One of the giants of the global automotive industry has finally fallen. United States car giant Chrysler officially filed for chapter 11 bankruptcy protection overnight, and immediately announced a deal with Italian car company Fiat that is designed to help Chrysler restructure and turn its fortunes around.
The move into bankruptcy is actually seen as something of a positive for Chrysler, and has been described by US President Barack Obama as a critical step in saving 30,000 jobs at the company.
The US and Canadian governments will provide $US10.5 billion in additional financing ($US8.08 billion from the US and $US2.42 billion from Canada).
“No one should be confused about what a bankruptcy process means,” Obama said. “This is not a sign of weakness, but rather one more step on a clearly chartered path to Chrysler’s revival.”
Chrysler has 47 employees in its Australian head office in Melbourne and a network of 60 dealers, all of whom are independently owned.
Under chapter 11 bankruptcy provisions, Chrysler will keep trading and its assets will be protected from its creditors, allowing it to try to restructure while continuing to trade.
A key part of these restructuring efforts will be the deal with Fiat, which will take a 20% equity stake in Chrysler in exchange for intellectual property, product technology and access to Fiat’s global distribution network. Fiat’s stake will increase to 35% if the Italian car giant meets certain hurdles, including the provision of green car technology.
But at least one automotive analyst has questioned whether the Fiat deal will really help Chrysler that much.
Former automotive analyst Ronald Glantz, writing in Fortune, says bluntly that the Fiat deal does not change the fact that “Chrysler is dead”.
“While the agreement with Fiat is helpful, Chrysler doesn’t get much in return,” he argues.
Glantz says Fiat’s models will have to be highly modified before they could be used by Chrysler, and says it is unlikely that a Fiat-designed Chrysler could hit the floors of US showrooms until at least 2012.
“As far as distribution overseas, that is ridiculous. Fiat adds distribution only in markets which wouldn’t consider buying full-size pickups, minivans and American cars.”
The White House has said that it expects Chrysler’s bankruptcy to last between 30 and 60 days, although most commentators are expecting a much longer stint in chapter 11.
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James was the editor and publisher of SmartCompany and LeadingCompany for five years. He is now the Australian Financial Review‘s companies & markets editor, and a former BRW editor.
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