DETROIT – Italy's Fiat is the new owner of most of Chrysler's assets, closing a deal Wednesday that saves the troubled U.S. automaker from liquidation and places a new company in the hands of Fiat's CEO.
The deal creates a leaner company known as Chrysler Group LLC, which is not in bankruptcy protection and is free of billions in debt, 789 underperforming dealerships and burdensome labor costs that hobbled the old Chrysler LLC.
Fiat CEO Sergio Marchionne immediately was named CEO of the new company, which said in a statement that it would soon reopen Chrysler factories that were idled during the bankruptcy process, costing the automaker $100 million per day.
The new company will focus on smaller vehicles, areas in which Chrysler was weak.
"Work is already under way on developing new environmentally friendly, fuel-efficient, high-quality vehicles that we intend to become Chrysler's hallmark going forward," the new company said in a statement.
The Italian automaker won't put any money into the deal but will give Chrysler billions worth of small car and engine technology.
"We intend to build on Chrysler's culture of innovation and Fiat's complementary technology and expertise to expand Chrysler's product portfolio both in North America and overseas," Marchionne said in a statement.
The sale to Fiat SpA marks a victory for the Obama administration, which shepherded Chrysler LLC into Chapter 11 protection on April 30 with the hope that the company would emerge in a matter of months with a new partner.
"This morning's closing represents a proud moment in Chrysler's storied history," said the Treasury Department in a written statement. "The Chrysler-Fiat Alliance has now exited the bankruptcy process and is poised to emerge as a competitive, viable automaker."
The government will loan the new company $4.7 billion, to be repaid within eight years along with interest and $288 million in fees.
The Treasury had given Chrysler LLC $3.3 billion in debtor-in-possession financing to support the company throughout the bankruptcy process. Chrysler LLC remains in bankruptcy court, as it winds down operations, selling plants it doesn't want, dispersing payments to debtholders and settling any other claims that were not transferred to the new company. Those actions could linger until next year, if not longer.
The 56-year-old Marchionne, who won acclaim for his turnaround of Fiat, brings a different style to Chrysler. The year after taking over Fiat in 2004, Marchionne led the company to post its first net profit in five years. He also streamlined its management, burnished the brand with the award-winning update of the Fiat 500 and entered a series of strategic alliances to share costs and enter new markets.
In his first move at the new Chrysler, Marchionne made significant management changes Wednesday, including the appointment of Jim Press as deputy CEO and adviser to help with the management transition.
Press, formerly Toyota Motor Corp.'s top U.S. executive, joined the old Chrysler shortly after it was taken over in 2007 by private equity firm Cerberus Capital Management LP. Press had been vice chairman and president of the old Chrysler.
Chrysler Group will be divided into four divisions, representing the Chrysler, Jeep, Dodge, and Mopar brands. Peter Fong will become president and CEO of Chrysler brand. Michael Manley will become president and CEO of the Jeep brand and Michael Accavitti will assume the same position for Dodge. Pietro Gorlier, of Fiat Group will run the Mopar division.
In a statement, Marchionne said the organization will be designed to give leaders broad control and increase the speed of decision making.
On Tuesday, Chrysler won its battle to erase its secured debt after the Supreme Court declined to rule on objections to the sale to Fiat from a trio of Indiana pension and construction funds. The Indiana funds, which hold less than 1 percent of Chrysler's $6.9 billion in secured debt, claimed the sale unfairly favors Chrysler's unsecured stakeholders such as the union ahead of secured debtholders like themselves.
Supreme Court Justice Ruth Bader Ginsburg decided Monday to delay the sale while studying the appeals. But on Tuesday, the court turned down the opponents' last-ditch bid by declining a hearing on the appeals.
Also on Tuesday, Judge Arthur Gonzales approved Chrysler's motion to terminate 789 of its dealer franchises, or about 25 percent of its dealer base.
Many of those dealers closed their doors for good on Tuesday, though some will continue to sell used cars or other brands. Chrysler has maintained that the closures are a necessary part of its plan to cut costs. Jim Press, Chrysler's vice chairman and president, told a Senate committee that the poor performance of many of the dealers slated to lose franchises costs the company $1.5 billion in lost sales each year, along with $150 million in advertising and marketing costs and $33 million in administrative costs.
The dealers had argued that they cover their own costs and little would be gained by terminating their franchises. Chrysler attorneys said the automaker would extend until Monday its program to help the affected dealers send any unsold vehicles to stores that will remain open.
Chrysler's swift passage through about five weeks of bankruptcy proceedings was helped by the involvement of the Obama administration's auto task force, which provided billions in financing and helped negotiate a deal with the company's stakeholders.
Under the agreement brokered in the days leading up to Chrysler's Chapter 11 filing, Fiat will receive up to a 35 percent stake in the automaker in exchange for sharing the technology Chrysler needs to create smaller, more fuel-efficient vehicles.
The United Auto Workers union will get a 55 percent stake that will be used to fund its retiree health care obligations, while the U.S. and Canadian governments will receive a combined 10 percent stake. Fiat would get 20 percent, with the possibility of up to 35 percent.
Meanwhile, the automaker's secured debtholders would get $2 billion in cash, or about 29 cents on the dollar, for their combined $6.9 billion in debt. Some debtholders, including the Indiana funds, balked at the deal, saying as secured lenders they deserved more. The funds also challenged the constitutionality of the Treasury Department's use of money from the Troubled Asset Relief Program, or TARP, to supply Chrysler's bankruptcy protection financing. They say TARP was earmarked for the financial industry and diverted to the auto industry without Congressional authority.
Consumer groups and individuals with product-related lawsuits also contested a condition of the Chrysler sale that would release the company from product liability claims related to vehicles it sold before the asset sale to Fiat. Compensation for such claims would have to come from the parts of the company not being sold to Fiat. But those assets have limited value and it's unlikely there will be anything to pay out.