Chrysler Arrives at a Key Deal
Tuesday, April 28, 2009SUSIE GHARIB: Chrysler scored a big win today in its fight for survival as the struggling auto maker reached a key deal with its banks. Chrysler's biggest lenders will exchange about $7 billion of debt for $2 billion in cash. The deal is a critical step as Chrysler tries to convince the U.S. government to give it new loans. The next step is finalizing a partnership with Italian auto maker Fiat by Thursday. As Stephanie Dhue reports, today's deal with lenders could pave the way for Chrysler to get government help and steer clear of bankruptcy.
STEPHANIE DHUE, NIGHTLY BUSINESS REPORT CORRESPONDENT: The banks agreeing to the deal hold 70 percent of Chrysler's debt. Michigan Congressman Gary Peters says today's agreement puts pressure on the remaining creditors to get on board.
REP. GARY PETERS, (D) MICHIGAN: Bankruptcies could still occur, but with the agreements that we've seen from both the UAW as well as now with the principal banks involved in the majority creditors for Chrysler. If Chrysler does go into bankruptcy, it will likely be a much quicker bankruptcy and one that will have a considerably less amount of uncertainty.
DHUE: The United Auto Workers union has agreed to a 55 percent equity stake in the restructured Chrysler in exchange for a portion of the $10 billion owed to its retiree health care fund. Fiat could eventually hold a 35 percent stake in Chrysler, with taxpayers holding the remaining 10 percent. Labor expert Charlie Craver says whoever owns Chrysler, retiree benefits will continue to be an issue.
CHARLES CRAVER, LAW PROFESSOR, GEORGE WASHINGTON UNIV.: The gorilla in the room that they still have to address is retirees, because there are more people who are retired under very generous pensions and very generous health care than there are current workers and they are going to have to deal with that and that is going to be a very difficult issue.
DHUE: Another difficult issue, plunging auto sales. Even if GM and Chrysler avoid bankruptcy, they'll need to rev up sales to thrive. Congressman Peters supports a bill that would give consumers cash for clunkers and another offering tax credits to small businesses for new vehicle purchases.
PETERS: The best way to get out of recession is to get people to buy automobiles. When they buy automobiles, that doesn't just help the auto industry, it helps this intricate web of suppliers as well as all of the other materials that go into cars and auxiliary services that are provided. It's an incredible stimulus.
DHUE: The government has given Chrysler until Thursday to get final concessions from unions and debt holders and to ink its deal with Fiat. But sources say that deadline could get pushed back, if a deal appears near. Stephanie Dhue, NIGHTLY BUSINESS REPORT, Washington.
PAUL KANGAS: That deal between the Treasury and Chrysler's lenders moves the struggling firm one step closer to an alliance with Fiat. But just who is Fiat and what could it bring to Chrysler? As Jeff Yastine reports, the Italian auto maker has made a remarkable turnaround, considering just six years ago it looked like Fiat was headed to history's scrap heap.
JEFF YASTINE, NIGHTLY BUSINESS REPORT CORRESPONDENT: For years, Fiats had a reputation in Europe as a small car maker, with made in Italy panache, that's still driving the company's sales and profits in recent years. Executives hope that success can be repeated with a Fiat-designed vehicle, built and sold in America. But the irony is 26 years ago, Fiat pulled out of the U.S. marketplace. At the time, its small cars were well- known for poor quality and the joke was that Fiat stood for "fix it again, Tony." Fiat limped along for years and in the process assembled a long line of well-known niche brands like Maserati, Alfa-Romeo, Ferrari and some lesser known names like Lancia, Iveco and Case New Holland tractors. Still, Fiat group racked up billions in operating losses until Sergio Marchionne took the wheel in 2004. As CEO, he stripped out layers of white-collar jobs, repaired relations with Italian workers unions and brought in fresh vehicle design ideas. The result? A sharp turnaround. Fiat group went on to post a string of quarterly profits from 2005 until the first quarter of this year. But with no sales in the U.S. market, Marchionne's turnaround was largely unnoticed here. All that changed in January, when Fiat emerged as a Chrysler suitor. And if a deal is completed, Fiat will see whether American car buyers say ciao or arrividerci to the new combination. Jeff Yastine, NIGHTLY BUSINESS REPORT, Miami.
