WASHINGTON - After months of living on government loans, Chrysler finally succumbed to bankruptcy Thursday, pinning its future on a top-to-bottom reorganization and plans to build cleaner cars through an alliance with Italian automaker Fiat.
The nation’s third-largest car manufacturer filed for Chapter 11 bankruptcy protection in New York after a group of creditors defied government pressure to wipe out Chrysler’s debt. The company plans to emerge in as little as 30 days as a leaner, more nimble company, probably with Fiat as the majority owner. In return, the federal government agreed to give Chrysler up to $8 billion in additional aid and to back its warranties.
“It’s a partnership that will give Chrysler a chance not only to survive, but to thrive in a global auto industry,” President Barack Obama said from the White House.
If GM files for bankruptcy protection in the U. S., it will also likely do so in Canada, said a Canadian Auto Workers economist.
Jim Stanford said a filing in both countries would likely result in a temporary shutdown of some GM plants, possibly including operations in St. Catharines.
A General Motors Corp. bankruptcy filing seemed inevitable south of the border after a rebellion by its bondholders forced it to withdraw a plan on Wednesday to swap bond debt for company stock.
In the U. S., GM would file for Chapter 11 under the country's Bankruptcy Code. In Canada, GM would seek debt protection as it reorganizes under the Companies' Creditors Arrangement Act (CCAA).
"Assuming GM files for protection in the U. S., it's then not known whether they will also file for CCAA in Canada," Stanford said.
He pointed out that Chrysler filed for Chapter 11 recently, but not its equivalent in Canada.
However, "in GM's case, most people think they will also file for CCAA protection," Stanford said. "There's bondholders in Canada who GM wants to give a haircut to and it's unlikely they're going to agree voluntarily to that."
GM has until Monday to complete a U. S. government-ordered restructuring that includes debt reduction, labour cost cuts and plant closures. But a Chapter 11 reorganization is likely after the company said its offer to exchange $27 billion in unsecured debt for 10 per cent of the company's stock had failed. GM has received $19.4 billion in U. S. federal loans.
Stanford said a U. S.-Canadian bankruptcy protection filing would likely have an impact on its plants.
"It would likely involve some ... temporary downtime of GM's facilities here," he said.
"'We don't know for sure and we don't know for how long."
Source: msnbc
