Answers to questions on the Chrysler deal

McClatchy NewspapersApril 30, 2009 

WASHINGTON — Chrysler's combined bankruptcy filing and partnership announcement with Italian carmaker Fiat raised many questions on Thursday, ranging from who owns how much of the company to what happens to dealerships.

Here're some answers to questions about the historic announcements and who the winners and losers might be.

Q: Does a foreign company now own the third largest U.S. automaker?

A: Not yet. Italy's carmaker Fiat will take a 20 percent ownership stake in Chrysler LLC, if and when it emerges from bankruptcy. That stake can rise to 35 percent if three separate benchmarks for manufacturing in the region are met. If Fiat wants to take a majority stake, all taxpayer bailout money would have to be repaid first.

Q: So does the government own Chrysler?

A: No. The U.S. government will take an 8 percent ownership stake in the new company and Canada will have a 2 percent stake.

Q: Who then is the biggest shareholder?

A: Members of autoworker unions will hold approximately 55 percent of Chrysler. That's because half of the special trust to fund their health and retirement benefits — called a voluntary employees' beneficiary association, or VEBA — will be converted to an ownership stake in the new company. Chrysler's fate and the well-being of tens of thousands of retirees will depend more than ever on cost cutting and performance of Chrysler coming out of bankruptcy.

Q: Will more taxpayer money go into saving Chrysler?

A: The U.S. and Canadian governments will provide $10.5 billion in additional financing. Of this amount, $8.08 billion will come from the U.S. and $2.42 billion will come from Canada.

Q: Doesn't Chrysler have a done deal with Fiat and the unions?

A: In bankruptcy court, anything can happen. But the administration believes that so many of Chrysler's stakeholders are on board with the deal that a judge is unlikely to scuttle what has been painstakingly negotiated.

Q: Who emerged as a loser in Thursday's announcements?

A: Chrysler's creditors clearly took a big hit. A group of large creditors that held $6.9 billion in Chrysler debt signed on to a Treasury Department plan that would give them about $2.25 billion in cash in exchange for extinguishing the remaining debt. That's about 30 cents on the dollar, making them a clear loser, although they won in a sense since their claims on Chrysler would have far less value if the carmaker were liquidated.

Q: Did all creditors agree to the work out?

A: No. The administration says about 30 percent of the creditors balked, and they were identified mostly as hedge funds, the lightly regulated companies that invest pools of money on behalf of wealthy investors. These companies will battle Chrysler and the federal government in bankruptcy court, hoping to get more than the administration was offering. If they quash the deal, President Barack Obama has set them up to take the blame.

Q: How do local dealerships fare in the agreement?

A: Chrysler officials said there will clearly be a reduction of the roughly 3,200 dealers for Chrysler, Dodge and Jeep vehicles. They did not offer an estimate for reduction timetables nor numbers. An important determining factor for dealers will be the success with which consumers can get loans to purchase vehicles.

Q: What happens to automobile financing in the deal?

A: The Obama administration opted against aiding Chrysler Financial, the standalone financing arm of Chrysler. So, Chrysler Financial is in talks to be absorbed by GMAC, the financing arm of General Motors. GMAC now enjoys bank-holding company status, making it eligible to receive taxpayer bailout funds. The administration expects to provide assistance to GMAC in the future to help Americans finance the new and existing line of vehicles manufactured by Chrysler.

Q: Are my warranties still valid while Chrysler is in bankruptcy?

A: Yes. The Obama administration had previously announced it would make good Chrysler's warranties if the automaker went into a bankruptcy proceeding, whether or not it emerges from this process.

Q: Chrysler now manufactures in Mexico, Canada and the United States. Will this continue?

A: For the moment it appears so. Chrysler officials said they would halt virtually all production during what they hope will be a short bankruptcy period of two months or less. They confirmed that post-bankruptcy, manufacturing would continue in all three countries of North America. But they refused to say where new plants to be established using Fiat technologies would be located.

Q: Times are tough, so will Chrysler keep competing in NASCAR events?

A: Chrysler CEO Robert Nardelli said the company would meet its minimum contractual obligations to NASCAR while the company is in bankruptcy.

ON THE WEB

Fiat's statement

Chrysler's statement

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