Chrysler’s filing for Chapter 11 bankruptcy protection underlines the deep crisis the American car industry has been experiencing for a long time. The effort to reconstruct the No. 3 U.S. carmaker by using the bankruptcy procedure will be a test not only for the company but also for the administration of President Barack Obama, which has been interceding among Chrysler, General Motors and their creditors in an effort to rebuild both companies.
Although Mr. Obama said the purpose of Chrysler’s action was “to clear away its remaining obligations so the company can get back on its feet and onto a path of success,” it serves as a sober reminder that the days of large U.S. cars, the symbol of American affluence, ended long ago.
While the parties concerned hope that Chrysler will re-emerge from bankruptcy in 30 to 60 days, the carmaker will find itself continuing in a difficult environment. In place of gas guzzlers that emit a large amount of greenhouse gases, it will have to tackle the challenge of producing attractive cars that are clean and fuel-efficient. It will also have to work out a viable partnership with the Italian carmaker Fiat, with which it has formed a capital alliance.
Chrysler and the U.S. Treasury Department’s failure to reach agreements with creditors to reduce Chrysler’s $6.9 billion debt led the automaker to seek bankruptcy protection. This episode could cast a shadow on GM’s effort to rebuild itself. GM’s debt amounts to $27 billion, about four times Chrysler’s, and GM has many more creditors. The U.S. administration has told GM that it will suspend aid to it unless it comes up with a viable restructuring plan by June 1.
The number of new automobile units sold in the U.S. market in 2008 shrank by 18 percent from the previous year. The Big Three’s share slipped below 50 percent for the first time. Their combined sales in March fell more than 40 percent from a year before. Outside the United States, they have to compete in emerging markets like China and India. Just reducing debt and personnel cost will not necessarily lead to their regaining lost ground.
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