Bankruptcy reality sets in for Chrysler, workers

May 2, 2009

Bankruptcy reality sets in for Chrysler, workers

Automaker warns of likely trouble ahead

BY JUSTIN HYDE and GREG GARDNER
FREE PRESS STAFF WRITERS

The promise of a surgical bankruptcy turned into a gritty reality for Chrysler LLC and its workers Friday, as the company outlined its immediate hurdles and workers dealt with plant closings and — in some cases — canceled pension checks.

The factory shutdown will push the critical launch of the 2011 Jeep Grand Cherokee back by up to six months. Replacement parts for repairs on some Chrysler vehicles could run low in the next 60 days. And Chrysler needs court approval to spend $753 million in the same period on incentives for dealers to sell its vehicles.

Lawyers submitted more than 150 separate filings in the first full day since the filing, underlining the complexity that will challenge all parties to complete the process in the desired 30-60 days.

Chrysler is to use $10.5 billion from the U.S. and Canadian governments to consummate a marriage with Fiat SpA, in which Fiat eventually will own 35% of Chrysler while a health care trust fund for UAW retirees owns 55% and the United States and Canada own the rest.

The first day of hearings in the bankruptcy court in New York moved quickly. More serious objections could arise Monday, when Chrysler begins legal moves to seal the Fiat deal.

To bolster its position, Chrysler outlined the lack of options in its bankruptcy case.

Vice Chairman Tom LaSorda said the company had held talks with several automakers — including General Motors Corp., Toyota, Honda, Nissan and Volkswagen — that failed to produce a partner.

In recent weeks, Chrysler held what amounted to a five-day bazaar for Chinese companies, offering to sell engines, transmissions and entire vehicle lines.

All of this, LaSorda said, shows that the Fiat deal is the only way out for Chrysler.

"With Fiat, Chrysler has a way forward," he said.

Plant closings

As part of its filing, Chrysler named eight U.S. plants that would be closed by 2010 and sold to settle debts of the old Chrysler.

Three of the plants are in metro Detroit — Detroit Axle, Conner Avenue Assembly and Sterling Heights Assembly.

Chrysler said Friday that virtually all of the workers at the affected plans would be offered jobs at the new Chrysler.

Frank Ewasyshyn, Chrysler’s executive vice president of manufacturing, outlined the delay in the Grand Cherokee and other dangers from the immediate hibernation of its factories.

The government has guaranteed Chrysler’s warranties, but Ewasyshyn warns that Chrysler dealers could run short of parts such as oil filters, usually built by the company or its suppliers, within 28 days if payments aren’t restored and some production restarted.

"So, four weeks from today, a customer who purchased a Chrysler 300 will pull into his local dealer to have a taillight repaired … and will be unable to get the parts necessary," he said.

He added, "The longer the sale to Fiat is delayed, the more likely this devastating scenario will occur."

Surprise realizations

Dealers learned Friday that Chrysler Financial, which is independent of Chrysler, no longer would finance their inventories. That work has been turned over to GMAC, also an independent company, as part of the bankruptcy.

About 1,800 Chrysler retirees were shocked to discover that their benefit payments were voided Friday morning.

Lynn Feldhouse of Rochester Hills actually saw the deposit disappear as she checked her bank account online. "This can’t be good," Feldhouse said. "I called the bank, and they told me there was nothing they could do because they got a message from Chrysler telling them to reverse the entry."

The problem affected people who have a supplemental pension, which is not insured by the Pension Benefit Guaranty Corp. Because that portion is backed only by Chrysler, it becomes part of Chrysler’s asset base in the bankruptcy.

Chrysler is aware of the problem and is telling those affected that they will receive the PBGC-insured portion by May 18.

Contact JUSTIN HYDE: 202-906-8204 or jhyde@freepress.com. Free Press columnist Susan Tompor contributed to this report.

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