By on May 1, 2009

We have a new sub-series to our new series: the Toxicroach papers. Turns out our longtime member of the TTAC’s Best and Brightest is a bankruptcy lawyer with access to the Chrysler C11 filing. He’s going to present these documents for our edification with some “what’s it all about, Tony?” analysis. We begin with a motion from Chrysler (download pdf here) to do what they should have done a decade or more ago: consolidate.

Check this out—the last half is mostly about them consolidating the 25 cases into one for the sake of efficiency, but the first half lays out in pretty decent detail exactly what the plan is.

10. As the culmination of these efforts, Chrysler, Fiat and New Chrysler (as defined below) have reached an agreement in principle and are expected to entered into a Master Transaction Agreement (collectively with other ancillary and supporting documents, the “Purchase Agreement”) in short order.

Pursuant to the Purchase Agreement, among other things: NYI-4177690v8 -11- (a) Chrysler will transfer the majority of its operating assets to New CarCo Acquisition LLC (“New Chrysler”), a newly established Delaware limited liability company that currently is an indirect wholly-owned subsidiary of Fiat; and (b) in exchange for those assets, New Chrysler will assume certain liabilities of Chrysler and pay to Chrysler $2 billion in cash (collectively with the other transactions contemplated by the Purchase Agreement, the “Fiat Transaction”).

11. With the support of the U.S. government, Fiat, the UAW, dealers, suppliers and other stakeholders, the Debtors commenced these cases to implement an expeditious sale process to implement the Fiat Transaction, or a similar transaction with a competing bidder, designed to maximize the value of the Debtors’ operations and businesses for the benefit of their stakeholders. Pending the proposed sale, the Debtors will idle most operations as they conserve their resources, while at the same time ensuring that (a) the facilities are prepared to resume normal production schedules quickly upon the completion of a sale and (b) consumers are not impacted by the filing.

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26 Comments on “Chrysler: “An indirect wholly-owned subsidiary of Fiat”...”


  • avatar
    Ingvar

    It seems that Fiat just paid two billion dollars for all of Chryslers assets?

  • avatar
    jolo

    a newly established Delaware limited liability company that currently is an indirect wholly-owned subsidiary of Fiat…

    So, it is Fiat-Chrysler. Good to know.

  • avatar
    postman

    Chrysler may go on from here in some form, but in name only. The Chrysler that we grew up with is officially gone. Sad to see the first domino fall.

  • avatar
    shaker

    Maybe the word “indirect” refers to Fiat’s inability to “strip and flip” Chrysler, due to the majority of the company being owned by the UAW and the US Government.

    The only way Fiat can sell off or liquidate the company is to pay off the USG and meet any obligations to the UAW. In other words, the deal commits them to a long-term relationship.

  • avatar
    Kurt.

    This is shaping up for a horrible outcome. The way I see it, the pretty girl (Chrysler) goes on a date with the handsome football player (Daimler), who date rapes her and leaves her in a bad neighborhood (the US economy) where she is gang raped and left for dead by the denizens of the night (PTFOA, UAW, FIAT).

    Death would be humain.

  • avatar
    Ingvar

    Shaker: I’m not so sure. It seems that “bad” Chrysler is put in one basket, with all the obligations along with it. And “Good” Chrysler along with all the assets are brought into the new company, which Fiat now is the single owner of, and for which they just paid two billion dollars for. So, there’s only assets and no liabilities. They got it cheap, in my opinion.

  • avatar
    Ingvar

    The sentence about “New Chrysler will assume certain liabilities” could mean absolutely anything.

  • avatar
    Kurt.

    Unfortunately it’s not so simple. FIAT gets the UAW as a partner bought with $6b of the retirement money owed to the bad Chrysler. Arguably Chryco’s biggest problem was their high labor rates and their inability to get those costs under control. The UAW will force FIAT to use it’s workers and plants. Cheaply built FIATS rebadged as Dodge will only work for a year or two while the plants are retooled, then the UAW will demand all US versions be built in UAW plants.

    Another thing to note: NewCar Co (The New Chrysler) is paying the Old Chrysler $2b…not FIAT. It is basically starting the new company with debt…or in this case taxpayer cash.

  • avatar
    motownr

    Great idea, RF.

  • avatar
    Ingvar

    The UAW had to take a stake in Chrysler or lose all the money that Chrysler owed UAW. It was either that or nothing. And yes, it’s the New Chrysler that paid those two billions. But as that company is wholly owned by Fiat, Fiat is the one backing it up. So, in essence, Fiat paid two billion dollars for the good Chrysler assets. It will be very interesting to see if they will ultimately be in debt for those two billions, or if it’s a risk on the governments expense.

  • avatar
    superbadd75

    If I’m not reading this wrong (which I could be, par for the course here), they’re trying to preserve Chrysler as it is and just dump the debt? So the UAW obligations, pensions, health care for retirees, all will still exist? Seems to me that these are huge expenses to a company in turmoil, why are they keeping this stufF? If Chrysler went belly up, nobody would get any benefits at all, and C11 is the last step before liquidation, so why isn’t this stuff being dumped? Chrysler still appears to be damned to failure because they won’t drop the UAW albatross and move forward.

  • avatar
    Pch101

    It seems that Fiat just paid two billion dollars for all of Chryslers assets?

    Not enough information to know whose money that is, but until we have more facts, I would assume that it came from the US government.

    Maybe the word “indirect” refers to Fiat’s inability to “strip and flip” Chrysler, due to the majority of the company being owned by the UAW and the US Government.

    I would presume that this is an off-balance sheet deal for Fiat at this stage in the game. So if it sucks wind, it won’t drag down the parent company, which is publicly traded.

  • avatar
    gamper

    Maybe toxicroach can help me out on this question. I was reading in the Detroit news this morning that Pensions will continue to be paid and workers laid off indefinitely would get 80% pay. Now that Chrysler is in bankruptcy, will the pension obligations be pushed off to the PBGC? It only makes sense if you are interested in starting “Fresh” to push all of the legacy costs out of the new Chrysler. Also, this 80% pay could go on for more than 60 days, why would Chrysler do this if it could discharge this obligation in bankruptcy. One of the biggest killers of the big three has been the inability to control production as it was too costly to lay off workers.

    These are things that must change, Chrysler needs more than ever to preserve capital so it can survive until new models arrive.

  • avatar
    Robert Schwartz

    “Arguably Chryco’s biggest problem was their high labor rates and their inability to get those costs under control.”

    Sebring.

  • avatar
    Tomb Z

    It needs a new name, it does.

    I know there are many here more clever than I, but since it appears it’s now Fiat’s company, I propose FIATSCO.

  • avatar
    RickCanadian

    One thing I don’t understand here: Fiat has said and repeated that they will not put a dime on Chrysler. Should we read this as if they were putting $2B cash down through the “New Chrysler” thing? Or more properly, even if “New Chrysler” a wholly-owned subsidiary of Fiat, does its money come from Fiat or somebody else (i.e. us?)?

  • avatar
    adonasetb

    Nothing will improve under the guidance of FIAT – FIAT was run out of America because of poor quality and it’s probably going to happen again. Worse will only get worser – terrible will only get terriblier – horrible will only get horribler – etc. and in the end – it will be the tax payers that are the real losers.

  • avatar
    SpeedRacerrrrr

    “It seems that Fiat just paid two billion dollars for all of Chryslers assets?

    Not enough information to know whose money that is, but until we have more facts, I would assume that it came from the US government.”

    It seems probable the US is paying the bills for Fiat to get involved with keeping Chrysler alive. As others have said (PCH101?) having Fiat on the hook will remove some of the sting from a Chrysler failure in the future, should things not work out.

    I’m wondering what other sources of funding Fiat might have available. With respect to Toyota, Honda or even Volkswagen, their financial position is weak, and it’s going to take some serious investment to really take advantage of the “synergies” of this alliance. The New Chrysler as it stands is a seriously weakened player.

    “Nothing will improve under the guidance of FIAT – FIAT was run out of America because of poor quality and it’s probably going to happen again. “

    This happened going on 3 decades ago. Get over it. Before the 1970s (a decade when lots of car companies built crap, American ones included) Fiat made some of the most compelling products in the automotive world. They have since also made some wonderful cars, although more suited to the European driving taste. Whether enough Americans will favor such products at this point is an open question.

    I’d say however, that it’s more likely we’d see Fiat designs being successfully sold through Chrylser’s dealer network in the US market than we will see Chrysler designs being successfully sold through Fiat’s European dealer network. That should say something about the relative merits of the two company’s products.

  • avatar
    Kurt.

    I know people are stung on the Sebring but that was the end result of a larger problem. Chyco had so many legacy costs in was hard to turn enough profit to put back into new and better designs. Not to mention the prison ass rape Daimler gave them.

    Of course it’s not just one thing; not the “if we didn’t do this we would not be in this position”. Poor dealer experience, poor designs, CAFE, poor economy, lack of future pipeline, UAW, raising supplier costs…remove any one of those would not have allowed Chrysler to survive. OK well maybe if the economy had not turned out so bad (but you get my drift).

    The problem for the future is that the best FIATs that will come to the US shores are no better than the worst Sebring. Then throw in the ones (eventually) built in the NAFTA region will undoubtably be worse.

    That’s not to say all FIATs are bad, just the ones they’ll sell to American’s since the American’s won’t get the diesels.

    That’s also not to say that the UAW and UAW plants can’t build good cars. They can but can’t do it for the same cost. Either they’ll have to skimp or charge more…and they can’t charge more.

  • avatar
    SpeedRacerrrrr

    The best Fiats are no better than the worst Sebrings eh?

    Chrysler couldn’t do a car this good no matter how hard they tried…

  • avatar
    John Horner

    Forbes has an interesting article on Fiat’s successful purchase and management turn around of Case-Ford-New Holland. That effort has implications for the Chrysler deal.

    http://www.forbes.com/2009/05/01/fiat-chrysler-integration-markets-equity-marchionne.html?partner=yahootix

    This bit is interesting:

    Marchionne “spent one week out of every month focusing entirely on Case, holding meetings with the division management in both Europe and the U.S. and insisting that they bring all known problems to the table. Once a decision was taken, it was rarely reversed. Marchionne’s ruthless dissections drove some executives out of the company.”

    On another note:
    “I’d say however, that it’s more likely we’d see Fiat designs being successfully sold through Chrylser’s dealer network in the US market than we will see Chrysler designs being successfully sold through Fiat’s European dealer network.”

    Certain Jeeps have untapped potential for much higher global sales. It would be interesting if Fiat-Chrysler-Jeep were to pick up the Hummer brand and sell a larger Hummer alongside Jeeps in global markets. Fiat has the marketing reach to do so, and also has low cost factories in Eastern Europe with which to build simple, rugged Jeeps and Hummers. Fiat also has deep connections in Russia, another promising market for Jeep and Hummer.

  • avatar
    SpeedRacerrrrr

    @ John Horner Certain Jeeps have untapped potential for much higher global sales.

    Yes there is some global demand for these products, but I think these platforms will always be niche players. But also, can these be profitable in Europe? That depends on costs of production, distribution and support (not just labor costs, although people seem to always want to focus on that). But I don’t see how these can ever be mainstream products, the way some Fiat platforms are. I think they must ultimately shrink in terms of their contribution to profits in the new company, compared to how things were with Chrysler before.

  • avatar
    SpeedRacerrrrr

    “Once a decision was taken, it was rarely reversed. Marchionne’s ruthless dissections drove some executives out of the company.”

    Having worked in both domestic and foreign auto companies, it seems to me that this one statement from John’s post shines the light most clearly on differences between the two: The level of focus and attention to detail, on both the business AND the product, that is present in the Asian and European companies is hard to fathom for people who haven’t experienced it.

  • avatar
    Petrus

    All talk about Fiat products being unsuitable for the American market etc… seems a little beside the point. From what I’ve read, there’s actually no intention to bring Fiat products to the American market, except probably for some next-generation Alfa Romeos (as a niche product for people who like European vehicles and are tired of BMWs) and possibly the Fiat 500 (probably stressing its model name and scarcely mentioning the brand name Fiat at all).

    The American market is going to be served by Chrysler, Dodge and Jeep products, which will use some Fiat Powertrain engines (the new 1.8 litre petrol I4 which just debuted in the Alfa Romeo 159 comes to mind)and probably some Fiat floorpans for the small to medium-sized vehicles as well as some other components. The rest will continue to be as American as ever and will still be built in the North American production facilities.

  • avatar
    robsaw

    “a newly established Delaware limited liability company that currently is an indirect wholly-owned subsidiary of Fiat…”

    This article only contains one part of the plan, and has apparently mislead some of you. Fiat does not ever have majority control of Chrysler’s assets except in the most transitory way. Another petition filed in the court contains this, which aligns with all public announcements about the deal.

    “Prior to the “Closing Date”,
    (a) Fiat will contribute to New Chrysler access to competitive fuel-efficient vehicle platforms, certain technology, distribution capabilities in key growth markets and substantial cost saving opportunities; and
    (b) New Chrysler will issue approximately 55%, 8% and 2% of the Membership Interests in New Chrysler to a new VEBA, the U.S. Treasury and the Canadian government, respectively.”

  • avatar
    The FIAT Guy

    FIAT cars are, in fact, excellent. I’ve spent a lot of time in Europe, and know, have owned, and rented FIAT and Alfa Romeo cars. The technology and quality is very good, the style is fantastic, and If you thought having more small cars in America will be a boring hell, then you’ve never driven a FIAT.

    Forget what your college roomate told you in 1974, most of the problems arose from US safety and emissions regs, dealer issues in the US, and Russian steel which the company unfortunately obtained in a deal for a factory there. I myself had a 1978 FIAT 131 sedan that was the most enjoyable economy car you could imagine… still on the road 30 years later, too.

    Any portrayal of FIAT as a producer of antiquidated junk is just nonsense from the uninformed… and they make midsized cars, trucks, and commercial vehicles too- not just little 500s.

    IMO, they are going to surprise a whole lot of people.

    http://fiat2america.blogspot.com/

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