WASHINGTON -- President Obama, in laying out the plan for Chrysler's Chapter 11 bankruptcy on Thursday, showed no love for the hedge funds that, he said, tried to hold out for a bigger payoff in the government's rescue of the ailing automaker.
The hedge funds, which hold some of the company's debt, had refused to accept the government's offer of about 29 cents on the dollar for about $6.9 billion that Chrysler owed, and this reluctance forced the White House to push Chrysler toward bankruptcy in the hopes that a judge will allow Chrysler to shed this debt at prices even lower than the hedge funds were asked to accept.
"A group of investment firms and hedge funds decided to hold out for the prospect of an unjustified taxpayer-funded bailout," Obama said, flanked by his economic, energy and environmental teams. "They were hoping that everybody else would make sacrifices, and they would have to make none. Some demanded twice the return that other lenders were getting. I don't stand with them."
Instead, the president now stands behind one of the most hybridized company known to the automobile industry.
The new Chrysler is a four-headed mutant partially owned by two governments, the United States (8 percent) and Canada (2 percent). It will be run by an Italian automaker, Fiat Group SpA. Fiat will pour its fuel-efficient technology into U.S. factories owned by fuel-hogging Chrysler to pump out vehicles whose sales will be financed by GMAC.
Chrysler's CEO Robert Nardelli announced he would leave the firm when bankruptcy proceedings are complete. Chrysler also announced it will idle all auto manufacturing as part of the bankruptcy-planned restructuring.
The tumult, Obama said, has and will cause pain for many of the auto company's employees, bond holders and dealers. But, he said at the White House, "the necessary steps have been taken to give one of America's most storied automakers, Chrysler, a new lease on life."
White House Press Secretary Robert Gibbs said at the daily briefing that the hedge funds and investment firms were playing games.
"They tried to, in a sense, play chicken with the government for a better deal, and nobody blinked," Gibb said. Later, Gibbs said the hedge funds and investment firms were within their rights to reject the deal, but that didn't diminish Obama's frustration or anger.
"I'm not sure the president's problem with them is based on their rights," Gibbs said. "I think the president's problem with them is based on the notion that, as he said, and as many members of the team have said, and as many members involved in this agreement have done, which is make sacrifices in order for a company to move forward."
The Associated Press reported that a group of funds identifying themselves as 20 of Chrysler's "non-TARP lenders" released a statement saying they had been sidelined during negotiations between lenders and the government. The group, which said it holds $1 billion in Chrysler debt, complained that the four banks were "obviously conflicted" because they had accepted money from the government's Troubled Asset Relief Program while the funds had not gotten TARP money.
The group said its offer to the Treasury Department to reduce its claim to 40 percent was "flatly rejected or ignored."
According to its bankruptcy filing, Chrysler owes more than $10 million apiece to 20 of its unsecured creditors, many of whom are vendors and suppliers.
A top administration official said the goal was a "surgical, short" bankruptcy that could be wrapped up in within two months.
"We expect this to be a very short, 30-to-60-day bankruptcy process, during which the company will function normally," the official said. "People will be able to buy cars, they will have their warranties honored, and everything should go on normally."
Auto industry experts warned that Chrysler bond holders and dealers could fight bankruptcy proceedings, delaying the restructuring for months and possibly years.
"This is just nuts," said William Holstein, author of "Why GM Matters: Inside the Race to Transform and American Icon." "They don't know what they're talking about."
Gibbs waved off questions about a bankruptcy process that could last longer than the 60-day target.
"Let's not get 61 days into the equation," Gibbs said. "We'll have any number of opportunities to do that as we get closer."
The new Obama "lease" on Chrysler's future will cost U.S. taxpayers $3.3 billion in up-front bankruptcy bridge financing and another $4.5 billion in exit financing. That up-front financing may not last if bankruptcy proceedings drag out. Under the deal, Chrysler won't begin selling Fiat-designed cars until 2011. The company will have to muddle through until then with a new board of directors and new CEO and with the United Auto Workers holding a 55 percent stake in the firm.
Also, the government would appoint four of the members of a new six-member board of directors. Fiat would start with a 20 percent share and would be unable to acquire majority ownership until all outstanding U.S. loans were repaid.
But with Nardelli soon to be gone, the UAW with majority ownership and Fiat starting with such a small company stake, analysts wondered how Chrysler would function in the short-run.
"We've never done this in America -- to have a union having majority control," Holstein said. "If (current CEO) Nardelli is out and Fiat's not in management control, who is running the company? The U.S. government? The Canadians? Is it a labor and government coalition? I mean this is brand new territory, and historically governments and unions don't do well managing companies."
The Obama White House set three benchmarks for Fiat to expand its ownership of the new company.
-- Provide Chrysler with European distribution of its current product line
-- Transfer its fuel-efficient technology to Chrysler's U.S. factories
-- Manufacture a 40-mpg vehicle under the new Chrysler brand name