Obama says Chrysler has 'new lease on life'

President Obama announced today that Chrysler will partner with Italian company Fiat and go through a quick bankruptcy, moves he said will give the storied US automaker a "new lease on life."

The partnership, he said, will save 30,000 jobs at Chrysler and thousands more at suppliers and other related businesses. To make sure it succeeds, the government will reportedly give the company as much as $8 billion in additional loans.

Still, Obama conceded that Chrysler will need to declare bankruptcy to reorganize. The Chapter 11 bankruptcy filing would allow a judge to decide how much the company's creditors, who are owed $6.9 billion, would get.

The president asserted that the bankruptcy "is not a sign of weakness," but a necessary path to success and tried to reassure customers that it won't affect them.

"The hard path is the right one," he said.

"For too long, Chrysler moved too slow to adapt to the future," Obama said, flanked by members of his task force who have been working on ways to save the auto giant.

Obama said that unions and others made painful sacrifices, but he faulted hedge funds and investors who did not agree to concessions, holding out for a taxpayer bailout.

The Associated Press is reporting that Chrysler will temporarily cease manufacturing starting Monday during the banrkuptcy proceedings, and that the company's CEO will step down after the bankruptcy.

The White House released the restructuring plan, which is below, along with Obama's full remarks, and a joint statement from Obama and Canadian Prime Minister Harper.

In his 100-day news conference Wednesday night, Obama had sounded a note of optimism.

"I am actually very hopeful, more hopeful than I was 30 days ago, that we can see a resolution that maintains a viable Chrysler auto company out there. What we've seen is the unions have made enormous sacrifices, on top of sacrifices that they had previously made. You've now seen the major debt holders come up with a set of potential concessions that they can live with. All that promises the possibility that you can get a Fiat-Chrysler merger and that you have an ongoing concern," Obama said.

"The fact that the major debt holders appear ready to make concessions means that even if they ended up having to go through some sort of bankruptcy, 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," he added.

He also hit back at critics who say he wants to run the automakers. "I would love to get the US government out of the auto business as quickly as possible," he said. "You know, I don't want to run auto companies, I don't want to run banks. I've got two wars I've got to run already. I've got more than enough to do. So the sooner we can get out of that business, the better off we're going to be."

THE PRESIDENT: Hey, guys. I know you haven't seen enough of me lately, so -- (laughter.)

One month ago, I spoke about some of the problems that have led to the crisis in the auto industry, and about what would be required to ensure that General Motors and Chrysler emerged from their current troubles stronger and more competitive. My team will continue working with General Motors as they strengthen their business plan and move towards restructuring that's consistent with the principles that I've laid out.

And today, after consulting with my Auto Task Force, I can report that the necessary steps have been taken to give one of America's most storied automakers, Chrysler, a new lease on life.

This is a company that has a particular claim on our American identity. It's a company founded in the early years of the American automobile industry; a company that helped make the 20th century an American Century; and that came to embody, along with the two other members of the Big Three, the ingenuity, the industriousness, and the indomitable spirit of the American people.

Chrysler has not only been an icon of America's auto industry and a source of pride for generations of American workers; it's been responsible for helping build our middle class, giving countless Americans the chance to provide for their families, sending their kids to college, saving for a secure retirement. It's what hundreds of thousands of autoworkers and suppliers and dealers and their families rely on to pay their bills in communities across our industrial Midwest and across our country.

It's been a pillar of our industrial economy, but, frankly, a pillar that's been weakened by papering over tough problems and avoiding hard choices. For too long, Chrysler moved too slowly to adapt to the future, designing and building cars that were less popular, less reliable, and less fuel-efficient than foreign competitors. That's part of what has brought us to a point where they sought taxpayer assistance.

But as I've said from the start, we simply cannot keep this company, or any company, afloat on an endless supply of tax dollars. My job, as President, is to ensure that if tax dollars are being put on the line, they are being invested in a real fix that will make Chrysler more competitive.

That's why I rejected the original restructuring plan that Chrysler offered last month. It was clear that if we put tax dollars in that plan, it would be a bad deal for American taxpayers and would not put the company on a viable path. But it's also clear that if Chrysler was able to form a partnership with the international car company Fiat, there was a chance Chrysler could have a bright future.

After consulting with my Auto Task Force, industry experts, and financial advisors, I decided to give Chrysler and Fiat 30 days to reach an agreement. And the standard I set was high -- I challenged them to design a plan that would protect American jobs, American taxpayers, and the future of a great American car company. But over the past month, seemingly insurmountable obstacles have been overcome, and Chrysler's most important stakeholders -- from the United Auto Workers to Chrysler's largest lenders, from its own -- from its former owners to its suppliers -- have agreed to make major sacrifices.

So, today, I am pleased to announce that Chrysler and Fiat have formed a partnership that has a strong chance of success. It's a partnership that will save more than 30,000 jobs at Chrysler, and tens of thousands of jobs at suppliers, dealers and other businesses that rely on this company.

It's a partnership that the federal government will support by making additional loans that are consistent with what I outlined last month. As part of their agreement, every dime of new taxpayer money will be repaid before Fiat can take a majority ownership stake in Chrysler. In addition, considering Chrysler's extensive operations in Canada, the government of Canada is also committing resources to ensure that Chrysler has a chance to succeed, and we're working closely with them.

It's a partnership that will give Chrysler a chance not only to survive, but to thrive in a global auto industry. Fiat has demonstrated that it can build the clean, fuel-efficient cars that are the future of the industry, and as part of this agreement, Fiat has already agreed to transfer billions of dollars in cutting-edge technology to Chrysler to help them do the same. Fiat is also committed to working with Chrysler to build new fuel-efficient cars and engines right here in America.

Now, this partnership was only possible because of unprecedented sacrifices on the part of Chrysler's stakeholders, who are willing to give something up so that this company -- and all of the men and women whose livelihoods depend on it -- might see a better day. Chrysler's management, and in particular, its CEO, Robert Nardelli, have played a positive and constructive role throughout this process. The United Auto Workers, who had already made painful concessions, agreed to further cuts in wages and benefits; cuts that will help Chrysler survive, making it possible for so many workers to keep their jobs and about 170,000 retirees and their families to keep their health care.

Several major financial institutions, led by J.P. Morgan, agreed to reduce their debt to less than one-third of its face value to help free Chrysler from its crushing obligations. The German automaker, Daimler, agreed to give up its stake in Chrysler and contribute to the company's pension plan, further easing Chrysler's financial burden. And countless Americans across our country will be making major sacrifices, as well, as a result of plans to consolidate dealers, brands, and product lines.

While many stakeholders made sacrifices and worked constructively, I have to tell you some did not. In particular, a group of investment firms and hedge funds decided to hold out for the prospect of an unjustified taxpayer-funded bailout. They were hoping that everybody else would make sacrifices, and they would have to make none. Some demanded twice the return that other lenders were getting. I don't stand with them. I stand with Chrysler's employees and their families and communities. I stand with Chrysler's management, its dealers, and its suppliers. I stand with the millions of Americans who own and want to buy Chrysler cars. I don't stand with those who held out when everybody else is making sacrifices. And that's why I'm supporting Chrysler's plans to use our bankruptcy laws to clear away its remaining obligations so the company can get back on its feet and onto a path of success.

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. Because of the fact that the UAW and many of the banks, the biggest stakeholders in this whole process have already aligned, have already agreed, this process will be quick. It will be efficient. It's designed to deal with those last few holdouts, and it will be controlled. It will not disrupt the lives of the people who work at Chrysler or live in communities that depend on it. And it will not affect the ability of American consumers to buy a Chrysler, or to get it serviced and repaired. It's a process that has the full support of Chrysler's key stakeholders and the full backing of the United States government. And I have every confidence that Chrysler will emerge from this process stronger and more competitive.

I know that there are some who will insist that bankruptcy, even for these limited purposes, is a step that should not have been taken. But it was unsustainable to let enormous liabilities remain on Chrysler's books, and it was unacceptable to let a small group of speculators endanger Chrysler's future by refusing to sacrifice like everyone else. So I recognize that the path we're taking is hard. But as is often the case, the hard path is the right one.


The path we're taking also involves steps to shore up financing, because we cannot have viable car companies without strong car financing companies. It's now clear that Chrysler Financial -- the institution that finances Chrysler cars and dealers -- would on its own require an unacceptably large stream of taxpayer money to remain viable -- and that's something I refuse to provide. And that is why, as part of this agreement, GMAC, an independent bank holding company that finances General Motors, has agreed to finance new Chrysler sales. We will be providing additional capital to GMAC to help unlock our frozen credit markets and free up lending so that consumers can get auto loans and dealers can finance their inventories; a measure that will help stabilize not only our auto market, but the broader economy, as well. And tomorrow, the Small Business Administration will be announcing it is expanding eligibility for some loans to include more suppliers and dealers, including RV dealers.

So these are some of the steps that we're taking to make it easier for Americans to buy a car. If you are considering buying a car, I hope it will be an American car. I want to remind you that if you decide to buy a Chrysler, your warrantee will be safe -- because it is backed by the United States government. And to further boost demand for autos, we are working to accelerate the purchase of a federal fleet, and we're also working with Congress on fleet modernization legislation that can provide a credit to consumers who turn in old cars and purchase cleaner, more fuel-efficient cars.

As pleased as I am about today's announcement and about the opportunity Chrysler has to remake itself, we know that far too many Americans in far too many communities are still struggling, as a result of layoffs not only at plants that produce cars, but at the businesses that produce the parts that go into them and at the dealers that sell and repair them. And that's why, as I discussed the last time we gathered here to talk about autos, I've named Ed Montgomery to be the Director of Recovery for Auto Communities and Workers. Ed will be traveling to Michigan next week with representatives from all the key government agencies represented here, reaching out to our hardest-hit areas, cutting through red tape, ensuring that the full resources of the federal government are getting to the workers, the families, and communities that need it the most.

Now, these are challenging times for America's auto industry and for the American people. But I am confident that if we as a nation can act with the same sense of shared sacrifice and shared purpose that's been shown by so many of Chrysler's stakeholders, if we can embrace the idea that we're all in it together -- from the union hall to the boardroom to the halls of Congress -- then we will succeed not only with Chrysler, we will not only see our American auto industry rise again, but we will rebuild our entire economy and make the 21st century another American Century.

We have made great progress. We can make great American cars. Chrysler and GM are going to come back. And I am very confident that we're going to be able to make once again the U.S. auto industry the best auto industry in the world.

And I want to thank my entire auto team who worked so diligently on what I consider to be a much better outcome than it looked like we were going to see 30 days ago.

Thank you very much, everybody.

On March 30, 2009, President Obama laid out a framework for Chrysler to achieve viability by partnering with the international car company Fiat. After a month of close engagement with the President’s Auto Task Force, Chrysler, Fiat and their key stakeholders have made unprecedented sacrifices and executed an agreement that positions Chrysler for a viable future.

Chrysler has not only been an icon of America’s auto industry and a source of pride for generations of American workers; it has also been responsible for helping build our middle class, giving countless Americans the chance to provide for their families, send their kids to college, and save for a secure retirement. As a result of the sacrifices by key stakeholders and a substantial commitment of U.S. government resources, Chrysler has an opportunity to thrive as a long-term viable 21st century company. To execute this agreement, Chrysler will use Section 363 of the bankruptcy code to clear away the remaining impediments to its successful re-launch.

The Chrysler Fiat Alliance – Shared Sacrifice

· The alliance will retain Chrysler’s existing factory footprint and continue producing Chrysler cars in U.S. factories. The alliance will create the sixth-largest global automaker, spreading R&D and design development costs over higher volumes, making it more competitive in an increasingly global and consolidating industry.

· Fiat is contributing billions of dollars in advanced technology and intellectual property, and offering Chrysler access to a global distribution network. Fiat’s technology will allow Chrysler to build new fuel efficient cars and engines in U.S. factories.

· The UAW has made important concessions on wages, benefits, and retiree health care that, while difficult, will help save jobs for active employees, pensions and health care for retirees and make Chrysler more competitive.

· Chrysler’s largest secured creditors have agreed to exchange their portion of the Company’s $6.9 billion secured claim for their pro-rata share of $2 billion in cash at closing. The Bankruptcy Court process will be used to confirm this treatment on those lenders that failed to accept the offer that was accepted by a majority of the lenders.

· Daimler, Chrysler’s current minority shareholder, has agreed to waive its share of Chrysler’s $2 billion of second lien debt, give up its 19% equity interest in Chrysler’s ultimate parent, and settle its guaranty obligation to the PBGC by agreeing to pay $600 million to Chrysler’s pension funds.

· Cerberus has agreed to waive its share of Chrysler’s $2 billion of second lien debt and forfeit its entire equity stake in Chrysler. Cerberus has also agreed to transfer its ownership of the Chrysler headquarters in Auburn Hills, Michigan to the new Chrysler alliance. Lastly, Cerberus will contribute a claim it had against Daimler to assist in the Daimler settlement with the PBGC.

Details on the Chrysler Fiat Alliance:

· Fiat will contribute a free license to use all of its intellectual property and “know how” to capitalize Chrysler in exchange for 20% of the equity of the reorganized Chrysler. Fiat will have the right to select three directors of Chrysler once reorganized. In addition, Fiat will have the right to earn up to 15% in additional equity in three tranches of 5% – each in exchange for meeting performance metrics, including introducing a vehicle produced at a Chrysler factory in the U.S. that performs at 40 mpg; providing Chrysler with a distribution network in numerous foreign jurisdictions; and manufacturing state-of-the art, next generation engines at a U.S Chrysler facility.

· The newly reorganized Chrysler will purchase substantially all of the assets of the old Chrysler out of a chapter 11 bankruptcy case in exchange for a $2 billion payment to its secured lenders.

· This new Chrysler will establish an independent trust (VEBA) that will provide health care benefits for Chrysler’s retirees. The VEBA will be funded by a note of $4.6 billion payable over approximately 13 years with a 9% rate of interest and will receive 55% of the equity of New Chrysler. The VEBA will have the right to select one independent director and will have no other governance rights.

· The Chrysler Pension Plans will be preserved, and their stability will be strengthened from the Daimler contribution of $600 million.

· The U.S. Treasury will receive 8% of the equity of the new Chrysler. U.S. Treasury also has the right to select the initial group of four independent directors, but thereafter will not play a role in the governance or management of the Company.

· The Governments of Canada and Ontario will together receive 2% of the equity of the new Chrysler. Based on its substantial financial contribution, Canada will also have the right to select one independent director, on the same basis as the four independent directors initially chosen by the U.S.

Details on U.S. Government Support:

Consistent with the President’s commitment to provide adequate working capital to help Chrysler through this restructuring period and loan up to $6 billion to the Chrysler-Fiat Alliance, the U.S. government has committed to provide assistance sufficient to help give Chrysler a chance to achieve financial viability.

· Working capital: The U.S. government is prepared to provide approximately $3.3 billion in debtor in possession financing to support Chrysler through an expedited chapter 11 proceeding.

· Loan to the New Chrysler: Upon closing, the U.S. government is prepared to loan approximately $4.7 billion to New Chrysler, in the form of a term loan with $2.1 billion due in 30 months and the balance 50% due on the 7th anniversary and 50% due on the 8th anniversary of the loan. The interest will be an appropriate combination of cash and payment-in-kind. There is also an additional note of $288 million which is a fee for making these loans. The loans will be secured by a first priority lien on all of Chrysler’s assets.

Canadian Government Participation:

· The governments of Canada and Ontario will participate alongside the U.S. Treasury in lending money to Chrysler and New Chrysler based on a 3:1 formula using Canadian currency. The amount lent by the Canadians is incremental to the funding referenced above.

Viable Financing Solution:

· Chrysler will enter into an agreement with GMAC to provide dealer and customer financing. This agreement will continue once Chrysler has emerged from bankruptcy. Chrysler Financial has agreed to uphold and cooperate in the transition of its current agreements with dealers to GMAC. The U.S. Government is supporting the automotive restructuring initiative by promoting the availability of credit financing for dealers and customers, including liquidity and capitalization that would be available to GMAC, and by providing the capitalization that GMAC requires to support the Chrysler business.

Warranties:

· Chrysler will continue to honor consumer warranties. Yesterday, the U.S. Treasury made available the Warranty Support Program to Chrysler and $280 million was funded to a special vehicle available to provide a backstop on the orderly payment of warranties for cars sold during this restructuring period.
Executing the Chrysler-Fiat Alliance

While many stakeholders made sacrifices and worked constructively in this process, some did not. In particular, a group of investment firms and hedge funds failed to accept reasonable offers to settle on their debt. In order to effectuate this alliance without rewarding those who refused to sacrifice, the U.S. government will stand behind Chrysler’s efforts to use our bankruptcy code to clear away remaining obligations and emerge stronger and more competitive.

During this process, Chrysler will continue operating in the ordinary course. From an operating perspective, the day after the filing will not be materially different from the day before the filing. The following parties will be treated as described below:
· Employees: Employees will get paid in the ordinary course, including salary, wages and ordinary benefits. Workers compensation claims will continue to be paid by Chrysler’s insurers. Assuming the sale moves forward as expected, Pension Plan and VEBA funding will be transferred to the purchaser.

· Suppliers: Chrysler will seek authority at its “first day” hearing to continue to pay suppliers in the ordinary course. In addition, the U.S. Treasury’s Supplier Support Program will continue to operate, and Chrysler suppliers benefiting from the program will continue to receive that benefit.

· Dealers: Chrysler will seek authority at its “first day” hearing to honor its customer warranties in the ordinary course. Moreover, Chrysler will seek to continue to honor its dealer incentives for those dealers who are expected to continue to be part of Chrysler’s distribution network going forward. There are some dealers that Chrysler has identified and certain other dealers identified by GMAC as being risky credits that will not continue with Chrysler. It is expected that the terminated dealers will wind down their operations over time and in an orderly manner.

· UAW: The modified labor agreement reached between the UAW and Chrysler will be operative.

· Creditors: A majority of the Senior Secured Lenders now support the transaction with Chrysler.


Joint Statement
President Obama and Prime Minister Harper
United States-Canada Support for Chrysler LLC

The Governments of the United States and Canada have reviewed and approved the restructuring plans of Chrysler LLC and its subsidiaries, including Chrysler Canada Inc.

As a result, thanks to the considerable contributions and sacrifices of company management, the United Auto Workers and Canadian Auto Workers, and major lenders, and a successful partnership agreement with Fiat SpA, our Governments are in a position to extend support to help Chrysler restructure itself and re-emerge as a globally competitive automaker.

"We appreciate the close and cooperative relationship between the U.S. and Canadian governments during this period of restructuring in the auto industry. Together, we have put in place a financing package that will give Chrysler a chance to achieve financial viability," said President Obama.

"I want to thank President Obama and the U.S Automotive Task Force for their close cooperation with Canada on this challenging issue. Thanks to our joint efforts, there is now a road ahead to a stronger Chrysler and a stronger industry in the future on both sides of the border," said Prime Minister Harper.

The Governments will provide $US 10.5 billion in financing, including short term and medium term capital and debtor-in-possession financing to assist with the court-supervised restructuring of Chrysler LLC. Of this amount, the United States is contributing $US 8.08 billion and Canadian governments (including the Government of Canada and Government of Ontario) $US 2.42 billion.

The United States will have 8 percent of the equity of the restructured Chrysler LLC, and Canada and Ontario will have 2 percent, and the United States will appoint four independent directors to the new Chrysler LLC board, while Canada will appoint one independent director.

The close cooperation of our Governments acknowledges that the automotive industries in Canada and the United States are tightly linked, with major automobile manufacturers and suppliers operating on both sides of the border in a completely integrated way. The cost sharing reflects the historic shares of auto production in both countries for Chrysler, which will be maintained under this restructuring agreement.

The United States and Canada are committed to continuing to work together closely as we chart the path to a stronger automobile industry in both countries, both in the short term as we complete similar efforts on General Motors restructuring plan, and in the long term as we seek to ensure a competitive, environmentally responsible automobile industry for the future.