JUDY WOODRUFF: Chrysler filed for federal bankruptcy protection today, but the automaker aimed to emerge from the process quickly, with a new business partner and new federal aid. Jeffrey Brown has our lead story report.
JEFFREY BROWN: The announcement came from President Obama. He said Chrysler was taking the hard path, but also the right one.
U.S. PRESIDENT BARACK OBAMA: I have every confidence that Chrysler will emerge from this process stronger and more competitive.
JEFFREY BROWN: The administration had given the nation’s third-largest automaker until today to come up with a restructuring plan and avoid the Chapter 11 bankruptcy filing, and it almost made it.
Four banks, holding 70 percent of the company’s debt, agreed to erase it for $2 billion in cash. And last night, the United Auto Workers ratified a cost-cutting pact, in return for part ownership of Chrysler.
DON MILLS, Chrysler worker: I think we have to vote for it just to keep things rolling in the Motor City here, keep Chrysler afloat.
RENEE SMITH, Chrysler worker: I just hope and pray that something will definitely turn around in another way, but that’s all you can do at this point.
JEFFREY BROWN: But talks broke down between the government and 40 hedge funds. They were owed nearly $7 billion, and they refused a Treasury offer of $2.25 billion in cash to write down the debt.
That standoff triggered the bankruptcy move, and it did not sit well with the president.
BARACK OBAMA: They were hoping that everybody else would make sacrifices and they would have to make none. Some demanded twice the return that other lenders were getting.
I don’t stand with them. I stand with Chrysler’s employees and their families and communities. I stand with Chrysler’s management, its dealers, and its suppliers. I stand with the millions of Americans who own and want to buy Chrysler cars.
JEFFREY BROWN: President Obama said those who have made sacrifices will help Chrysler emerge from Chapter 11 faster, possibly in less than 60 days.
BARACK OBAMA: This is not a sign of weakness, but rather one more step on a clearly charted path to Chrysler’s revival. Because of the fact that the UAW and many of the banks — the biggest stakeholders in this whole process — have already aligned, have already agreed, this process will be quick, it will be efficient. It’s designed to deal with those last few holdouts, and it will be controlled.
JEFFREY BROWN: As part of the process, Chrysler will form a global partnership with Italian automaker Fiat. The government will provide additional financing, up to $8 billion, and help choose Chrysler’s new directors.
The current chief executive, Robert Nardelli, said today he will step down after the company comes out of bankruptcy protection.
In the meantime, Chrysler will halt most production during the legal proceedings starting Monday, but it will continue to sell cars, and the government will back its warranties.
If and when Chrysler comes out of bankruptcy, the United Auto Workers’ retiree health fund would have a majority stake in the company, 55 percent; Fiat would own up to 35 percent; the U.S. government, 8 percent; and the Canadian government, the final 2 percent.
Obama chastises Chrysler
JEFFREY BROWN: And we look into all of this now more with Paul Ingrassia, former Detroit bureau chief for the Wall Street Journal and author of "Comeback: The Fall and Rise of the American Automotive Industry."
And Jay Westbrook, a professor of law at the University of Texas at Austin, who specializes in bankruptcy.
Paul Ingrassia, I'll start with you. What does going into Chapter 11 bankruptcy allow the company to do?
PAUL INGRASSIA, Former Wall Street Journal Detroit bureau chief: Well, Jeffrey, the most important thing it does is it allows the company to get relief from obligations that it can no longer afford to meet, obligations to the UAW, contractual obligations from state and local dealer franchise laws, and, obviously, obligations to the debt-holders, some of whom, obviously, were reluctant to agree to the terms that the president requested.
JEFFREY BROWN: I assume that they thought they could do better in court. Is that the idea?
PAUL INGRASSIA: Well, yes. And, you know, I have to say, I was a little disappointed by the president's harsh words for them. I thought he could have said it a little bit differently or a lot differently, actually. He could have said, "Look, I'm disappointed by their actions. I don't agree with their actions. But like any other American, they have a right to take their case to a court of law and let the judges decide." And so that's what's going to happen here.
JEFFREY BROWN: Now, Jay Westbrook, the president said the bankruptcy would be -- the process would be quick, efficient and controlled, his words. How quickly can this happen? I think there was talk of 30 to 60 days. Is that possible? And what does "controlled" actually mean?
JAY WESTBROOK, University of Texas: Well, I think the main point the president was getting at is that almost all the stakeholders have agreed. There are only a certain number of holdouts, and the essence of bankruptcy is to deal with holdouts. When a majority of stakeholders want to go one way, some people are holding out, bankruptcy says, "I'm sorry. Majority rules."
I think there's an enormous momentum with the government and with all the other stakeholders having signed on. It will be very, very difficult for holdouts to resist the forward movement of this case.
Risks of bankruptcy process
JEFFREY BROWN: But 30 to 60 days would be unusually quick, wouldn't it, for a case like this?
JAY WESTBROOK: It would be very fast. But in this case, there's a wonderful lubricant, Jeff, which is government money. And the government money is essential to the survival of Chrysler, so I think that may enable them to do it very quickly. Thirty to sixty days is, admittedly, a very short time.
JEFFREY BROWN: I'll stay with you. Are there some risks that you see in going into this process? Everybody talked today as though, "Here's what's going to happen. We'll come out of this a viable company." But once you go into bankruptcy proceedings, are there not some potential risks of things falling apart or not quite going the way you hope?
JAY WESTBROOK: Of course there are. And certainly, there are arguments, legal arguments that these hedge funds and others are going to make. They're going to claim, "Well, gee, we'd do better just to sell out Chrysler than what you're offering us in a reorganization." That's a real problem. They can make strong legal arguments.
But I think, in the long run, those arguments are not going to be successful. Whether they'll tie up the proceeding for a long period of time is a big question. Sometimes parties -- I don't say here, but sometimes parties just make arguments in order to tie things up so that everybody will pay them money to go away.
JEFFREY BROWN: Paul Ingrassia, do you see some risks in going into these proceedings?
PAUL INGRASSIA: Well, sure. I think, in addition to all the risks that were just described here, Jeffrey, frankly, the big risk, what does Chrysler look like coming out on the other side of this? It's going to be controlled, really, by the union, albeit indirectly through an employee benefit trust fund. It's going to be a partner with Fiat, which has really zero track record of success in this country.
And as far as that goes, you know, all mergers and all partnerships in any industry, including the auto industry, are very problematic. They have histories of not working out many times.
I mean, one of the big reasons that Chrysler is in the condition that it's in today is that the DaimlerChrysler partnership that was struck in 1998, when Daimler-Benz bought Chrysler, was a disaster. It was a culture clash, and everything just went wrong.
So there are some big business risks coming out on the other end of this. I mean, that said, on paper, the Fiat-Chrysler fit does look good, so let's hope it works.
Partnership with Fiat
JEFFREY BROWN: Well, Paul, tell us a little bit more about Fiat, what it's supposed to bring to the table here, and how much is clear yet in terms of, oh, management, product, technology, all the partnership that you're talking about? How much do we know yet?
PAUL INGRASSIA: Well, we know the broad outlines, I think. Basically, Fiat -- you know, being in Italy, being in a European environment, with small cars because of high gas taxes how much is clear yet in terms of, oh, management, product, technology -- the partnership that you are talking about. How much do we know yet?
Well, we know the broad outlines, I think. Basically, Fiat -- you know, being in Italy, being in a European environment, where small cars, because of high gas taxes and high gas prices, are much more popular than here, Fiat has very good small-car technology.
And under Sergio Marchionne, the CEO who took over when the company really was on the brink of bankruptcy itself four or five years ago, he's produced a remarkable turnaround there with a lot of tough-love measures, the same thing that the Obama administration is doing here.
So they have good small-car technology. Chrysler, on the other hand, doesn't have a product pipeline at all in cars. It was left bereft of that when the DaimlerChrysler deal broke apart. But it does have trucks. It does have minivans, SUVs, and, you know, the Jeep line, which is really -- it's a truly iconic global brand.
So on paper this looks pretty good. The question is, these vehicles -- these new Fiat-engineered cars, small, fuel-efficient cars that they want to bring to market here in this country, they're not going to be here for another couple of years. It's going to take some time to do that.
And so, until then, sadly, the U.S. taxpayer is going to have to provide the lubricant, as it was, to keep this company afloat.
Impact on Chrysler's workers
JEFFREY BROWN: Well, Jay Westbrook, coming back to the bankruptcy proceedings in the meantime, what is the impact on Chrysler's workers, its retirees, dealerships? What happens to them? What kind of impact?
JAY WESTBROOK: All of them are going to lose a good deal, obviously, in this process, in terms of what they came in with, but all of them have to do that if Chrysler is going to survive.
It's a little bit like everybody being in a boat, and you brought all your most precious possessions with you, and now basically everyone has to throw a lot of that overboard in order to keep the boat floating.
On the other hand, this is the way for something to survive at Chrysler and, therefore, for all these different stakeholders to come out of this experience with something, rather than nothing. Otherwise, Chrysler, I'm afraid, would expire.
JEFFREY BROWN: But as we said in our introduction, the UAW had reached an agreement last night on some of this going into any court proceedings. Are you saying there may be more negotiations in terms of -- that they may have to come back to the table again and negotiate further cuts?
JAY WESTBROOK: No, I was speaking of the overall restructuring. No, I think that they have a deal. I think some of the lenders have a deal. A lot of the suppliers have a deal. So I think a lot of that has been done. There is some still to be done, but a lot of it's been done.
And it's important to remember, Jeff, that Chrysler's done this before. Twenty-eight years ago, although without a formal bankruptcy, Chrysler went through a very similar process and they came out the other end, fortunately, with a key asset named Lee Iacocca. And that and the K-car led Chrysler on to many, many years of success. So there's at least a history here that suggests they could survive and prosper, as the president said.
JEFFREY BROWN: And, finally, Paul Ingrassia, let me ask you briefly, the president insisted that the impact on consumers would be negligible. Is that the case? Consumers could still buy a Chrysler and it sounds like they could have their warranty still guaranteed by the government.
PAUL INGRASSIA: Oh, absolutely. It might even be -- it's very arguable, Jeffrey, that it's safer to buy a Chrysler car now than it was several months ago.
You know, as Professor Westbrook just said, a few months ago, the company's very existence was threatened. Now the bankruptcy process is throwing it a new lifeline, a new phase of its existence, if you will.
So I think it's actually a more defendable thing to do, a defensible thing to do to go out and buy a Chrysler car now than it was a few months ago on the assurance that you're going to have the company potentially, most likely has a new lease on life in a different form.
JEFFREY BROWN: All right. We will leave it there. Paul Ingrassia and Jay Westbrook, thank you both very much.
PAUL INGRASSIA: Thank you.