On April 30, 2009, Chrysler and its 24 wholly-owned U.S. subsidiaries filed for bankruptcy.
However, Chrysler’s Mexican, Canadian, and other international operations were not part of
the bankruptcy filing. The company filed the bankruptcy under Section 363 so that it would
be able to emerge from bankruptcy within 30 to 60 days. According to Obama, “It would be
a very quick type of bankruptcy and they could continue operating and emerge on the other
side in a much stronger position.”37
As part of the bankruptcy filing, the U.S. Treasury was to give Chrysler a total of US$8
billion in additional aid including up to US$3.3 billion in debtor-in-possession (DIP)38 financing
and up to US$4.7 billion in exit financing.39 Chrysler would have to repay the loan amount
within the next eight years.
The financial arm of Chrysler was to be merged with GMAC, the finance arm of GM. During
the bankruptcy period, the U.S. government was to back the warranty on Chrysler vehicles.
Encouraging consumers to buy Chrysler products, Obama said, “No one should be
confused about what a bankruptcy process means. This is not a sign of weakness, but rather
one more step on a clearly charted path to Chrysler’s revival.”40
The new company would retain the Chrysler corporate name and would be run by a board
of nine members including six members appointed by the U.S. government and three by Fiat.
Nardelli was to resign as the CEO of Chrysler after the company emerged from bankruptcy
and a new chief executive would be appointed.
As part of the bankruptcy, Cerberus and Daimler were to give up their respective equity
stakes of 80.1% and 19.9% in Chrysler. In the new company, VEBA would have a 55% stake
and Fiat a 35% stake. Of the remaining 10% equity stake in the new company, the U.S. Treasury
would have 8% for the US$4.5 billion loan it had provided Chrysler. The Canadian and
Ontario governments would have a combined 2% stake for the US$3.8 million provided to
Chrysler—US$1.5 billion from the Ontario government and the remaining from the Canadian
government. The creditors would receive US$2 billion for the US$6.9 billion they had lent to
Chrysler.
On May 5, 2009, the company’s bankruptcy was approved by the Manhattan Bankruptcy
Court. Analysts welcomed Chrysler’s decision to file for Chapter 11 bankruptcy. According to
Aaron Bragman, Automotive Analyst at IHS Global Insight, “With all the major stakeholders
accounted for and in agreement, such a bankruptcy could be theoretically accomplished much
more easily than it otherwise would have been.”