Why is this man smiling? Whether Chrysler survives or fails, CEO Bob Nardelli -- shown here with a picture of legendary CEO Lee Iacocca -- is not likely to remain at its helm.
One of the most pressing obstacles in the way of a Chrysler rescue plan could be resolved, according to reports circulating in Detroit circles. If accurate, the automaker’s lenders will be willing to swap $2.5 billion of its $6.9 billion in secured debt for equity in a new company that would be formed by a proposed partnership between Chrysler LLC and the Italian carmaker Fiat SpA.
First reported in the Detroit Free Press, various sources now indicate the leaders of a group representing Chrysler’s bondholders made the counter-offer to Chrysler and the U.S. Treasury Department on Monday night. The debt holders had previously rejected a plan to take $1 billion in cash to wipe out Chrysler’s debt. Treasury officials overseeing the automaker’s rescue plan had been hoping to ultimately eliminate two-thirds of Chrysler’s debt.
A senior Chrysler spokesperson declined comment, Tuesday evening. There’s also been no word from the Treasury Department.
Resolving the debt issue could help the critical missing pieces of Chrysler’s viability plan fall into place. But there are still some serious roadblocks. One of the biggest problems comes from the Canadian side of the border, where the Canadian Auto Workers Union has so far refused to budge on demands that it sharply curtail its labor costs.
Company officials insist there’s as much as a $19 an hour gap between the cost of a CAW employee and autoworkers employed by Japanese transplants operating in Canada, such as Honda. The union contends those figures are significantly inflated and insists it will not provide any more concessions than it already agreed to in bargaining with General Motors.
Even if the debt and labor issues are resolved, Chrysler still has to formalize the proposed relationship with Fiat. The Italian maker’s CEO, Sergio Marchione, said, on April 15th that he is “prepared to walk,” if he doesn’t get the deal he needs. Some analysts believe Fiat would prefer to see Chrysler go into bankruptcy, then pick and choose the pieces it wishes to acquire at bargain prices.
Separately, the U.S. maker’s captive finance subsidiary, Chrysler Financial, rejected an additional $750 million in aid, on Monday, reportedly because it could not get waivers from its top executives agreeing to the pay restrictions demanded by federal regulators. The aid to the lending unit is handled separately from the $4 billion Chrysler LLC has already received and the additional cash it has been hoping for as part of its bailout bid.
Meanwhile, a new government document revealed that the Treasury expects to invest up to $1.25 billion to cover new vehicle warranties written by both General Motors and Chrysler, should the two companies go bankrupt.