It's indicative of the scale of the problem Chrysler faced that it failed to turn around its business on its own. Yesterday, the company formally inked an alliance with Fiat, who is to own a fifth of the new Chrysler, rising to 35% if it can achieve key milestones, such as introducing more fuel-efficient vehicles.
Here we will summarise the key news, assess what it means for Chrysler and present reaction from around the world. We'll update this throughout the day, so stay tuned for further developments.KEY FACTS AT A GLANCE•
Chrysler is filing for bankruptcy protection under Section 363(b) of Chapter 11 bankruptcy code•
Expected to last for 30-60 days•
Global strategic alliance signed with Fiat SpA to form a new company•
New company jointly owned by Fiat, unions and US Government •
At a stroke, Fiat-Chrysler becomes world's sixth biggest car maker by volume•
New alliance 'to optimise manufacturing footprints and global supplier base, while providing each with access to additional markets'•
Fiats, Alfa Romeos to be sold in the US •
Bob Nardelli, CEO and chairman, will stand down once Chapter 11 is over and Fiat alliance active•
Creditors owed $6.9bn will have debts settled by court order•
Most production to cease while Chapter 11 court proceedings active•
But showrooms remain open for business, warranties honoured•
Major change to Chrysler's business model: lower wage and benefit structure for active and retired employees; idle assets to be sold; slimline dealer network; new deals with suppliers•
Creditors and dealers could still mount legal challenge
When the new Chrysler is finally born, employees will own 55% of the company, the US and Canadian governments will own 10% and Fiat 20% – rising in 5% increments when it brings a Chrysler-badged 40mpg platform to the US market, when it provides a fuel-efficient engine to be produced in the US for Chrysler vehicles, and when it provides Chrysler access to its global export market.
Current owner Cerberus will forfeit its 80% stake in Chrysler and, as we reported earlier in the week, Daimler will relinquish its 20% shareholding. Fiat cannot become a majority owner of the new Chrysler until all US government loans have been repaid.WHAT THE FIAT-CHRYSLER ALLIANCE MEANS
CAR spoke to Max Warburton, respected analyst at Bernstein, and asked for his view on the major changes announced overnight.What does Chapter 11 mean for Chrysler?
'Doing it via Chapter 11 has some positives. They hope to strip it of some debt – but there are also risks. The bankruptcy court may not agree to the Fiat and US government's exact plans. But at least it is a plan – and there will be big political pressure to follow it. Chrysler will stop production for the 30-60 days that Chapter 11 is expected to last. Chrysler will emerge with fewer plants and workers, but the exact numbers/percentages are not yet known.'What Chapter 11 means for rest of industry?
'Probably not too much, at this stage. If
production really only stops for 30-60 days and if
US government provides supplier D.I.P. financial support (as we expect) then the supply chain will stay alive and others can build cars. There may be some short-term disruption – and the risk is that it could extend into the medium term if major suppliers fail, but the US government task force is very focused on preventing this. In my view, the industry capacity cuts and benefits remain unclear. I fear it may fall short of hopes.'What this deal means for Fiat
'Fiat gets a 20% stake (rising to 35%) in a chronically loss-making, poor product car company that is 55% owned by the labour union. And don't forget that it carries the burden of $6bn+ of government loans than need to be paid back before Fiat can extract any value. What's this worth? There are risks and a limited probability the new Chrysler can make proper money. But then again maybe, just maybe, in a strong US auto market a restructured Chrysler selling Fiat product can make money. But is that a real likelihood? I'm not so sure. To use one of Fiat boss Sergio Marchionne's old sayings, turning Fiat-Chrysler-Opel into a functional, viable auto company is going to be almost as ambitious and compex as the Manhattan Project.'REACTION ELSEWHERE
'The Daimler Chrysler alliance didn't work, so why will a Fiat Chrysler link-up? Americans are not clamouring to buy Chrysler-badged Fiats – and besides those cars are at least two to three years away. I fear this alliance will go the same way as all the other European-American car industry tie-ups (Jaguar-Ford, Saab-GM, Lamborghini-Chrysler). The only reason that the Obama administration is clinging to it, is that it's the only offer on the table for a weak company that makes poor cars.'Gavin Green, CAR columnist and contributor of 25 years
'I'm disappointed we had to file for bankruptcy. It wasn't my choice, but given where we are it is the only viable path to ensure that Chrysler survives – and to make sure that the people working for Chysler get that chance.' Bob Nardelli, CEO and chairman of Chrysler
'A group of investment firms and hedge funds decided to hold out for the prospect of an unjustified taxpayer-funded bailout. 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.'Barack Obama, president of the United States
'In restrospect, the Chrysler bankruptcy seems inevitable. The creditors were in a frontal clash with the administration. Neither side would back down. Saving Chrysler, even in reduced form, and avoiding a possibly catastrophic impact on the supplier base with the risk of pulling down the rest of Detroit, had to come before the interests of hedge fund investors. They, after all, made risk investments in a business and industry that were in difficult enough shape even before the recession hit. They deserve no tears. Let us hope the bankruptcy can be worked through as expeditiously as possible. The Fiat-Chrysler venture is by no means free of risk either. But it was and is the only way forward.'John Wormald, analyst at Autopolis
>> Does the new Fiat-Chrysler pact stand a chance? Click 'Add your comment' and let us know
Last night Chrysler's business officially failed, as president Barack Obama ordered it into Chapter 11 bankruptcy proceedings. Under American law, this means the courts are effectively running Chrysler, giving the company protection from its creditors – who are owed an astonishing $6.9 billion – and new powers to restructure this debt, shake up the business and ultimately scythe away more jobs, including that of its chairman and CEO Bob Nardelli who stepped down last night.