There has been some progress in U.S. government-driven negotiations to save Chrysler LLC, according to a senior White House official, who on Sunday also did not rule out an attempt to complete the company's restructuring in bankruptcy.
We're hopeful this is all going to work out in a successful way, Larry Summers, President Barack Obama's senior economic adviser and co-leader of the government's task force working to restructure the auto industry, told the Fox News Sunday program with the automaker facing a Thursday deadline to arrange viable business plan. It's something we want to see.
Summers cited some gains in talks on multiple fronts but was not specific.
There are some issues that have been worked out and some issues that remain to be worked out, Summers said.
Chrysler, the smallest and weakest of the once-vaunted Detroit-based 'Big Three automakers, must substantially cut its debt and negotiate concessions on retiree health care and other matters with the United Auto Workers (UAW) union to satisfy federal requirements for its restructuring and be eligible for continued bailout assistance. The Canadian Auto Workers agreed to new contract concessions with Chrysler on Friday.
General Motors Corp is under similar pressure to restructure on its own by June 1, or face the likelihood of bankruptcy.
The company received a $4 billion lifeline from the Bush administration in December and has been promised $500 million by the Obama administration to cover its operations through April. GM has so far received $15 billion from the government with up to $3 billion more is possible before its restructuring deadline expires. GM and Chrysler lending arms have also received billions, as have suppliers. Dealers are also getting help from the government.
Ford Motor Co is also struggling but said as late as Friday that it has no plans to seek government aid.
Chrysler is controlled by Cerberus Capital Management.
A priority for the White House and Treasury Department's task force is reaching an agreement with Chrysler lenders to cut the almost $7 billion they are owed. Talks have accelerated in recent days but the sides remain far a part.
In the latest offer on Friday, the combination of banks and other investors sought $3.75 billion in debt and a 40 percent equity stake in a restructured company, according to one person with knowledge of the matter.
The Treasury did not respond publicly, but Democratic U.S. Rep. Gary Peters, whose district covers Chrysler's headquarters outside Detroit, called it inadequate.
U.S. Sen. Debbie Stabenow, a Michigan Democrat, said on Saturday in Detroit that it was time for creditors, especially those who have accepted public funds as part of the government's bank bailout program, to make concessions and be part of the solution.
Debt restructuring also factors into finalizing a proposed alliance with Italy's Fiat SpA, the lone working alternative to rescue Chrysler operations and preserve as many of the company's jobs as possible. Chrysler employs more than 40,000 people. The autos task force determined in March that Chrysler could not survive as a stand-alone company and has pledged up to $6 billion in aid if the Fiat alliance moves forward.
IT'S ABOUT CHANGE
Although many analysts and other industry insiders believe a Chrysler bankruptcy would be the end of the iconic brand, Summers did not rule out that step in noting multiple contingencies are being considered. He suggested a court filing would not necessarily result in a wind down of Chrysler's operations.
In certain circumstances, a bankruptcy is not about liquidation. It's about change in legal form that actually protects the company and enables it to function more effectively, Summers said.
Peter Morici, an economist at the University of Maryland, was critical of how the administration has pressured lenders and believes Chrysler is bound for bankruptcy unless there is a sudden and unexpected turn of events.
This is brinkmanship but I can't tell you who's going to blink, he said.
In liquidation, banks would get some return for their stake in asset sales while marketable brands could be absorbed by other companies. In a Chapter 11 scenario, the administration would have to sink more money into the company and turn its work over to a judge, who would determine whether the Fiat alliance, any prearranged labor agreements on contracts, health care and pensions, and other aspects of restructuring were doable.
There is a car company to be found in this mess, Morici said of the potential to revive Chrysler's minivan and jeep lines with Fiat at the wheel.
(Additional reporting by Nick Carey and Poornima Gupta in Detroit, Jui Chakravorty Das in New York and Will Dunham in Washington; Editing by Maureen Bavdek)