In a sad and historic day for American auto manufacturing, automotive manufacturer Chrysler has announced it will be filing for Chapter 11 bankruptcy. The process is said to be necessary dueto its inability to manage insurmountable debt, and according to an administration official, will take between 30 and 60 days to complete. However,it will not affect the company's day-to-day operations.
Reaching an Agreement for Chrysler
Since the company is in the beginning phases of the bankruptcy process, there is still a bit of red tape to climb through. Actually,the steps leading up to the bankruptcy wererathertangledas well.
Originally, the Treasury Department offered Chrysler $2.25 billion to stop the bankruptcy from occurring. However, several hedge funds and banks associated with the company turned down the offer. Then, the government told Chrysler to reach a deal with Italian automaker Fiat, which was to buy a stake in the company. If an agreement was not reached by a specific deadline, the government would force the company into bankruptcy.
In the end, the Company settled for the bankruptcy. By Chrysler agreeing to rid itself of some unwanted debt, it became a more attractive partnering prospect. As a result, Fiat agreed to the merger, and will hold a 20% stake in the company initially and eventually own 35% as milestones are reached.
Chrysler's Future
While President Obamais optimisticthat the bankruptcy/merger deal will help keep the company strong, many experts predict thatChrysler won't be what it once was. In fact, some believe that it will no longer be a major player in the automotive industry.
Unfortunately, Chrysler is one of many automotive manufacturers that have succumbed to financial devastation. In the last year, auto sales have dropped to the lowest levels seen in almost 30 years - more signs of difficult economic times. Chrysler officials are quick to point out that warranties and auto sales will not be affected by the bankruptcy, and dealerships will continue to honor warranty and repair claims.
How do you feel about the fall of one of the Big 3? Is it time to take out an auto loan and go discount shopping, or are you bracing for a further economic downturn in light of this recent development?
