Fiat Takes a Bankrupt Chrysler

AUBURN HILLS, MICH.: Fiat agreed to take Chrysler after the American carmaker filed for Chapter 11 today. Reuters said the event marks the first time a major U.S. automaker files for bankruptcy. Chrysler filed in the U.S. Bankruptcy Court for the Southern District of New York after failing to convince the federal government to continue bailing it out

The car maker is one the biggest advertisers in country, spending nearly $1.4 billion on advertising in 2006--the last year it was among the top 10 spenders at No. 7. Categorically, automotive advertising supports the broadcast business. Local stations derive around one-fourth of ad revenues from the auto industry, and largely from local dealers. Chrysler can feasibly pull dealership contracts under reorganization, but the carmaker indicated otherwise in a statement confirming its alliance with Fiat SpA.

“We want to personally assure everyone that the new company will produce and support quality vehicles under the Jeep, Dodge and Chrysler brands as well as parts under the Mopar brand,” said Chrysler Chairman and CEO Bob Nardelli. “Chrysler employees will become employees of the new company. Chrysler dealerships remain open for business serving our customers. All vehicle warranties will be honored without interruption and consumers can continue to purchase our vehicles with complete confidence.”

The federal government is providing debtor-in-possession financing to keep the business running during the changeover. Chrysler has been working on the Fiat deal for a year and will ask the court to expedite Fiat’s takeover. When the deal is complete, Fiat will hold a 20 percent stake in Chrysler; the Voluntary Employee Beneficiary Association will own a 55 percent stake; and the U.S. and Canadian governments will own proportionate shares of a 10 percent stake.

Fiat will have the right to increase its ownership by 15 percent in three goal-based increments; bringing a 40 mpg car to the U.S. market; bringing a fuel-efficient engine family into U.S. production; and selling Chryslers on the global market. Fiat will not be able to majority own Chrysler until all U.S. government loans have been paid off.

As a part of the restructuring, Chrysler said most manufacturing operations would temporarily cease as of May 4. Normal production is expected resume when the transaction was completed within 30 to 60 days.

Nardelli, head of Chrysler since August of ’07, will exit and return to Cerberus Capital Management, Chrysler’s current majority owner. Its Mexican, Canadian and other international operations are not part of the bankruptcy. -- Deborah D. McAdams