Chrysler to file for bankruptcy

Despite receiving about $4.5 billion in loans from the US government since the start of the year, American car maker Chrysler today (April 30) announces that it will file for bankruptcy protection.

Chrysler had until midnight to convince President Obama and his administration that it could restructure itself successfully, with the possibility of a further $6 billion in aid. However, Chrysler failed to persuade its biggest creditors to write off its substantial debts in return for a $2 billion one-off payment. It is thought that this was the final straw for the US government.

Filing for bankruptcy protection in America is referred to as 'Chapter 11' and it needn't mean the end of the company. The scheme allows the business to continue trading within strict procedures, while being protected from its creditors. It therefore buys the company time to sort out its finances.

Chrysler had already made inroads into restructuring demands from the US government, including sealing a new deal with the union that represents the vast majority of its factory workers in the USA.

A likely tie-up with Fiat has been in discussion for the past few months and it is thought to be close to completion. While this would not result in an injection of cash from Fiat, it would allow Chrysler access to Fiat's small car knowhow, allowing it to develop a range of new and more efficient vehicles. It was believed that the US government would be willing to assist Chrysler further if this deal was struck.

What the bankruptcy protection will mean to the UK is as yet unclear, as trading will continue as before, though it's unlikely that sales of Chrysler's brands (Chrysler, Jeep and Dodge) in Britain will be sustained as customers lose confidence in the company.

Shane O' Donoghue