Chrysler's first week rough

Bankrupt carmaker moves from plans to shut plants to deadline effort to review bids

David Shepardson / Detroit News Washington Bureau

New York -- The first week of Chrysler LLC's stay in bankruptcy was messier, costlier and more disruptive than the company or the Obama administration disclosed in the run-up to last Thursday's filing.

Now, it faces a sprint to review bids, win approval of its sale at a May 27 hearing and then complete the deal by early July.

That won't be easy, if the first week is any indication.

Chrysler revealed its plans to close six plants -- including three in Michigan -- by the end of next year. It will keep all of its plants shuttered for up to nine weeks during its stay in bankruptcy and furlough all salaried workers for two weeks.

The Auburn Hills automaker also admitted it is unlikely to repay $7 billion in U.S. government loans, while some retirees said some checks were canceled.

The bankruptcy also threw into serious question the fate of the Chrysler Financial lending arm, which has 3,500 employees, including 650 at its Farmington Hills headquarters. The Treasury Department announced it would pump money into GMAC to assume lending to dealers and customers for Chrysler Financial.

But Chrysler scored two big legal victories in the opening days of its bankruptcy stay that sharply boosted its chances of emerging by late June. First, federal bankruptcy judge Arthur Gonzalez approved its plan to sell itself to the highest bidder -- almost certainly the U.S. Treasury Department.

It also convinced Gonzalez to require the creditors that won't take the deal offered them by Chrysler to make their identities public -- a move that scared away many would-be objectors, leaving dissident creditors holding just $295 million -- or 4 percent of Chrysler's first lien-debt. Those objections are the main obstacle to a quick exit and tie-up with Italian automaker Fiat SpA.

The bidding process Gonzalez approved throws hurdles in the path of other potential bidders: They must decide by May 20 and put up a cash deposit of 10 percent of the bid -- at least $200 million.

In bankruptcy court documents and testimony this week, some of the aches and pains of a Chrysler bankruptcy emerged.

• While Chrysler said it would honor its pension obligations, about 1,200 retirees who receive large pensions under the company's Supplemental Employee Retirement Program saw those supplemental checks cut off. They now are unsecured creditors -- like more than 100,000 other creditors -- and it is unclear how much, if anything, they will receive.

• Several plants closed the day the company filed for bankruptcy because parts suppliers stopped shipments.

• Chrysler didn't disclose until after the deal was ratified that it planned to close six more U.S. auto plants, including the Sterling Heights Assembly Plant, by the end of next year.

Costs to taxpayers also appear to be growing. Last week, President Obama defended the decision to force Chrysler into bankruptcy, emphasizing that taxpayers would be repaid, and noting the government would be "making additional loans that are consistent with what I outlined last month."

"As part of their agreement, every dime of new taxpayer money will be repaid before Fiat can take a majority ownership stake in Chrysler," Obama said.

That's technically accurate -- to a point. While Fiat must repay the $6 billion in "exit financing" loans that the U.S. and Canadian governments will give if the company emerges from court oversight, that does not include $4.5 billion in debtor-in-possession financing Gonzalez approved Monday. Chrysler disclosed this week it is "highly unlikely" to repay any of the $4.5 billion loan.

On Thursday, the administration reduced the amount of debtor-in-possession financing it would make to Chrysler by $300 million, from $3.34 billion to $3.04 billion, saying Chrysler had larger cash reserves than previously indicated.

The president also didn't disclose that the first $4 billion that Chrysler received from the Bush administration would not be repaid -- so U.S. taxpayers could be out $7.04 billion.

Lynn LoPucki, a bankruptcy expert at UCLA Law school, said the administration has been increasingly moving away from demanding full repayment of Chrysler loans. He said he is confident the sale will be approved quickly.

"They don't think Chrysler has the money," LoPucki said.

Among developments yet to come in the Chrysler drama:

• A decision by the Obama auto task force on how much more it plans to loan GMAC to take over lending to dealers and customers from Chrysler Financial. It already has gotten $6 billion.

• An airing of precisely what "bad" assets Chrysler will leave behind in bankruptcy court, to be liquidated.

• The number and names of terminated Chrysler dealerships.