Chrysler faces more hearings to get Fiat deal OK'd

[May 28, 2009]  NEW YORK (AP) -- It may take two more days of testimony for Chrysler to convince a bankruptcy judge that a deal with Italian automaker Fiat is the best way to save itself from liquidation.

The automaker needs U.S. Judge Arthur Gonzalez to approve the sale despite protests from a group of Indiana state pension and construction funds that hold less than 1 percent of Chrysler's secured debt. If Gonzalez OKs the sale, the automaker could emerge from bankruptcy protection within weeks.

Gonzalez heard nine hours of testimony from Chrysler LLC and Fiat Group SpA officials that lasted into Wednesday evening before adjourning the hearing. Testimony is scheduled to resume Thursday morning, followed by arguments from Chrysler and the various dissenters. Gonzalez said he was prepared to continue the hearing into Friday if needed.

Meanwhile, Chrysler's U.S.-based rival General Motors Corp. moved a step closer to its own Chapter 11 filing, after a rebellion by its bondholders forced it to withdraw a plan to swap bond debt for company stock. GM said its board will meet later this week to decide its next step.

A person familiar with discussions between GM and the government said any bankruptcy protection filing would probably come around the government's Monday deadline for GM to finish restructuring or enter court protection. The person asked not to be identified because the talks are private.

Attorneys for Chrysler say unloading the company's assets to a group led by Fiat is its only hope to avoid selling itself off piece-by-piece. They say a leaner Chrysler could shift more easily to building smaller, more fuel-efficient cars.

But many Chrysler dealers, bondholders and former employees say they are being steamrolled by the exceptionally speedy bankruptcy court proceedings. Fiat could back out if the deal doesn't close by June 15.

Approval of the sale would put Chrysler on track for a quick exit from bankruptcy protection, defying skeptics who insisted such a filing would leave the automaker mired in court for many months.

Both Auburn Hills, Mich.-based Chrysler and Detroit-based GM have been hobbled by the health and pension costs of tens of thousands of unionized retirees, in addition to slumping sales.

The government has poured billions into the two companies, fearing the ripple effects of catastrophic job losses might push the economy into a depression. The pair employ more than 126,000 people in the U.S., and hundreds of thousands of others rely on the companies working for parts suppliers, dealerships and other related businesses.

Meanwhile, Germany pressed for an independent future for GM's Europe-based Opel unit. German Chancellor Angela Merkel and several ministers gathered for talks Wednesday at Merkel's Berlin office with representatives of GM, the U.S. government and Opel's suitors, which included Fiat, a consortium of Canadian auto parts maker Magna International Inc. and Russia's Sberbank, and U.S. investment firm Ripplewood Holdings LLC.

But the high-level meeting ended without a decision. Germany's economy minister, Karl-Theodor zu Guttenberg, said after talks that lasted most of the night that Germany does not yet have the security it needs to provide bridge funding for Opel. Two investors -- Fiat and Magna -- remain in the running but Ripplewood has bowed out.

Bringing Chrysler and Fiat together would dramatically change the face of the country's third-largest automaker. The current plan calls for Fiat to bring a handful of its small cars to the U.S. in the coming years, filling one of Chrysler's biggest product gaps and pleasing a White House intent on making the nation's fleet of automobiles greener.

Chrysler itself entered bankruptcy protection with a handful of new vehicles in the works. It plans to begin selling an electric car next and have six electric vehicles on the road by 2014.

Even if Chrysler comes out of bankruptcy protection, its challenges are just beginning. Until the Fiat vehicles arrive, it will have to rely on a product lineup that lost billions of dollars last year.

Alfredo Altavilla, Fiat's chief executive for powertrain technologies and head of business development, testified Wednesday that he expects it to take about 18 months to begin producing Fiat vehicles at Chrysler facilities and about 24 months to start producing powertrains for those vehicles in North America.

Even then, there is no guarantee Fiats will sell in this country, where they will compete against small cars from established automakers like Hyundai and Kia.

By Wednesday morning, parts suppliers, dealers, former employees and other groups had filed 337 objections to the Chrysler-Fiat deal, although most had been resolved or deferred before the start of Wednesday's hearing.

Some of the strongest opposition to the sale came from lawyers representing a pair of Indiana state pension funds and a state construction fund that bought Chrysler debt last year. The Indiana state funds bought Chrysler debt last year and hold a combined $42.5 million of the company's total $6.9 billion in secured debt.

Tom LaSorda, who served as Chrysler's vice chairman and president but retired after the automaker went into Chapter 11, was questioned for more than an hour about Chrysler's search for a global partner and how the deal with Fiat came to be reached.

"There was nobody out there that was willing to provide a cash infusion," Lasorda said. "But Fiat brought technology and platforms that were just as valuable or even better."

In the days leading up to its Chapter 11 filing, Chrysler reached an agreement with most of its bondholders in which they would receive a combined $2 billion in a deal worth 29 cents on the dollar, but some bondholders refused to support it, saying that as secured lenders they deserved more. That failure to reach full agreement tipped the company into bankruptcy court.

[Associated Press; By BREE FOWLER]

AP Auto Writer Dan Strumpf in New York, and Associated Press writers Philip Elliott in Washington and Geir Moulson in Berlin contributed to this report.

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