Thursday April 30, 07:14 AM
Chrysler talks break down
By Jitendra Joshi
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WASHINGTON (AFP) - Talks between the Treasury Department and Chrysler's creditors have broken down, making it all but certain the number three US automaker will file for bankruptcy protection, the Wall Street Journal has reported.
Citing people familiar with the discussions, the daily said late on Wednesday that the administration's auto industry task force held talks into the evening with several hedge funds and other lenders to accept a deal to reduce Chrysler's debt.
The Treasury Department offered 2.25 billion dollars in cash to major lenders to forgive 6.9 billion dollars in Chrysler debt, the report said.
JP Morgan Chase and Co (NYSE: JPM - news) ., the leader of the creditor group, gave the other 45 banks and hedge funds 90 minutes to vote on the deal, but a large number voted against it, clearing the way for Chrysler's resort to bankruptcy court, the Journal said.
News of the potential bankrupcty comes hours after President Barack Obama had said the US auto maker could survive the industry's crisis.
Obama also added that Chrysler had made "prudent" preparations to go into bankruptcy restructuring if talks to salvage the car giant failed.
"The fact that the major debt holders appear ready to make concessions means that even if they ended up having to go through some sort of bankruptcy, it would be a quick type of bankruptcy and they could continue operating on a merger on the other side in a much stronger position."
Chrysler workers had earlier voted to approve a new contract with Chrysler LLC and Italian automaker Fiat (Milan: F.MI - news) , helping to clear the way for a US government-backed merger, the United Auto Workers said.
A detailed bankruptcy plan has been prepared in which Chrysler's chief executive officer would be replaced by the Fiat management, the Washington Post (NYSE: WPO - news) reported.
The bankruptcy plan includes four billion dollars in extra aid from the US and Canadian governments to help a "dramatically reordered Chrysler emerge from bankruptcy protection," the Post reported, citing industry sources.
But the president, while vowing federal help for hard-pressed workers at the Detroit (DETROIT.SN - news) companies, said he was keen to end his administration's unprecedented intervention.
Government bailouts of the auto giants were needed "to prevent systemic risk that would affect everybody," Obama said.
But "as soon as their situations are stabilized and the economy is less fragile," the government's goal was "to get out, find some private buyers."
GM (NYSE: GM - news) , the biggest US automaker, has a bit more breathing room with its federal deadline for a new restructuring plan not due until June 1. It has already announced painful cuts.
"I've always said that GM has a lot of good product there, and if they can get through these difficult times, and engage in some of the very difficult choices that they've already made, that they can emerge a strong, competitive, viable company," Obama said.
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