ChryslerÔÇÖs bankruptcy deal has Fiat along for the ride

US carmaker Chrysler has filed for Chapter 11 bankruptcy protection, and has formed an alliance with Fiat, making the partnership the worldÔÇÖs sixth largest carmaker. ┬á The filing for Chapter 11 protects Chrysler from its creditors, allowing it to rearrange its finances while still trading, and will lead to the forming of a new corporate entity. ┬á Italian carmaker Fiat will take a 20 percent stake, with the possibility of it rising to 35 percent if performance targets are met, and 51 percent by 2016 if Chrysler's government loans are fully repaid. ┬á Italy's Fiat will not have to pay anything for its share, which will give it access to the North American marketplace. In return, Chrysler will be able to take advantage of Fiat's expertise in making smaller, more fuel-efficient cars in its existing US factories. ┬á Chrysler bondholders will receive $2 billion (┬ú1.35 billion) in cash in exchange for forgiving their $6.9 billion debt. The US car maker will receive a further $8 billion in government aid, up from the $6 billion the Treasury had promised if it had successfully restructured the business by midnight.┬á It will also extend a $4.7 billion loan to the new company, once it has emerged from bankruptcy, repayable over the next eight years. ┬á The White House described the move as a "surgical short bankruptcy" to last between 30 and 60 days. ┬á President Obama said the "necessary steps" had been taken to give Chrysler "a new lease on life." ┬á ChryslerÔÇÖs chief executive Bob Nardelli has been in charge since 2007, and although it seems his efforts in recent weeks to hammer out a deal between Chrysler's shareholders, workers and lenders have yielded results, he announced plans to step down after the company emerges from bankruptcy, saying he felt it would be an appropriate time.┬á The new company will be run by not only a new chief executive, but by a nine-person board, with six picked by the government and three by Fiat. ┬á Fiat chief executive Sergio Marchionne said he would spend time meeting Chrysler employees and touring its facilities in the near future. ┬á "While our agreement must necessarily go through the US legal system for a few weeks, we will be preparing ourselves to re-emerge quickly as a reliable and competitive automaker," he said. ┬á Although, in some ways, it seems the trickiest challenges are still to come.┬á The partnership has come under fire from some analysts who see it as a risky strategy and say the two companies have little to offer each other. ┬á "Fiat is easily the weakest of all the major automotive companies. It does not even generate enough revenue to fund its own investment," said independent automotive analyst Rob Golding.┬á Deutsche BankÔÇÖ Eric Heymann points out, "Entering the US market is not easy for anyone. Just look at how long it took the German or Japanese carmakers to be successful in the US." Besides, he adds, "Americans prefer big cars." The timing of Fiat's market entry, during a deep recession, is clearly not ideal either, according to Heymann. ┬á The deal also still needs to be ratified by the bankruptcy court. While Chrysler's main banks, holding 70 percent of the debt, accepted this proposal, it was rejected by hedge funds that hold a sizeable proportion of its remaining debt. ┬á President Obama, however, said that he had "every hope" that Chrysler will become "stronger and more competitive" now that it had Fiat on board. ┬á "It's a partnership that will give Chrysler a chance not only to survive, but to thrive in a global auto industry," he said.