After months of bailouts and attempted retooling, Chrysler is filing for Chapter 11 bankruptcy protection, President Obama announced at the White House.
Later in the day, Chrysler CEO Bob Nardelli said he would resign after the company emerges from bankruptcy.
"Now is an appropriate time to let others take the lead in the transformation of Chrysler with Fiat," Nardelli said in a statement. Nardelli, who formerly headed Home Depot, said he would return to a position at Cerberus, the private investment firm that bought Chrysler in 2007.
Efforts to head off a bankruptcy collapsed after the carmaker and government officials were unable to reach an agreement with Chryslers senior bondholders. The bondholders said the plan diluted their investment in the number three U.S. automaker more than some junior lenders.
Obama blasted the bondholders, charging they held out for what he called a government bailout while dealers, suppliers and employees made concessions for the good of the company and the overall economy. The bondholders said they had already agreed to a 40 percent cut.
Before the announcement, members of the White House auto task force expressed confidence that Chrysler would emerge from Chapter 11 within 60 days. A speedy process is considered critical to preserving Chryslers perception as a viable car company. In fact, President Obama went out of his way to present the bankruptcy in a positive light, and urged consumers to consider buying a new Chrysler.
If you buy a Chrysler, your warranty will be safe because it will be backed by the federal government, the President said.
Obama also announced that Chrysler and Italian carmaker Fiat had successfully completed merger talks and that the partnership would be part of the new, post-bankruptcy Chrysler.
Obama also said that GMAC, which finances GM car purchases, would take over financing Chrysler purchases as well, phasing out Chrysler Financial, Inc., which he said is not viable. In addition, the number of Chrysler dealers will be consolidated.
Its a bittersweet conclusion, Chrysler CEO Robert Nardelli told CNBC following the Presidents announcement. But breathing new life into Chrysler is what its all about.
Chryslers bankruptcy will be filed in New York, where the final outcome will be determined. Whats likely is a fight between the holdout bondholders and the government, which is seeking a speedy conclusion.
Four major banks that own 70 percent of the Chrysler debt agreed to terms with the government. However, a number of smaller lenders, that have not received government bailout money, balked.
Besides providing financing for new-car purchasers, GMAC will provide wholesale financing for Chrysler dealers. A senior White House official was quoted as saying that the Barack Administration's auto task force had determined that Chrysler Financial "did not have the resources" to meet Chrysler's needs.
Both GMAC and Chrysler Financial had turned to the federal government for help during the recent credit crunch. GMAC got $6 billion in federal funds, Chrysler $1.5 billion.
The lack of credit has been frustrating both would-be new car purchasers and dealers. Even buyers with good credit have found it difficult to find affordable loans for new cars, while dealers have lost "floorplan" financing, the short-term loans that enable them to maintain inventory and keep their doors open.
GMAC had earlier said it would ease wholesale finance charges for dealers and earmark $5 billion for consumer auto loans over the next 60 days, hoping to jump-start domestic auto sales, which are critical to both Chrysler and GM's recovery plans.
GMAC is a bank holding company with operations in North America, South America, Europe and Asia-Pacific. General Motors, the near-bankrupt car maker, is only a minority stockholder in the company.
Chrysler Files for Bankruptcy, GMAC Takes Over Financing...