WASHINGTON — President Barack Obama announced Thursday that Italian carmaker Fiat would buy Chrysler and that Chrylser would enter a surgical bankruptcy that would let the storied American carmaker shed debts that it could not negotiate away.
"For too long Chrysler moved too slowly to adapt to the future. 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 competitive," Obama said.
Under the arrangement, Fiat will transfer billions of dollars worth of new technology to Chrysler under merger conditions that require that any new Chrysler model get at least 40 miles per gallon. Fiat will not be allowed to take a majority ownership stake until taxpayer bailout money has been fully repaid.
Chrysler was racing a May 1 deadline to either reach a deal with Fiat or go into bankruptcy and perhaps liquidation. The United Auto Workers union and the Canadian Auto Workers union both agreed to steep cuts in pay and benefits to allow the deal to happen. So did Chrysler's largest creditors, who agreed to lose almost 70 cents of every dollar worth of bonds they owned.
Digital Access for only $0.99
For the most comprehensive local coverage, subscribe today.
But a smaller group of banks that had not received taxpayer bailout money and lightly regulated hedge funds held out for a better deal. That led the administration and Chrysler officials to seek to resolve the matter through a Chapter 11 bankruptcy proceeding in New York. That will let a judge settle the matter.
"I think you will find the table was fairly well balanced," Chrysler CEO Bob Nardelli told CNBC television immediately after Obama's announcement, denying any stakeholders got short shrift.
Nardelli expected the bankruptcy proceeding to last 60 days or less.
"Our goal is to get in and out as quickly as we can," he said.
Obama was less diplomatic, accusing the holdouts - most of whom held senior debt which is supposed to be at the front of the line when a company goes under - of acting in bad faith.
"They were hoping that everyone else would have to make sacrifices and they would have to make none. I don't stand with them," Obama said.
As part of the deal, the federal government will extend billions of dollars to GMAC, the General Motors finance arm, to help finance the purchase of Chrysler vehicles.
Talks on the fate of GM, which had been given more time to work out a deal with is sundry stakeholders, continue.
MORE FROM MCCLATCHY