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| Bankruptcy for Chrysler Likely Averted as Banks Cave on Debt Chrysler LLC and the U.S. Treasury Dept. have reached an agreement with banks and private equity firms holding $6.9 billion of the automaker’s debt. Those firms have agreed to take $2 billion and a small equity stake in the company, paving the way, it seems, for Chrysler to avoid bankruptcy and complete an alliance with Italian automaker Fiat.The deal, first reported by Washingtonpost.com, was confirmed by a Treasury official who said: "The agreement from Chrysler’s principal banks is an exceptional accomplishment in line with the President’s firm commitment that all stakeholders sacrifice to make this deal succeed."Details of the deal may come officially from Chrysler or Treasury officials later today.Banks, including J.P Morgan, Citi, Morgan Stanley and Goldman Sachs, had been holding up the deal for weeks, insisting on more cash and equity. But a deal struck with the United Auto Workers Sunday night, said one executive familiar with the negotiations, put additional pressure on the debt holders to strike a deal.Those banks are holding secured debt. And one of the issues confronting them is that Chrysler’s assets—Jeep, minivans, factories, Dodge Ram pickup and real estate—all have limited value in the recession, and few potential buyers [see Chrysler's Looming Tag Sale].The possibility of a Chapter 11 filing is not completely off the table for Chrysler. But it is far less likely.Chrysler was to have filed a new restructuring plan to the White House auto industry task force by April 30, so that the Obama Administration could determine if Chrysler has restructured its business extensively enough to merit an additional $6 billion in loans on top of $4.5 billion it has already received.A deal with Fiat is now expected to go forward, with the Italian automaker owning 35% of Chrysler, while the United Auto Workers will own up to 55%, and the Federal government up to 10%.The Obama Administration has already said that Chrysler’s only viable future was one involving a merger with a stronger company. It’s commitment to the further loans has been contingent on the Fiat deal. And the Fiat deal was contingent on big concessions from the union and bond holders.The Chrysler deal with bond holders could be a model for a deal at GM, whose restructuring to avoid bankruptcy is also dependent on debt holders taking an enormous "cram-down" on what they are owed. But, while Chrysler's debt was secured with hard assets, GM has some $28 billion in unsecured debt. And many of those debt holders are insured against losses with credit-default swaps if GM goes into bankruptcy.Follow all the auto updates by following "David Kiley" on Twitter. rss.businessweek.com |
Spies claims race one American Ben Spies has claimed his ninth World Superbike victory of the year after taking the first race at Donington. foxsports.com.au |
Force Hood set for 'crazy next few months' in NHRA playoffs My 2009 NHRA Full Throttle Drag Racing season has been one to remember so far and it's not even close to being finished! This ... rssfeeds.usatoday.com |
NASCAR enticing more Formula One drivers Formula One is regarded as the world's foremost racing circuit, but dabbling in NASCAR by a few F1 refugees has some playfully ... rssfeeds.usatoday.com |
A coup for Subaru Well, it is the holiday season so I figured I would take a break from the woes at General Motors, Honda’s hybrid malaise and Toyota’s quality snafus to pen up some good news. Take a look at Subaru. In the U.S sales are up 14.4% through November and will easily top 215,000 cars for the year, notes Automotive News. Yes, even in this wretched car market, a company is growing. Subaru did a few things to get the growth. First, the company has renewed its entire lineup other than the B9 Tribeca in the past two years. They also spent a lot to market the cars even as the economy was hitting the skids, says James N. Hall of 2953 Analytics Inc. When the competition pulled back, Subaru hit the accelerator, Hall said. By taking to the airwaves, Subaru got on a lot more shopping lists. To close more deals, the company slashed prices on its cars. Until 2006, Subaru used to try to sell its cars at 5% to 10% more than rival Japanese models, Automotive News said. Now they undercut their chief competitors in head-to-head comparisons. That has helped the company move the metal. But it could be tough to get that pricing back. Most companies are trying to get better pricing to improve margins. That has helped Honda and Toyota reap big profits for years. GM and Ford are both trying to do the same thing now. Subaru is moving in the opposite direction. That could diminish their brand image if they drop prices too low. The real test comes when the newer models start to age. Car companies typically spend more on advertising when they are launching new models. If Subaru pulls back on marketing but sales stay strong, then the pricing play will go down as a success. If Subaru can't sustain the growth, then the company will have a dual problem with flat or falling sales and weaker pricing. But make no mistake. The company’s sales show that Subaru is headed in the right direction. The unique brand with a strong image for rugged, all-wheel drive cars looks like it is catching on. rss.businessweek.com |