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April 30, 2009

Chrysler to file for Chapter 11 bankruptcy protection


by Kay Murchie
”Chrysler

In a bid to strengthen and relaunch US carmaker, Chrysler, the company is set to file for Chapter 11 bankruptcy protection immediately.

The procedure will see the company gain protection from its creditors and according to President Obama, give the company “a new lease of life.”

Detroit-based Chrysler was given a deadline (which ends at midnight) to restructure the business in order to achieve a multi-billion dollar loan from the Government.

Fellow US carmaker, General Motors (GM) is in the same position and has a deadline of 1 June to restructure the business in order to obtain state loans, and avoid needing bankruptcy protection.

Returning to Chrysler, it has been reported that dealerships will close in due course but no jobs will be lost in the short-term, according to the US President.

Mr Obama added that in time, Chrysler will become “stronger and more competitive”.

Chrysler has already received $4 billion in funding from taxpayers and, in order to continue operating while under Chapter 11, it will receive between $3 billion and $3.5 billion.

The Government will then give Chrysler up to $4 billion after the restructuring plan.

As part of the restructuring plans set out by the US Government, Chrysler was asked to secure a cost-cutting deal with its main union, and establish an alliance with Italian car firm Fiat.

According to the BBC, Fiat is seeking an initial 20% stake in the US carmaker, which would then increase to 35% and could even reach 51%, however details have yet to be revealed.

Furthermore, Chrysler was instructed to reach an agreement with its lenders, however, talks broke down with some of the company’s smaller lenders yesterday.

Earlier this week, German carmaker Daimler reached a deal to give up its 19.9% stake in Chrysler. The agreement will also see Daimler forgive repayment of the loans extended to Chrysler.

The global economic downturn has resulted in a slump in demand for big-ticket items, such as cars. This has affected carmakers worldwide with many cutting back on production, slashing jobs and seeking funding to see them through the downturn.

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Story link: Chrysler to file for Chapter 11 bankruptcy protection


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Tags: Chapter 11 bankruptcy protection, Chrysler, Daimler, , Fiat, General Motors, , President Obama,

 

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