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Faltering Talks Tip Chrysler Toward Bankruptcy

If Chrysler lands in bankruptcy court, proceedings could help the company cut the costs of closing some of its 3,200 dealerships.
If Chrysler lands in bankruptcy court, proceedings could help the company cut the costs of closing some of its 3,200 dealerships. (By Jonathan Newton -- The Washington Post)
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By David Cho, Peter Whoriskey and Kendra Marr
Washington Post Staff Writers
Thursday, April 30, 2009

The Obama administration last night planned to send Chrysler into bankruptcy, replace chief executive Robert L. Nardelli and pump billions of dollars more into the effort, all in hopes the company can emerge from court proceedings as a reenergized competitor in the global economy.

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Government officials clung to 11th-hour hopes last night that bankruptcy could be averted, but talks broke down with Chrysler's creditors. A bankruptcy filing could happen as soon as today.

The U.S. government's attempt to save the automaker amounts to another extraordinary intervention in the economy and a landmark event in the history of the American auto industry.

Under the administration's detailed court strategy, ownership of Chrysler would be dramatically reorganized, the leadership of Italian automaker Fiat would take over company management and the U.S. and Canadian governments would contribute more than $10 billion in additional funding.

Company and government officials had feared that a bankruptcy would stain the brand, shake customer confidence and erode sales, but the administration said it would seek to use the process to create a new Chrysler company. Its ownership would be divided, with the company's union retiree health fund receiving a 55 percent stake, Fiat would claim as much as a 35 percent share and the United States would take 8 percent. The Canadian government would receive two percent.

The automaker's current majority owner, the private-equity firm Cerberus Capital Management, would have its holdings wiped out.

During the bankruptcy, the governments would provide about $4 billion in new funds, with 80 percent coming from the United States and 20 percent from Canada, which hosts a number of Chrysler operations. As the company emerged from its reorganization, the United States would provide roughly another $5 billion, with more coming from Canada, the sources said. The sources warned, however, that the figures were fluid.

Particularly striking to some economists and historians is that the plan turns over ownership of a major U.S. industrial company to an employee-run trust, a deal that is "unprecedented on this scale," according to Harley Shaiken, a University of California at Berkeley professor and expert on unions.

The government plan also calls for ensuring that Chrysler maintains substantial U.S. manufacturing operations. It requires that at least 40 percent of company sales volumes remain manufactured domestically, or for the company's total production in this country to remain at least at 90 percent of its U.S. production last year.

"Anyway you cut it, the union is going to be a major presence at the company," Shaiken said.

One key issue, however, will be who appoints the restructured Chrysler's board of directors.

The government's bankruptcy plan envisions a company with nine board seats, three of them appointed by Fiat. It does not specify who would appoint the rest.


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