Tom LaSorda, Vice Chairman and President, left, announced his immediate retirement on the first day of the bankruptcy court proceedings.
Last Friday Judge Arthur Gonzalez in the U.S. Bankruptcy Court in New York City immediately approved a series of court filings from Chrysler LLC known as “first-day motions.” The orders issued by the court allow Chrysler to continue to operate its business during the reorganization proceedings. The quick action was expected, since the court is used to dealing with large, albeit less publicized, bankruptcies.
The Court granted approval for the company’s request to continue payment of wages and health and welfare benefits to employees and contractors, and continue its customer warranty programs.
However, the true test of whether a swift bankruptcy can occur in 30 to 60 days, as the Treasury Department claims, remains at an unknown date in the future. Still to be heard from are Chrysler’s debtors who object to the proposed $2 billion settlement on $6.9 billion in secured Chrysler debt. Even though the four largest banks holding 70% of this debt have agreed to the settlement, it is unknown how Judge Gonzalez will treat the issue. Other impediments to swift reemergence from bankruptcy remain, as hundred of motions from interested parties are expected.
Still, day one went smoothly from Chrysler’s point of view. Only one day before, Chrysler announced a restructuring plan that was agreed to by many of its stakeholders including the Obama Administration, now its largest creditor. The Chrysler agreement in principle to establish a global strategic alliance with Fiat SpA is the cornerstone of a new company.
Chrysler filed voluntary petitions under Chapter 11 of the U.S. Bankruptcy Code to accomplish the restructuring and alliance when bondholders and speculators refused to go along with the plan. The bondholders maintain that they would be better off if the company were liquidated, still a possibility, though a remote one, that is in the power of Judge Gonzalez to impose.
“We accomplished a great deal today, including approval of certain first-day motions, which will enable us to transition into Chapter 11 and maintain normal operations as we move forward. Our focus now is on the next steps of this process, which we will pursue as efficiently and deliberately as possible,” said Bob Nardelli, Chrysler Chairman and CEO. Nardelli is one of the few business leaders who have been singled out for praise by President Obama, who excoriated the obstructionist bondholders when he announced the restructuring plan and Fiat deal on the last day of April.
Fiat is contributing billions of dollars in advanced technology and intellectual property, and offering Chrysler access to its global distribution network in return for a 20% stake in the company that increase to 35% over time. Fiat’s technology will allow Chrysler to build new fuel-efficient cars and engines in North American factories.
In a directly related development, Chrysler confirmed that Tom LaSorda, Vice Chairman and President, was immediately retiring from the Company at the same time as the bankruptcy was proceeding. LaSorda, Chrysler’s highest level executive responsible for Manufacturing, Procurement and Supply, Employee Relations, Global Business Development and Alliances, was appointed to his current position in August 2007, serving in both the Office of the Chairman and on the Board of Managers.
Nardelli has also announced his plans to leave the company when it emerges from bankruptcy. Speculation continues that Sergio Marchionne, the head of Fiat, will run the new company. Media reports yesterday said that the Fiat board of directors has approved a bid to takeover Opel, the European arm of General Motors.
Chrysler Financial, not part of Chrysler LLC, said it will continue to provide standard rate financing for retail consumers and to service its existing portfolio. However, as a result of Chrysler’s bankruptcy filing, Chrysler Financial is now required to temporarily suspend dealer wholesale financing in the United States and Canada, effective immediately, as it works to implement new procedures with its lenders. Also, the company will suspend participation in Chrysler LLC’s sub-vented Annual Percentage rate programs while assessing the situation. GMAC is in the process of taking over new wholesale and retail financing as part of the reorganization.
Chrysler sales plunged 48% in April when sales dropped to 43,138 vehicles compared with 83,348 a year ago, as the uncertainties about its future was receiving saturation coverage in the media. It faces a long, uncertain road to recovery as the Great Recession continues and new Fiat derived products will be at least 18 months in coming.
More information about Chrysler’s restructuring is available at www.ChryslerRestructuring.com.