Chrysler Reportedly Preparing for Bankruptcy Filing

Joshua Duval
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The day of reckoning could be at hand for Chrysler, as the automaker is likely to head down the path of bankruptcy, according to sources.

Despite the verbal support of President Obama and its own CEOs, Chrysler is now headed for bankruptcy, the New York Times reports, citing "people with direct knowledge of the talks."

According to the source, President Obama's auto task force has told Chrysler to prepare a Chapter 11 bankruptcy filing for as soon as next week. As ominous as that demand may seem, however, new developments may make bankruptcy a sweeter option for Chrysler.

Obama's team now reportedly has struck a deal with the UAW, shielding retiree health care benefits and employee pensions from the bankruptcy. In addition, the partnership with Fiat would continue to be negotiated while Chrysler is in bankruptcy.

Chrysler has been given until April 30 to partner with Fiat, at which point the Treasury Department would issue Chrysler an additional $6 billion in financing. If the two companies are unable to reach an agreement, the Treasury will call back a $4 billion loan it already issued, forcing the automaker into bankruptcy.

There is some speculation that the order is simply a scare tactic to get Chrysler's lenders to accept the auto task force's terms for wiping out debt, which the creditors have so far rejected, offering counterproposals instead. If Chrysler entered bankruptcy, equity stakeholders would likely be wiped out.

Both the U.S. and Canadian governments would likely provide the financing for Chrysler to operate while under bankruptcy law. With April 30 quickly approaching, there isn't much time left to speculate before we find out how seriously the Obama administration takes its deadlines.

Source: The New York Times

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