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Chrysler Finishes Deal With Fiat After Court Strikes Down Request to Delay Sale

BY Admin  June 10, 2009 at 11:50 AM EST

Chrysler dealership; file photo

The deal, which was sealed with a contract and a wire
transfer from the federal government in the offices of a law firm that’s been
helping the Treasury Department’s auto task force, paves the way for a leaner
Chrysler Group LLC to swiftly emerge from bankruptcy protection without
billions in debt, nearly 800 dealerships it said were underperforming and
burdensome labor costs. The deal also gives Chrysler $6.6 billion in exit
financing.

Fiat CEO Sergio Marchionne was named to lead the new
company, which said in a statement that it would soon reopen Chrysler factories
that were idled during the bankruptcy process, costing the automaker $100
million a day.

Chrysler’s former CEO, Bob Nardelli, had previously said he
would leave the company once the sale is completed.

Chrysler is set to emerge from bankruptcy with a union
retiree trust owning 55 percent, Fiat owning a 20 percent share that could
eventually grow to 35 percent, and the United States and Canadian governments
holding minority stakes.

Fiat has dispatched executives and engineers to Detroit to
work with Chrysler to cut costs and prepare for the U.S. launch of the 500,
Fiat’s popular small car — although questions remain about how motivated
recession-weary Americans will be to purchase new cars.

The new company will focus on smaller vehicles, an area in
which Chrysler was weak.

“Work is already under way on developing new
environmentally friendly, fuel-efficient, high-quality vehicles that we intend
to become Chrysler’s hallmark going forward,” the company said in a statement.

More than other U.S. automakers, Chrysler has depended
heavily on Jeeps, minivans and pickups as the bulk of its lineup, even after
gas prices rose above $4 last year. Small Fiats are expected to be sold at
Chrysler dealers, but it could take months or years to adapt the European
design to U.S. emissions and safety requirements.

For now, dealers will have to rely on many of the same
vehicles sold by Chrysler before it entered bankruptcy. And there will be far
fewer of those dealers: hundreds closed Tuesday night, and their cars and
trucks will be redistributed among remaining showrooms.

The Italian automaker won’t put any money into the deal but
will give Chrysler billions of dollars worth of small car and engine
technology.

The deal, prodded along in recent months by the Obama
administration, was cleared for approval after the Supreme Court denied a
request Tuesday from Indiana pension funds and consumer groups to delay the
sale.

The justices’ two-page order made it clear they weren’t ruling
on the merits of the funds’ case. But the justices wrote that the funds, which
represent teachers and police officers, “have not carried the burden”
of proving that the country’s highest court had to intervene.

“We are gratified that not a single court that reviewed
this matter, including the U.S. Supreme, found any fault whatsoever with the
handling of this matter by either Chrysler or the U.S. government,” the
Treasury Department said in a statement after the high court’s decision.
“We are delighted that the Chrysler-Fiat alliance can now go forward,
allowing Chrysler to re-emerge as a competitive and viable automaker.”

Fiat began looking for partners to gain scale late last year
when the crisis came into full force, leading to a dramatic drop in car sales.
This year is expected to be no different.

CSM Worldwide, an industry consultancy, forecasts a 20
percent drop in global production to 52 million vehicles this year as automakers
lay off workers and allow factories to idle in the face of a sharp drop in
demand.

Others in the industry do not feel the urgency to look for
partners. Renault-Nissan CEO Ghosn said his group had no problem with scale.

In Fiat’s case, CSM Worldwide said it saw a “tremendous
amount of risk” in trying to revive Chrysler.

Chrysler was acknowledged as a test case General Motors, a
larger and more complex U.S. automaker in the early stages of its own
bankruptcy case.

Erich Merkle, an independent auto analyst based in Grand
Rapids, Mich., said the court’s decision on Chrysler was good news for GM
because it was using a similar quick-sale strategy to facilitate its way
through bankruptcy, according to Reuters.

Chrysler has suffered its worst sales in more than a quarter
century. Through May, its sales were down 46.3 percent, and it held just 10 percent
of the car and truck market, down from nearly 15 percent a few years ago, the
New York Times reported. It ranks fifth in the U.S. market, behind GM, Toyota,
Ford and Honda.