It may take Chrysler up to 2 years to go bankrupt
Chrysler`s bankruptcy may take as long as two years, instead of the two months that President Barack Obama suggested as a target, Bloomberg said, citing an administration official.
The 60 days projected by Obama at an April 30 press conference announcing Chrysler`s bankruptcy only applies to a sale of the automaker`s best assets to a new entity, the official told the news agency.
Creditors would then fight over unwanted factories and other assets to recover money, the news agency cited lawyers as saying.
Chrysler has received bankruptcy court approval to proceed with a rapid sale of most of its assets to a new company held by Italy`s Fiat SpA, a United Auto Workers union-aligned trust and the U.S. and Canadian governments, Reuters reports.
As a streamlined Chrysler is launched, the remaining entity will be saddled with debt and other liabilities, such as product-defect and asbestos-damage claims. Some claimants may be disappointed as creditors compete to squeeze payments out of the sale of discarded factories, such as the Detroit plant that makes the low-volume Dodge Viper sports car.
"The unsold assets and liabilities may take years to sort out due to the complexities of resolving thousands of commercial, tort, future asbestos, dealership and employee claims," said Dewey & LeBoeuf LLP partner Martin Bienenstock, who has advised General Motors Corp. and Chrysler Financial on restructuring.
The bulk of assets left in the old Chrysler will be eight factories, valued by Chrysler at $2.3 billion. Those with claims against them include the U.S. government, provider of a $4.5 billion bankruptcy loan, and lenders with an unpaid balance of $4.9 billion on a secured loan, Bloomberg reports.
Those lenders include JPMorgan Chase & Co., Citigroup Inc., OppenheimerFunds Inc., a unit of Perella Weinberg Partners and Reams Asset Management, whose clients included the Bill & Melinda Gates Foundation, bankruptcy court filings show.
Some things are going Chrysler`s way: U.S. Bankruptcy Judge Arthur Gonzalez on Tuesday allowed GMAC LLC to take over lending to Chrysler dealers and customers from Chrysler Financial. The U.S. Treasury is expected to announce as early as Thursday that it is lending GMAC at least $7.5 billion more to help the Detroit finance company assume lending.
And dissident creditors gave up their challenge Friday to Chrysler`s bankruptcy plan.
But after bankruptcy court, the Auburn Hills-based automaker must survive on American and Canadian loans now pegged at $6 billion until vehicles inspired by its new partner, Fiat SpA, begin rolling off North American assembly lines in 2011.
Key actions Chrysler must take to bridge the gap include slimming its dealer network, further reducing its hourly work force, piggybacking on Fiat`s foreign dealer network and global buying power, and hustling some Fiat technology to Chrysler`s U.S. assembly lines, detnews.com reports.
At the same time, car sales can`t take a dramatic plunge from the 10 million vehicles predicted for this year. And gas prices can`t spike, since Chrysler`s product line is tilted heavily toward pickups, sport utility vehicles and minivans.
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