulfilment will see Fiat holding 35% of the new Chrysler.
This deal is probably the only way out for Chrysler. For Fiat, if it can fund the whole thing, it will give them instant access to the US market and a big chunk of a potentially vibrant Chrysler.
Watch this space!