Chrysler News-Most manufacturing operations will be idled

Letter from Bob Nardelli-12:30pm 4/30/09
Nardelli announces Fiat allliance, bankruptcy filing

Dear Chrysler Employees:

This is a historic day for Chrysler. As a result of the comprehensive restructuring plan agreed to by many of our stakeholders, I am very pleased to report that Chrysler LLC and Fiat S.p.A. have reached an agreement in principle to establish a global strategic alliance. This agreement creates a new, competitive, global car company that will take over a majority of Chrysler’s operations. With the completion of this alliance, Chrysler will be repositioned for long-term success, validating the great efforts and sacrifices that you have made to help us get to this momentous point.

In addition to the alliance news today, I announced to Chrysler’s Board of Management and our senior leadership as well as the U.S. Treasury that I plan to leave the company and return to Cerberus Capital Management as an advisor. With the U.S. government approval of our viability plan and the completion of an agreement in principle for the alliance, this is an appropriate time to let others take the lead in transformation of Chrysler with Fiat. I will work closely with all of our stakeholders to complete the restructuring and see that this new company swiftly emerges with a successful closing of the alliance.

This alliance will enable Chrysler to move forward as part of a new company with significant strategic advantages, including access to high quality, fuel-efficient small and compact vehicles, as well as platforms, powertrain technologies and components that will be produced at Chrysler manufacturing sites. Together, Chrysler and Fiat will bring a range of exciting, new fuel-efficient vehicles to North American consumers, helping stimulate growth in this segment. The alliance also will allow Chrysler and Fiat to fully optimize our respective manufacturing footprints and global supplier base. Each company will gain access to new markets, including distribution of Chrysler vehicles to areas outside of North America, and potential distribution of Fiat vehicles through Chrysler’s dealerships in North America.

As you know, Chrysler initiated discussions with Fiat more than a year ago to develop plans for a global product alliance. Chrysler and many of its stakeholders worked tirelessly to agree upon concessions that will result in a significantly lower cost base and enable fulfillment of a broader strategic alliance. Despite substantial progress on many fronts, we were not able to obtain the necessary concessions from all of our lenders. As a result, under the direction of the U.S. Treasury, Chrysler LLC and 24 of its wholly owned U.S. subsidiaries today filed voluntary petitions under Chapter 11 of the U.S. Bankruptcy Code in U.S. Bankruptcy Court for the Southern District of New York.

Even though total agreement on concessions was not possible, I am truly grateful for all that has been sacrificed, on the part of many of Chrysler’s stakeholders to reach an agreement in principle with Fiat. My number one priority has been to preserve Chrysler and the livelihoods of thousands of people who depend on its success. While I am excited about the creation of the global alliance, I am personally disappointed that today Chrysler has filed for Chapter 11. This was not my first choice.

It’s very important to make clear that, because of the amount of work we’ve already done prior to filing for Chapter 11, this will be a very different kind of process than you may have seen with other companies. With this “structured bankruptcy” filing, we will submit a motion under Section 363 of the Bankruptcy Code requesting the court to swiftly approve the agreement with Fiat and the sale of Chrysler’s principal assets to the new company we are forming with Fiat. The benefit of this type of filing is speed. It will allow a leaner new company to emerge in a matter of 30 to 60 days, well positioned for long-term viability. It’s also very important to note that Chrysler’s Canadian, Mexican and other international operations are not part of any bankruptcy filing.

The substantial majority of Chrysler’s assets, operations, plants and people will be transferred to the new company, while assets and liabilities that are not consistent with our business plan will remain with the old company for disposition. Under the supervision of the court, and with the cooperation of the U.S. Treasury, the new company will quickly emerge from bankruptcy as a restructured and financially healthy organization. The old company and its remaining assets will proceed through a Chapter 11 process during which these assets may be sold or otherwise liquidated. Chrysler is in the process of identifying and finalizing the list of assets that will be disposed of through this process. Once this is complete and we are asked to share it with the court, we also will share it with you.

Chrysler also will file “First Day” motions with the court, seeking relief to honor obligations to pay employees, suppliers and dealers as an essential component of preserving the value of our business in the time period pending the sale. We expect to receive approval for these motions within the next few days, and we will provide you with regular updates.

During the restructuring process, the government will provide sufficient debtor-in-possession (DIP) financing to allow continuation of “business as usual.” The company will seamlessly honor warranty claims, pay suppliers and keep our dealer body operating to continue to serve our valued customers.

Throughout this time, Chrysler and our dealers will continue to sell and service all vehicles and honor warranties. We will continue to supply parts to our dealers to ensure that vehicles can be serviced without delay. We are committed to serving our customers throughout this process and to producing quality vehicles over the long term under the Jeep®, Dodge, and Chrysler brands, as well as parts under the Mopar® brand. As part of the restructuring and with the backing of the U.S. Treasury, we have reached an agreement in principle with GMAC to become the preferred lender for Chrysler dealer and consumer business. This is very good news as GMAC will be able to offer the best long-term finance options for Chrysler dealers and customers with standard rate installment products.

As a part of the restructuring, most manufacturing operations will be temporarily idled effective Monday, May 4, 2009. Normal production schedules will resume when the transaction is completed, which is anticipated within the next 30 to 60 days. Hourly employees will receive unemployment benefits, as well as supplemental pay that will amount to most of their base wages.

Keep in mind that during the period when facilities are idled, all company-sponsored healthcare and other insurance coverage will continue. All qualified employee pension and 401(k) funds are protected by federal law from Chrysler’s creditors; these funds cannot be used by the company to meet any other obligations. Upon approval of the transaction, the new company is expected to continue relationships with most employees, dealers and suppliers.

There is no question that this process involves deep sacrifices from many Chrysler stakeholders, including the UAW and CAW, employees, dealers and suppliers. We also want to recognize the Administration, U.S. Treasury, The President’s Auto Task Force, as well as Members of Congress and representatives at the state and community level and Canadian Federal and Ontario Provincial governments for their energy and efforts in helping to move our company forward. With the strong support of the Cerberus and Daimler, these stakeholders came together to make concessions that today give us a clear view of a promising future. To be sure, there will be many changes as we move forward to implement our plans. But today, from many great parts, we begin to build a vibrant new company with less debt, a stronger balance sheet, richer product portfolio, supported by a well-positioned finance company.

We understand that you will have many questions throughout this transition process. Further information will be available on a continuing basis at scoop.chrysler.com, www.chryslerrestructuring.com, or by calling our toll-free restructuring information line at 1-877-271-1568 (United States and Canada) or 1-503-597-7708 (International). These sources will be updated regularly to address your ongoing questions.

We are profoundly grateful for the support of the thousands of people across the United States and worldwide who have contributed to our effort to restructure for long-term viability. We take enormous pride in the contributions we have made to our industry, are honored by the trust our customers have placed with us for more than 80 years and look forward to continuing to serve them for many years to come.

Again, I thank you for your years of service and commitment to Chrysler LLC and look forward to working with you through the restructuring to build a stronger new company for the twenty-first century.

Bob

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Chrysler News-Chrysler to file for bankruptcy

Chrysler to file for bankruptcy

WASHINGTON – Chrysler will file for bankruptcy after talks with a small group of creditors crumbled just a day before a government deadline for the automaker to come up with a restructuring plan, two administration officials said Thursday.

The Obama administration had long hoped to stave off bankruptcy for Chrysler LLC, but it became clear that a holdout group wouldn't budge on proposals to reduce Chrysler's $6.9 billion in secured debt, according to the officials, who spoke on condition of anonymity because the filing plans are not public. Clearing those debts was a needed step for Chrysler restructure by the Thursday night deadline.

Bankruptcy doesn't mean the nation's third largest automaker will shut down. And the privately-held Chrysler is expected to sign a partnership agreement with the Italian company Fiat as early as Thursday as part of its restructuring plan. A Chapter 11 bankruptcy filing would allow a judge to decide how much the company's creditors would get.

President Barack Obama is expected to discuss the nation's auto sector at noon Eastern.

The Treasury Department's auto task force has been racing in the past week to clear the major hurdles that prevented Chrysler from coming up with a viable plan to survive the economic crisis ravaging nation's automakers.

Along with the Fiat deal, the United Auto Workers ratified a cost-cutting pact Wednesday night. Treasury reached a deal earlier this week with four banks that hold the majority of Chrsyler's debt in return for $2 billion in cash.

But the administration said about 40 hedge funds that hold roughly 30 percent of that debt also needed to sign on for the deal to go through. Those creditors said the proposal was unfair and were holding out for a better deal.

"While the administration was willing to give the holdout creditors a final opportunity to do the right thing, the agreement of all other key stakeholders ensured that no hedge fund could have a veto over Chrysler's future success," said one of the administration officials.

A third person briefed on Wednesday night's events said the Treasury Department and the four banks tried to persuade the hedge funds to take a sweetened deal of $2.25 billion in cash. But in the end, this person said most thought they could recover more if Chrysler went into bankruptcy and some of its assets were sold to satisfy creditors. This person asked not to be identified because details of the negotiations have not been made public.

When it files for bankruptcy, Chrysler would continue operating and Fiat would still sign on as a partner on Thursday, the people said. The government already has promised to back Chrysler's warranties in an effort to allay customers' fears that the automaker wouldn't be around to honor them.

President Barack Obama's auto task force in March rejected Chrysler's restructuring plan and gave it 30 days to make another effort, including a tie-up with Fiat. The company has borrowed $4 billion from the federal government and needs billions more to keep operating. President Obama said Wednesday night while the lender talks were still ongoing that he was "very hopeful" that deals can be worked out to keep Chrysler LLC a viable automaker, and more hopeful than he was a month ago that the company will stay in business.

The UAW agreement, which would take effect May 4, meets Treasury requirements for continued loans to Chrysler Corp., and includes commitments from Fiat to manufacture a new small car in one of Chrysler's U.S. facilities and to share key technology with Chrysler.

Meanwhile, the Fiat partnership means Chrysler CEO Robert Nardelli could be out of a job. In an April e-mail to employees, he said that if the deal is completed, Chrysler would be run by a new board appointed by the government and Fiat. The new board, Nardelli wrote, would pick a CEO "with Fiat's concurrence."

Sergio Marchionne, CEO of the Italian automaker, told reporters earlier this month that he could run Chrysler. Obama said Wednesday that Fiat's management "has actually done a good job transforming their industry."

Krisher reported from Detroit. Associated Press Writers Ben Feller in Washington, Colleen Barry in Milan, Italy, Kimberly S. Johnson in Detroit and David Eggert in Lansing, Michigan, contributed to this report.

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Chrysler Fiat News-Obama praises autoworkers, says Chrysler deal uncertain

President Barack Obama said today he did not know whether a deal preventing a collapse of Chrysler LLC would be done before Thursday's deadline, and praised American autoworkers for their sacrifices to the industry's survival.

Speaking at a town hall meeting in Missouri marking his 100th day in office, Obama said his auto task force sent Chrysler and General Motors Corp. back to redo their business plans because their initial sustainability plans were not realistic. GM has until June 1 to deliver its new plan.

As for Chrysler: “We don’t know yet whether the deal is going to get done.”


Chrysler and the administration reached an agreement with large Chrysler debt holders to swap $6.9 billion in secured debt for $2 billion in cash. But 40-odd investment firms and hedge funds have to agree in unison to the swap, or the government will take Chrysler to bankruptcy court to force it into place.

Chrysler must also complete a deal with Fiat S.p.A., which appears close at hand.....More

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Chrysler News-U.S. Reaches Deal With Chrysler Banks, Person Says

By John Hughes

April 28 (Bloomberg) -- The U.S. has reached agreement with banks on terms to reduce debt of Chrysler LLC, according to a person with knowledge of the negotiations.

The banks’ representatives agreed to forgo $6.9 billion in debt in return for $2 billion in cash, said the person, who declined to be identified discussing the private talks. The deal is one of the steps Chrysler needed to avoid a bankruptcy after April 30.

Bankruptcy remains a possibility for Chrysler, the person said. All 46 banks involved need to ratify the terms, and it isn’t likely that all would, the person said. In that case, a quick, surgical type of bankruptcy may be needed to bring any dissenting banks into an agreement, the person said.

Chrysler, operating with $4 billion in U.S. loans, faces an April 30 deadline to restructure its costs or risk losing government support.

Shawn Morgan, a Chrysler spokeswoman, declined to comment.

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Chrysler News-U.S. Tries to Broker Sale Of Chrysler's Loan Arm

The Treasury Department is racing to engineer the sale of Chrysler's financing arm in a move the administration deems vital to saving the troubled automaker, but other federal agencies have not given their support, sources familiar with the matter said.

The Obama administration wants the nation's largest auto-financing company, GMAC, to buy Chrysler Financial, which is the primary source of lending for Chrysler dealerships and car buyers, industry officials said. But GMAC needs a new round of backing to buy its longtime rival, sources said.

Treasury officials have not yet obtained the agreement of the Federal Deposit Insurance Corp. and the Federal Reserve, sources said. The FDIC, created to backstop the banking industry, is balking out of concern that its resources would be drained in support of an auto manufacturer. And the Fed, which regulates banks, would need to grant a waiver from a long-standing rule that separates banking and commerce.

The dilemma over Chrysler Financial highlights the debate over the how far the government should stretch its financial rescue programs to help failing automakers. Despite reservations, regulators already anointed GMAC a bank holding company in December so it could access the federal bailout for financial companies and help preserve General Motors. Now regulators are being asked to preserve another storied American automaker.

Even if a deal is reached for Chrysler Financial, the fate of the car manufacturer remains uncertain. The Obama administration's auto industry task force and Chrysler's lenders remained in a standoff yesterday. If an agreement with the lenders cannot be reached to forgive most of their $6.9 billion in loans to the company, Chrysler is set to file for bankruptcy by Thursday, sources said. The sources spoke on condition of anonymity because of the sensitivity of the discussions....More

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Massive Cuts at GM - shed 23,000 jobs, kill Pontiac brand

WASHINGTON – General Motors Corp. will cut an additional 7,000 to 8,000 factory jobs in the United States, kill the Pontiac brand and shed 2,600 dealers by 2010 under a revised business plan developed under the Obama administration's eye.

The plan, along with an offer to bondholders to exchange $27 billion in GM debt for about 10% of a reconstituted GM and a small amount of cash, makes clear that the automaker's fate over the next few weeks rests with President Barack Obama. His auto task force set the terms of the bond deal and the goal of having 90% of the debt exchanged, and the U.S. government would become GM's majority shareholder if the plan succeeds.


GM Chief Executive Officer Fritz Henderson warned today that should the exchange not meet the task force's target, GM would file for bankruptcy on or before June 1. To succeed, GM will need thousands of GM debtholders to agree -- from individuals to some of the largest investors in the world -- by May 26.


"It's not impossible, but it’s a tough task," Henderson said, adding: "If we were to materially fall short, we would fall into a bankruptcy process."


As part of the debt offer, GM said, the administration would consider converting 50% of its loans to the company into GM stock. Combined with a similar request to the UAW for converting half of the $20 billion owed to a retiree health-care trust to shares, the plan envisions the government owning at least 50% of a reconstituted GM and the union holding about 39%.


Obama's auto task force said in a statement today that GM’s offer was an “important step,” but noted that its concessions hinge on bondholders and the UAW agreeing as well.


“We will continue to work with GM's management as it refines and finalizes this plan and with all of GM's stakeholders to help GM restructure consistent with the president’s commitment to a strong, vibrant American auto industry,” the task force said.


The new plan Henderson unveiled would get GM to profits in a U.S. market of 10 million vehicles -- a far lower rate than GM imagined just a couple of months ago. Should the debt swap succeed, GM will cut its debt by $44 billion and its structural costs by 25% by 2010.

"The objective here is not to survive, the objective is to develop an operating plan that allows us to win," Henderson said.


The new job cuts bring the total number of hourly jobs eliminated under GM’s plan to 21,000 by 2010 and 23,000 by 2011. GM said additional cuts among salaried workers would be expected, but did not give a specific target. As it had indicated earlier this month, GM now plans to close 13 plants by 2010 and an additional five plants by 2012.

Henderson said the Pontiac brand would be closed by 2010, calling it an “extremely personal decision.” In addition to speeding up decisions on Saturn, Saab and Hummer, GM will be left with four brands – Chevrolet, Buick, GMC and Cadillac.


He said while talks continue on Saab and Hummer, there was no deal on the table yet for Saturn that would allow GM to keep building those models beyond this year.


GM said it now expects it will need $27 billion in total from the Treasury to withstand the recession, including the $15.4 billion it's already received. That includes $2.6 billion it will need this quarter and an additional $9 billion after that, some of which includes the cost of deeper job cuts and plant closings.

Henderson said dealers targeted for closing would begin hearing from GM in a matter of weeks. Dealers have been apprehensive about a GM bankruptcy, but it's not clear how quickly GM could close outlets given a bevy of state laws protecting dealers.

Through the cuts in brands and models, GM will shed 14 models through 2010, although the Chevrolet Volt electric car remains on track for a 2010 launch

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The UAW and Chrysler;Concessions or Bankrupt

Latest Article From Time.


Despite the pressure of Chrysler's April 30 deadline to pull off a rescue package — or face potential bankruptcy — the United Auto Workers has been in no rush to make concessions. "As I see it, the United Auto Workers union has a choice. They can [shed] some jobs or they can take a pay cut," says a financial consultant based in Detroit. "Naturally when you're faced with two bad choices, there is a natural tendency to procrastinate."

The carmaker's management is struggling to assemble a rescue package that in addition to any UAW givebacks will have to include closing more plants and getting big help from Italian carmaker Fiat, which would contribute its own small-car designs and technology. Failure would saddle major banks with $7 billion in new losses, leave Chrysler's former owner, Daimler AG on the hook for more than $1 billion in additional pension costs and wipe out the health care for thousands of Chrysler retirees.

The foot dragging on Chrysler is affecting GM, too. In a Friday conference call with the media, GM chairman Fritz Henderson lamented that GM's own union negotiations are being slowed because the UAW won't move forward until the Chrysler/Fiat negotiations are resolved. That makes sense: Whatever terms Chrysler gets will be a precedent for GM, too. GM faces a June 1 deadline from the U.S. government to produce sufficient cuts to ensure viability.

It's understandable why the UAW isn't rushing to embrace a new agreement. According to Harley Shaiken, a labor expert at the University of California at Berkley and occasional consultant to the UAW, the union and its Canadian counterpart are grappling with demands for big cuts in their wages and benefits — on the order of 25% to 30% — by Chrysler and Fiat. The demanded rollbacks could reduce wages and benefits, presently pegged at $29 per hour, by $6 to $8 per hour. "There is no doubt these are very serious cuts and they're being made under very tight deadlines and under very serious pressure," Shaiken says. "That will be a bitter pill on either side of the border," he says. Neither Chrysler nor Fiat has made its demands public.

Many of the current negotiations trace back to the terms of the original government loans. As a condition of Chrysler's loan agreement, the UAW must accept a 50% reduction in payments to its retiree health care trust and match the Japanese transplants' hourly labor costs, says Chrysler spokeswoman Dianna Gutierrez. "The Canadian government has taken a similar position as it relates to the CAW," she notes.

Union representatives in the U.S., however, complain the current demands go beyond those spelled out in the December loan agreement. The union has already committed to eliminating productivity bonuses due this year and next, to changes in the way overtime pay is computed, and to the elimination of the traditional cost-of-living allowances as well as to cuts in the special supplemental unemployment benefits for employees with less than 20 years seniority. Sources close to the negotiations tell TIME that the union has not yet agreed to the changes in funding Chrysler's health-care trust, which was established in 2007.

With the negotiations in a crucial phase, UAW President Ron Gettelfinger declined to discuss Chrysler. "He's not talking to anyone," a UAW spokeswoman said.

Yet the UAW knows where things are headed. "I don't think this is going to have a very happy ending," says one UAW official, who asked not to be identified. But he noted it was inevitable the union will have to accept additional cuts. One of the union's fears, though, is that the negotiations turn into a sort of arbitrage that sets active Chrysler workers against retirees — a split the UAW has always sought to avoid. "People are angry. Where do you draw the line and say to hell with it and just let them go into bankruptcy?" says one disgruntled UAW member.

Some creditors seem to think the company's assets could be worth more if they were divided up in bankruptcy court — an option opposed by Michigan's Democratic governor and congressional representatives, who are putting pressure on the Obama administration to keep the company from being broken up in bankruptcy.

In the meantime, Chrysler is melting away. In response to pressure from Obama administration, Chrysler has proposed more plant shutdowns. Set to be closed, according to sources familiar with the discussions inside the company, are assembly plants in St. Louis, Mo., and Brampton, Ontario; engine plants in Detroit, Trenton, Mich., and Kenosha, Wis.; and another plant in Mexico that builds big engines. Chrysler's assembly plant in Sterling Heights, Mich., also has been identified by some analysts as a possible candidate for closure. If executed, the shutdowns would further downsize a company that is already far smaller than it was only two years ago. Since the beginning of 2007, Chrysler's employment in the U.S. has dropped from 68,000 to around 38,000 today.

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Fiat CEO: Cut Wages or No Chrysler Deal

Fiat CEO: Cut Wages or No Chrysler Deal

The Obama administration's attempt to shepherd a shotgun marriage between Chrysler and Fiat appears to be in serious trouble. Fiat CEO Sergio Marchionne is demanding major concessions from labor unions before agreeing to any deal — and is offering next to nothing in return.

Fiat is prepared to scrap the deal and look elsewhere for an international partner if the unions do not agree to match the lower labour costs of Japanese and German plants in the United States and Canada, Mr. Marchionne said in an exclusive interview with The Globe and Mail at the Italian auto maker's headquarters in Turin. “Absolutely we are prepared to walk. There is no doubt in my mind,” he said. “We cannot commit to this organization unless we see light at the end of the tunnel.”

Mr. Marchionne, 56, said Chrysler workers on both sides of the border have to end their sense of entitlement if the wrecked auto maker is to have any chance of repairing itself. “The minute you talk to me about historical entitlement in an organization that is technically bankrupt, it's a nonsensical discussion,” he said. “There is no wealth to be distributed.”

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Chrysler Demands A $19 Per Hour Wage Cut

Chrysler CAW workers are in protest and rightfully so.

Friday CAW workers were told they must make an impossible decision to save Chrysler Canada a $19 per hour Wage cut!

Chrysler Canada workers burned CEO Nardelli's Letter to employees and told Chrysler no way could they cut hourly wages by $19 per hour.

Chrysler claims it will pull operations out of Canada if the Union does not meet it's demands.

The new soon to be Chrysler CEO Sergio Marchionne makes the same case for the UAW.

Fiat has stated that If it does not take significant hour wage concessions it will walk away from the Chrysler deal and let Chrysler go bankrupt. Once Chrysler goes bankrupt it can buy up what it wants. More than likely that would only be two assembly plants and the dealer network.

Which this the most likely scenario for US Chrysler autoworkers.
The UAW will go down to the second tier rate that was negotiated in 2007 of $14.50 for assembly workers and $17.50 for Skilled Trades workers.

That is a $15 per hour wage cut and that is huge!

The next two weeks are going to be unbearable for Chrysler Workers.

Someone save the middle class.......

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GM, Chrysler in line for more federal aid from The Auto Task Force

Chrysler in line for $500M more; GM weighs fate of Pontiac, GMC

Robert Snell and David Shepardson / The Detroit News
Washington -- The Obama auto task force is preparing to loan General Motors Corp. about $5 billion in additional federal short-term aid, and Chrysler LLC $500 million, an Obama administration official familiar with the matter said Thursday.

The disclosure assigns a dollar amount to the pledge of continued short-term support issued late last month by the administration, after it rejected GM's and Chrysler's restructuring plans and requests for up to $21.6 billion in additional assistance. The official said the decision was expected to be announced next week -- though the precise amounts were still the subject of talks between the government and the automakers.

The White House said Thursday night no decision had been made about how much either automaker will receive. "No decisions have been made on how much working capital GM and Chrysler will be getting," said spokeswoman Amy Brundage...More

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Nardelli Sees New Leaders at Chrysler if Pact Clears

Article From WSJ-JEFF BENNETT

DETROIT -- Chrysler LLC will likely get a new chief executive and board of directors appointed by Italy's Fiat SpA and the U. S. government, if Chrysler and Fiat follow through on their plans to form an alliance, Chrysler's current CEO told employees in a letter.

Chrysler Chief Executive Officer Bob Nardelli said a new board of directors will be appointed by the federal government and Fiat once a deal is completed. The majority of the directors will be independent.

"Upon successful completion of the alliance, a board of directors for Chrysler will be appointed by the U.S. government and Fiat," Mr. Nardelli said in the letter, a copy of which was obtained by Dow Jones Newswires.....More

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Chrysler must slash labour costs to receive gov't funding: industry minister

TORONTO — Chrysler Canada must slash its labour costs to a level competitive with non-unionized plants in Canada, and the pattern established in an earlier deal reached between General Motors Canada and its union isn't good enough, says federal Industry Minister Tony Clement.

Chrysler has said it needs to reduce its hourly labour costs by $19 an hour to be competitive with Toyota and Honda plants in Canada, but the Canadian Auto Workers union has so far insisted that it will stick to the pattern set in its March labour agreement with GM - which reduces that company's costs by about $7 an hour.

But Clement said the CAW will have to give up more to protect Canadian jobs.

"The CAW has to recognize that in order for Chrysler to survive in this country, that Chrysler has to be competitive with the rest of the Canadian market," Clement said at a news conference in Toronto on Thursday.

"If everyone is saying - and they are saying - that Chrysler, in order to be competitive, has to go beyond the pattern in terms of cost reductions and cost competitiveness, I believe the CAW has to have regard for that," he added.

Chrysler has been given until April 30 to negotiate a partnership with Italian automaker Fiat and to reach deals with its workers, bondholders and other stakeholders in order to receive long-term bailout loans from governments in Canada and the U.S.

The company spent several days in intensive labour negotiations with the CAW at the end of March, but those broke off after governments rejected its original restructuring plans.

This week, Fiat CEO Sergio Marchionne said he will walk away from the proposed partnership - widely considered to be Chrysler's last chance to avoid bankruptcy and possibly liquidation - if Chrysler can't reduce its labour costs to a level competitive with German and Japanese assembly plants in both Canada and the United States.

The CAW and Chrysler will head back to the bargaining table Monday, and two people briefed on the United Auto Workers' negotiations told The Associated Press on Thursday the U.S. union has placed talks with General Motors (NYSE:GM) on the back burner as it tries to forge a concession agreement with Chrysler.

Clement said Thursday that if Chrysler is unable to reach a deal with the CAW - and therefore cement its alliance with Fiat - the Canadian government will not provide the company with the emergency loans it has been asking for.

"With April 30 looming very closely on the horizon, the CAW has to do its part," Clement said.

"I know this is difficult. I know this affects real workers and towns and cities across Ontario. This is not an easy thing, but the alternative is, there is no deal in place and if there's no deal in place there will not be long-term funding arrangements with the government of Canada."

The federal and Ontario governments have already lent $250 million to Chrysler Canada at the end of March so it could meet payroll and other immediate obligations. Clement said the government would also have the right to call that loan if a deal isn't reached.

"If you're asking whether I'm willing to funnel Canadian government money and taxpayer money when we do not have an acceptable plan on a go-forward basis, I cannot do that. I don't think that would be responsible," Clement said.

Clement has also said the earlier agreement reached between the CAW and GM doesn't meet the conditions of long-term government loans and has asked the two parties to cut labour costs further.

However, GM CEO Fritz Henderson said the deal does make the company cost competitive and the CAW has refused to re-enter negotiations.

Chrysler said it is working hard to meet the governments' conditions by the April 30 deadline.

"All parties have complete understanding that Chrysler must achieve the necessary concessions and restructuring targets that have been established," the company said in an emailed statement.

"As it moves through this process, the company believes it is important to keep all options open but Chrysler's goal is to reach a conclusion by April 30 that the government deems viable, given the guidelines that have been set."

Clement was in Toronto to unveil a $145-million program called Automotive Partnership Canada, which he said will jump-start the development of higher tech, more environmentally friendly cars.

The program, which was initially announced in the Conservative government's 2008 budget, is also designed to help the struggling auto sector conserve jobs and rebuild.

Clement said the investment will be used to stimulate research and development in alternative fuels, next-generation manufacturing, advanced power trains and lighter or more sustainable materials.

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AP sources: UAW focusing on talks with Chrysler

DETROIT – The United Auto Workers union has placed concession talks with General Motors Corp. on the back burner as it tries to reach a deal with Chrysler LLC before an April 30 government deadline, two people briefed on the negotiations said Thursday.

The decision likely means that any deal with Chrysler will set the pattern for concessions granted to GM as both companies try to show the government they have cut costs enough to get more government loans.

The people, who spoke on condition of anonymity because the talks are private, said the union is focusing on Chrysler because its government deadline to cut labor costs and swap debt for equity is just two weeks away.

Chrysler also has to ink an alliance deal with Fiat Group SpA by April 30 to get more government aid. Without further help, Chrysler likely would be auctioned off in pieces under bankruptcy court supervision.

GM's government deadline is June 1, but the Obama administration said it will provide bankruptcy financing if the company can't successfully restructure outside of court.

GM spokeswoman Sherrie Childers Arb and UAW spokeswoman Christine Moroski would not comment on the negotiations. Chrysler spokeswoman Shawn Morgan would not comment beyond a statement that the company has a goal is to reach a conclusion by April 30.

The Canadian Auto Workers union has said that it plans to resume negotiations with Chrysler on Monday after Fiat CEO Sergio Marchionne said the Italian automaker will walk away from the proposed tie-up unless Chrysler's unions agree to major cost cuts.

Canadian Industry Minister Tony Clement said Thursday that the CAW must make significant concessions to ensure Chrysler survives. Without a deal in the next two weeks, the Canadian government will also shut down its support for the troubled automaker, Clement said.

Chrysler, GM and Ford Motor Co. all reached concession deals with the UAW in February to limit overtime, cut lump-sum cash bonuses and eliminate cost-of-living pay increases. The union also agreed to suspend the jobs bank in which laid-off workers are paid most of their wages.

Workers at Ford, which is not receiving government aid, ratified their deal, but the GM and Chrysler agreements were never presented to union members because they got hung up on funding for a union-run trust that will take over retiree health care expenses next year.

Then, the Obama administration said last month that the cuts outlined in GM and Chrysler's viability plans didn't go far enough, and the union would have to give up more. Just how much more has not been stated publicly.

GM has received $13.4 billion in government loans and may need more money this month as it tries to survive the worst auto sales downturn in 27 years. Chrysler has received $4 billion and may also need more funding to stay alive until its deadline.

The government said it will lend Chrysler up to $6 billion more if it completes a deal with Fiat and gains concessions from unions and debtholders.

But creditors that hold $6.9 billion in Chrysler debt — mostly banks and hedge funds — have rejected an offer from the Treasury Department to erase the debt for $1 billion. They are preparing a counteroffer that likely will include more cash and an equity stake in the company.

A committee representing the holders of $28 billion in GM bonds is awaiting an offer from the company that aims to slash its unsecured debt by at least two-thirds.

Associated Press Writer Rob Gillies in Toronto contributed to this report.

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Fiat CEO: Concessions or no alliance with Chrysler

The latest Chrysler News-

Santiago Esparza / The Detroit News
Fiat Group SpA CEO Sergio Marchionne is ready to walk away from a proposed alliance with beleaguered Chrysler LLC if the automaker's union workers do not agree to concessions that would put their pay on the same scale as workers at U.S. plants owned by foreign car companies.

In a story posted today on The Toronto Globe and Mail's Web site, Marchionne said not getting concessions from the UAW and CAW are a breaking point for talks.

"Absolutely we are prepared to walk," he said in the story. "There is no doubt in my mind. We cannot commit to this organization unless we see light at the end of the tunnel." ....More

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U.S. may swap GM debt for equity

Possible move would improve automaker's shaky balance sheet

Article From
David Shepardson and Robert Snell / The Detroit News

The federal government may agree to swap some of its $13.4 billion in General Motors Corp. debt for new equity in the company in a move to help boost GM's balance sheet, a person familiar with the matter said Monday.

The government is in discussions with GM as the automaker tries to accelerate its restructuring ahead of a June 1 deadline to wrest concessions from bondholders and the United Auto Workers or face bankruptcy.

In January, GM granted the Treasury Department warrants for 122 million shares, 19.99 percent of the automaker's outstanding common stock, with an exercise price of $3.57. It's not clear how the warrants would be affected in bankruptcy court.

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Will the Auto Task Force Be On Chrysler's New Board?

Chrysler and potential partner Fiat are discussing a new management and board for the U.S. automaker under a proposed alliance that could see Fiat take a stake in Chrysler, Automotive News reported on Monday.

Chrysler is racing to complete a partnership with the Italian automaker by April 30, with the Obama administration warning the alternative would be bankruptcy.

The two automakers are discussing a new seven-member board for Chrysler that would include representatives from Fiat and possibly President Barack Obama’s automotive task force overseeing the restructuring of the auto industry, Automotive News reported, citing sources close to the negotiations.

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Auto Task Force-GM told to prep for bankruptcy filing

WASHINGTON, April 12 (Reuters ) – The U.S. Treasury Department is directing General Motors to lay the groundwork for a bankruptcy filing by June 1, even though the automaker has publicly stated it could reorganize outside of court, The New York Times reported on Sunday.

GM is operating under emergency U.S. government loans. It has been told by the Obama administration's task force overseeing its bailout that it must cut costs and reduce its debts in order to continue to receive aid.

The White House-appointed autos task force has given GM 60 days to come up with a restructuring plan and it is trying to determine whether the automaker can be a viable company.

Quoting sources who had been briefed on the GM plans, the Times said the goal was to prepare for a fast "surgical" bankruptcy.

The newspaper said preparations are aimed at assuring a GM bankruptcy filing is ready if the company is unable to reach agreement with bondholders to exchange roughly $28 billion in debt into equity in GM and with the United Automobile Workers union.

A plan under consideration would create a new company that would buy the "good" assets of GM after the carmaker files for bankruptcy, the Times said.

Less desirable assets, including unwanted brands, factories and health care obligations, would be left in the old company, which could be liquidated over several years, according to the paper.

Treasury officials are examining one potential outcome in which the viable GM enters and exits bankruptcy protection in as little as two weeks, using $5 billion to $7 billion in federal financing, a person briefed on the matter told the Times.

The Times sources declined to be identified because they were not authorized to discuss the process. Both GM and Treasury Department officials declined to comment, the newspaper said.

Last week, GM's chief executive said the automaker wanted to restructure out of court, but also preparing for a bankruptcy filing.

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Chrysler's new deal-Different owners and Marchionne-led management team

Article From Automotive News-

Different owners, a new board of directors and maybe a Marchionne-led management team

TURIN, Italy — As Chrysler LLC negotiates an alliance with Fiat S.p.A. that would satisfy the Obama administration, sources say the companies are discussing a revised ownership structure, a new board and possibly a different management team for Chrysler.

Among the options being discussed is a direct role in Chrysler's operations for Fiat CEO Sergio Marchionne — possibly even the chief executive's job.

Sources close to the merger negotiations say that after completing the deal, the plan is to elect a seven-member Chrysler board that would include representatives from Fiat and possibly President Barack Obama's automotive task force.

But the companies face major obstacles in getting the deal done. The ownership of the future Chrysler is still subject to complex negotiations involving Cerberus Capital Management LP, Daimler AG, the UAW and the big banks that hold Chrysler's debt.

A person familiar with the negotiations said the new management structure would divide the roles of CEO and chairman between two executives. The job of Chrysler chairman would be held by an American, the source said.

Since 2007, Chrysler's chairman and CEO jobs have been held by Bob Nardelli, appointed by Cerberus.

On March 30, Obama gave Chrysler and Fiat until the end of April to prove their alliance is workable. The government then would grant Chrysler up to $6 billion in additional loans. Chrysler already has received $4 billion.

Obama impressed

Marchionne (mar-kee-OHN'-nay) — the energetic, chain-smoking architect of Fiat's turnaround — has led the Italian automaker since 2004. In his March 30 speech about the auto industry, Obama praised Marchionne and described Fiat as a company where "the current management team has executed an impressive turnaround."

Another source familiar with the negotiations said Obama's task force may even dictate that Marchionne be directly involved in running Chrysler.

It's unclear whether Marchionne would try to exert hands-on control of Chrysler in the style of Carlos Ghosn, the CEO of Renault and Nissan. But there is evidence that he might try. The 56-year-old executive already spends several days each month in the United States, usually at the offices of Fiat's Case New Holland subsidiary in suburban Chicago.

Every other Friday evening, Marchionne boards a chartered overnight flight, snatching a few hours of sleep and arriving Saturday morning in Chicago. After two days working in America, he catches the red-eye return flight on Sunday.

Marchionne, who speaks accent-free English, holds both Italian and Canadian citizenships and earned university degrees in Toronto and Windsor, Ontario. He spent a decade working in Canada.

Asked about possible changes, Chrysler spokesman Todd Goyer issued a statement: "Chrysler has no management changes to announce. The job of Chrysler's current management team is to get the company on a solid foundation moving forward."

Obstacles remain

Speaking last week at the New York auto show, Chrysler co-President Jim Press said he is optimistic that Fiat and Chrysler can meet the government's requirements and form an alliance.

But he cautioned that Chrysler is preparing for bankruptcy if the alliance does not work out. "We've got to be prepared to take care of the equity and the assets," he said.

Besides the negotiations over the ownership of the future automaker, Chrysler negotiators are in talks with UAW officials about reducing Chrysler's $10.6 billion obligation to the union's health care trust.

The Treasury Department also is negotiating with the major banks holding $6.9 billion in Chrysler debt, according to a Bloomberg News Service report. Bloomberg said the four largest lenders are JPMorgan Chase & Co., Citigroup, Goldman Sachs Group and Morgan Stanley.

Cerberus has offered to give up its stake in Chrysler. Cerberus Chairman Stephen Feinberg is involved in the negotiations. Cerberus also must iron out a dispute in its effort to acquire Daimler's 19.9 percent stake in Chrysler. Cerberus aims to consolidate its ownership as part of the overall plan to restructure the company.

Speaking at a shareholder meeting last week in Berlin, Daimler CEO Dieter Zetsche said Cerberus was making "unacceptable" demands in negotiations to acquire the remainder of Daimler's stake.

The two sides have been wrangling since November over a Cerberus request to acquire Daimler's stake. Daimler sold majority ownership of Chrysler to Cerberus in 2007.

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Will The Auto Task Force Split Chrysler Up To The Creditors?

Latest Article from the Detroit Free Press

Fiat would own biggest slice of Chrysler under latest scenario proposed by U.S.

Instead of Cerberus Capital Management and Daimler AG holding 80.1% and 19.9%, respectively, of Chrysler LLC, there will be a larger cast.

Under the latest scenario proposed by the U.S. government, Fiat SpA will have the largest block of Chrysler, at 20%. The remaining 80% will be allocated among a variety of secured creditors that include at least five banks and U.S. taxpayers.

Cerberus and Daimler likely will hold much smaller stakes because they still hold loans that helped finance the August 2007 acquisition of the Auburn Hills-based automaker.

Even the UAW could end up owning a piece of the company.

"They are trying to trade debt for equity among the current creditors," said Tom Stallkamp, a former DaimlerChrysler vice chairman and president. He is now a partner in Ripplewood Holdings LLC, a private equity fund. "It's all based on how much of a haircut the debt holders will accept."

Coincidentally, those debt holders include some of the giant banks -- J.P. Morgan Chase, Citicorp, Morgan Stanley and Goldman Sachs -- that auto industry advocates argue have benefitted from a double standard in how they accounted for government loans.

Debt-for-equity talks
There are three levels of Chrysler debt secured by such assets as manufacturing plants, equipment, vehicles, parts and real estate. The first level, valued by Chrysler at $6.9 billion, was borrowed from the banks. The second is $2 billion borrowed from Daimler ($1.5 billion) and Cerberus ($500 million). The third is the $4.3 billion in government loans committed in December and January.

If Chrysler were to file for bankruptcy, the banks would be first in line to sell assets, followed by Cerberus and Daimler, and finally the federal government.

"This is the worst possible time to be selling an auto plant," said Shelly Lombard, a credit analyst with Gimme Credit in New York.

Chrysler, Fiat and President Barack Obama's auto task force are working hard to avoid that outcome. To succeed, they must secure breakthrough agreements with the banks and the UAW. Then, the task force has said it would release up to $6 billion more to fund Chrysler's operations.


Unlike GM, which is dealing primarily with bondholders, Chrysler's debt is owed to banks and the government. Some of the bank loans have been sold to hedge funds and other investors. "It's hard to know who bought what, even with bonds, and it's harder still with bank loans," Lombard said.


One of the banks likely will act as an agent for the hedge funds. Then, the task force leaders, Steven Rattner and Ron Bloom, will negotiate for a settlement that offers the banks a fraction of the loans' face value in exchange for shares in the new Chrysler.

Challenges ahead
Fiat so far has not offered cash and has said it will not assume any current debt to partner with Chrysler. While Chrysler has valued Fiat's vehicles and powertrain technology at $8 billion to $10 billion, that won't likely satisfy the banks.

"Fiat is in many ways a reasonable long-term solution," said Craig Fitzgerald of Plante & Moran. "The big question is will $6 billion more from taxpayers be enough to fund Chrysler's turnaround."

The challenge with the UAW is to find a non-cash method to cover half of $10.6 billion Chrysler owes in 2010 to the Voluntary Employee Beneficiary Association, or VEBA, trust fund. The trust was created to cover health care insurance for UAW retirees.

If Fiat doesn't offer cash or its own stock, Chrysler may offer the union stock in the new company. Such a deal would save $5.3 billion, which could be enough to satisfy Obama's demand for more concessions, and bring the UAW into partnership with banks, taxpayers, Cerberus and Fiat.....More

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