Chrysler may still collapse

Fiat has already lost out to Magna in the battle to buy GM's European arm Opel/Vauxhall, but until today (Tuesday 9 June) it seemed a formality that it would take a controlling stake in Chrysler, ushering the US firm out of chapter 11 bankruptcy and into a new era of profitability.

Not so, however, because the US Supreme Court has scuppered the plan, citing problems with the proposed division of Chrysler's assets to its creditors. Under the terms of the deal, the United Auto Workers (UAW) union will own 55 percent of the company, with Fiat getting 35 percent and the remaining ten shared between the US and Canadian Governments.

But the lenders Chrysler is indebted to will only receive $2bn (£1.24bn) back for the $6.9bn they are owed. One of those lenders, the Indiana State Police Pension fund, argues that the sale is against US bankruptcy law because the UAW gets a better deal than it, and that the UAW is an unsecured creditor. The Indiana fund is set to lose millions thanks to the reduced debt settlement figure, so it has taken its case to the Supreme Court, despite having already been dismissed by the appeal court.

The situation is a worry because it delays the sale, a sale which Fiat can legally walk away from if it's not finalised by June 15. That could prove disastrous for Chrysler because it leaves the maker back at square one, likely to be broken up and ultimately resulting in thousands of job losses.

Mark Nichol