THE WHITE HOUSE
Office of the Press Secretary
FOR IMMEDIATE RELEASE April 30, 2009
PRESS BACKGROUND BRIEFING
ON AUTO INDUSTRY BY
SENIOR ADMINISTRATION OFFICIALS
Via Conference Call
10:50 A.M. EDT
MS. PSAKI: Good morning, everyone. Thank you for joining us. As a reminder before we get started, this call is embargoed for noon eastern time. And this call, the attribution is for background purposes for this call.
I'm going to turn the call over to the senior administration officials. They'll give a short introduction and then we'll have about 20 minutes for questions following. Thanks so much.
SENIOR ADMINISTRATION OFFICIAL: I assume everyone has the fact sheet that has been released by the White House. So in the interest of time -- because as Jen said, we have very limited time today -- I'm not going to go through all the details of this.
I just simply want to try to frame where we are at the moment. You all recall that 30 days ago the President made a very tough decision on Chrysler and said that it would not be viable as a standalone company, and that unless we could successfully complete an alliance with Fiat, unfortunately the government would not be able to fund Chrysler any longer and it would go into liquidation.
We're all very, very happy to be here today to tell you that we have achieved a successful alliance with Fiat, one that we believe will make Chrysler a much stronger company going forward, will make it viable, and will make it, again, a leading company in its industry.
The agreement that has been reached between Chrysler and Fiat -- which will include an investment, a loan by the United States government -- is almost exactly along the lines of the objective that the President approved 30 days ago. So it's been a long, tough 30 days my colleagues and myself and the whole team, but we're very proud and pleased to be here today to announce that we've successfully achieved what was clearly the better outcome for the country and for all of the 35,000 workers at Chrysler and all the many stakeholders.
We also announced -- the President announced 30 days ago when he spoke that if we were not able to achieve the appropriate level of shared sacrifice from all of the stakeholders, that it would be necessary for Chrysler to go through a surgical short bankruptcy in order to finish the restructuring of its balance sheet and emerge as a properly capitalized company that could be competitive.
We worked very hard to keep this company out of bankruptcy. We dealt with every stakeholder. We achieved enormous sacrifice from many of the stakeholders, including the UAW and including the major banks that are lenders to this company. But unfortunately, not all of the banks were prepared and lenders were prepared to participate in this program, and so with reluctance we've made the decision to go through this surgical bankruptcy process.
We do not believe that this should harm the company or negatively affect it. Many companies successfully conduct their business during Chapter 11. We expect this to be a very short, 30- to 60-day bankruptcy process, during which the company will function normally. People will be able to buy cars, they will have their warranties honored, and everything should go on normally. And at the end of it, as I've indicated, this company will emerge stronger, more viable, and more competitive.
Lastly, a critical element as we identified 30 days ago among the hurdles that we needed to accomplish for Chrysler to be viable is a viable finance source for the company. We made the determination that Chrysler Financial did not have the resources and it was not really within our means to provide the resources to Chrysler Financial to support Chrysler Car Company.
And so we are also very pleased today to announce an agreement between new Chrysler and GMAC, which you all know provides not only financing to General Motors but many other kinds of financing. And GMAC will become the financing source for new Chrysler cars going forward from this time. And the U.S. government will provide the financial support necessary for GMAC to expand its activities to include new Chrysler.
So with that, let me conclude my remarks and Jen will open the floor for questions.
Q Thank you. I apologize if my question seems a little repetitive but we not yet seen the fact sheet that you referenced. My first question is where will this bankruptcy be filed? And secondly, what will you do with the dealer body in bankruptcy?
SENIOR ADMINISTRATION OFFICIAL: The bankruptcy will be filed in New York. We gave a lot of thought to that, and our goal is to have this bankruptcy be short and completed quickly. And the court in New York has a vast amount of experience in this area and we felt that that would be the most effective.
The dealers will be -- as part of the restructuring plan, Chrysler will be reducing the number of dealers. Most of the dealers will continue, again, right through bankruptcy, operating as they have been, with the ability to finance their cars, both at the wholesale and the retail level. But an important part of this restructuring plan is to reduce the dealer base over time, and that will occur.
Q Again, we haven't seen the fact sheet, so just a couple basic questions --
MS. PSAKI: You will get it shortly -- just for everyone on the call, we're sending it out shortly. Sorry, go ahead.
Q When will the bankruptcy be filed? How much does the government -- (inaudible) -- after they emerge from bankruptcy? And secondly, was Fiat insistent that the company go through bankruptcy to wipe away some legal liabilities and other issues as part of the deal?
SENIOR ADMINISTRATION OFFICIAL: You cut out a little bit during your question, but let me try to answer what I think you asked.
The bankruptcy will be filed almost immediately. It's very important that this be a voluntary bankruptcy and that we make what are called first day motions to achieve a number of objectives, including being able to continue to pay suppliers and be able to continue to conduct our business normally. The government will provide financing during the bankruptcy and we think that will be in the range of $3 to $3.5 billion. And then we will provide, as we've said before, exit financing of about $4.5 billion.
A couple of things, since you all haven't seen the fact sheet, to add to this. First, the total amount of U.S. government support of Chrysler will be very, very similar to what we identified for the President as part of his approval process before March 30th. So we have constructed a financial plan that is consistent with the amount of resources that the President authorized us to use on March 30th.
Secondly, I want to turn it over to my colleague to say a word about participation of the Canadians, which is a new element of this and an important part of the success of this.
SENIOR ADMINISTRATION OFFICIAL: As folks know --
SENIOR ADMINISTRATION OFFICIAL: I'm sorry, we need to put you on hold for just one second.
Okay. Go ahead.
SENIOR ADMINISTRATION OFFICIAL: As folks know, the company does business on both sides of the border and the North American industry generally is highly integrated. So as part of this, we've been working very closely with the Canadian government, and they, too, will be providing substantial financial resources in a ratio of roughly one dollar for every three U.S. dollars measured in their currency. And we think that's very positive and additive. It obviously provides the company with an additional financial cushion, and obviously the company will continue to operate as it has on both sides of the border in a very integrated way.
Q What about the Fiat question?
SENIOR ADMINISTRATION OFFICIAL: We worked closely with Fiat on every element of this, but Fiat did not have a particular view on bankruptcy. I think Fiat, I would say candidly, was probably -- this is probably not their area of greatest experience, and they were happy to be guided by our advice as to what was in the best interest of Chrysler.
And I would say, consistent with your question, that while bankruptcy was never the preferred option, as I've said on many of these calls, there are some advantages, not just simply in dealing with the lenders, but there are other liabilities that we can leave behind, all as part of having a stronger Chrysler with more jobs, rather than fewer jobs, when it emerges.
SENIOR ADMINISTRATION OFFICIAL: I think all of the stakeholders were unanimous in the view that my colleague just articulated about bankruptcy: Nobody wanted it, everyone needed to be prepared to do it, and when the situation arose we were ready for it and we're now going to move in that direction.
SENIOR ADMINISTRATION OFFICIAL: And at the risk of overemphasizing it, I want to be very clear that what is happening today is completely consistent with what we told you might happen 30 days ago. We were going down a path; we had various options; we were prepared for any option; this was one of them, and we think that this is a very successful option in terms of how Chrysler will emerge and be able to compete as a global car maker.
Q Yes, thanks. Just two quick questions. One, are there any risks in going through the bankruptcy process? I mean, do the agreements you have with the UAW and with the major bond holders, do those stay in place, or is there a chance that a bankruptcy judge could revise those? And secondly, what -- looking forward to the GM dealings you've got going on, is it helpful, do you think, for the GM stakeholders to see that you are prepared to go into a bankruptcy? Is there any positive that carries from this into those negotiations in terms of bringing them to the table?
SENIOR ADMINISTRATION OFFICIAL: With respect to your first question, I don't think anyone can say, with respect to almost any complicated situation, that there's a hundred percent certainty or confidence as to the outcome. I would say we are as close to a hundred percent that you can get without being foolish in saying that there's no risk at all.
I think the fact that we have agreements with the UAW that were ratified last night by an overwhelming majority, as well as the overwhelming support of the bank group, in our view and, yes, in the view of our lawyers and our professional advisors, should lead to a very successful conclusion of this.
With respect to your second question, I don't think we're here today to speculate about General Motors. I would simply say that what is happening today is a reflection of the President's willingness to make tough decisions and to do what's necessary in the best interests of not only all the stakeholders but also the taxpayers and the rest of the country.
And so we think this is a win-win in the sense of emerging with a stronger Chrysler, but with a balance sheet and a set of liabilities that are sustainable. And it was a tough decision the President had to make and he made it, and he will continue to make tough decisions as we finish this restructuring process for both of these companies.
Q Thanks. I just wanted to follow up a little bit on that last question. Could you outline in a little more detail, what are the factors that make you think that this can be concluded fairly quickly in 30 or 60 days? And could you talk a little bit about the potential risk, specifically from holdout lenders or from dealers in terms of trying to throw up legal roadblocks to a quick exit?
SENIOR ADMINISTRATION OFFICIAL: We have studied extensively, we've engaged we think the best professional advisors both to join us full-time on the Treasury team as well as outside advisors to plan this out, as I've indicated and as you know from our calls over the last month or so. This is not something that came up at midnight last night; it's something we've been working for -- working on and planning for as a possible alternative for a long time. And so we feel that we have gamed this out very fully.
Section 363, which is the part of the bankruptcy code that this will occur under, is -- we're not breaking new ground, we're not making new law; we're doing something that has been done many times in the past, albeit with less famous companies, but successfully. We have, as I said a minute ago, we feel we have -- not "feel" -- we know we have the support of all the critical stakeholders here. If a few lenders want to go into court and raise their hand, they're going to be facing more than half of the other lenders as well as more than 70 percent of the capital saying, no, no, no, we want to do this deal. And our judgment is that no judge is going to override that kind of support.
Q Yes, good morning, gentlemen. A couple of questions. When did the President make this decision? And also what impact, if any, do you see in terms of employment levels at the company? Will they be further reduced as part of the bankruptcy?
SENIOR ADMINISTRATION OFFICIAL: I'm sorry, could you just repeat the second half of your question about employment?
Q Yes, I said I'm just curious if, in fact, the bankruptcy is going to impact employment. You know, as they go through the bankruptcy process is Fiat feeling like it has to reduce head counts to more either blue or white collar?
SENIOR ADMINISTRATION OFFICIAL: On the second question, no, there are no immediate plans to have any further head count reduction. But obviously Fiat, working with the Chrysler team, is going to be reviewing all costs and will be looking for opportunities to cut costs. But there are no plans to have any immediate plant closings or major white or blue collar head count reductions.
SENIOR ADMINISTRATION OFFICIAL: And I think it's important to emphasize that bankruptcy and what happens to the company in terms of employment and jobs are not really connected. The bankruptcy process is designed to address the balance sheet. Fiat will address the operating situation in consultation with the rest of Chrysler management and the board as time goes on. The two are not connected. Bankruptcy will not have a negative effect on employment. In fact, we would argue would have a positive effect because it will allow Chrysler to emerge with a stronger balance sheet, more competitive and able to employ more people.
Q In terms of when the President made the decision?
SENIOR ADMINISTRATION OFFICIAL: We're not here to do a tick-tock. We're here to try to get you guys briefed so that you know all the facts and can write your stories.
Q Good morning, gentlemen. The President said last night that he doesn't want to be in the business of running a car company. With this arrangement, how soon will the government be out of the Chrysler business?
SENIOR ADMINISTRATION OFFICIAL: The government is not in the Chrysler business now. The government has a major investment in this company and it is overseeing its investment. The company is being run by its management team and it will continue to be run by its management team.
As part of this restructuring there will be a new board of Chrysler. The government will have a role in helping to select a number of those directors, but they will be people of independent stature and activity, hopefully very experienced CEOs or other business-type professionals, and the company will run just like any other private company does, reporting to its board and so forth.
And the U.S. government will have a small equity position and be a significant lender, just like JP Morgan and CitiGroup were significant lenders to Chrysler until now. And that's the role that the government will play going forward.
Q And when will that end, under this arrangement -- I mean, the equity stake and all that?
SENIOR ADMINISTRATION OFFICIAL: The government is not -- the government's goal is not to be a lender or an equity holder of any company for any longer than is absolutely necessary. And so as part of what we will do once the dust settles a little bit on this immediate restructuring will be to try to look ahead and plan for the government's eventual exit as an equity holder.
In terms of our debt, there are various incentives for Chrysler and Fiat working together to repay that debt as quickly as possible, because that's what we want and we've provided incentives within this agreement for that to happen. And so hopefully it will happen quickly.
SENIOR ADMINISTRATION OFFICIAL: Yes, and reminding folks that another thing the President had insisted upon up front which maintains the position is that Fiat cannot obtain majority control of the company until the new government financing is paid back. So we think that's good for Fiat; it gives them the right incentive. If they want to take control, that's great, but they're going to have to give the taxpayers back their money before they do it.
Q Thanks very much. Just to follow up on Major's question there -- you seem to indicate that the government would play a role in selecting management -- or selecting the board, but not necessarily an operative role. Where does the innovation that President Obama talked about in his press conference last night come out of this? Do you expect Fiat to be the introducer of new technology? Do you expect that there will be other sources that -- a new managing group will look at?
SENIOR ADMINISTRATION OFFICIAL: Look -- yes, David. I think you’ve clearly outlined our role, what our role is and what it isn’t. We are going to -- we've restructured the company; we've done this alliance with Fiat; we will be involved in selecting what we hope is an A-plus board and I think we know how to do that. But then we are going to allow management with this new board, working with Fiat and all the technological advantages that Fiat has, to hopefully innovate and become a leading company.
And I would also, lastly, remind you that this company is eligible for Section 136 loans to help develop new energy-efficient types of cars and engines, and we expect to participate in that as well.
SENIOR ADMINISTRATION OFFICIAL: Let me just make one follow-up, too, which is that Fiat is already a world leader in advanced engine technology and in the production of more fuel-efficient vehicles. As part of the structure that my colleague was speaking about earlier, in order to gain incrementally more equity stake in the company, Fiat will commit to building new fuel-efficient engines and building new high-mile-per-gallon cars in U.S. factories in the United States. So we believe that that's a positive development as well.
Q Can you just lay out for us in a little more specificity how that incentive program works? In other words, is it linked to the number of high-mileage cars that Chrysler actually produces? Is it linked to an investment level? How do you make that happen?
SENIOR ADMINISTRATION OFFICIAL: Again, this is consistent with the original term sheet, which has now been more fully documented, but it's a -- but no commitment is changed. Fiat starts with 20 percent of the company; they gain 5-percent increments upon the achievement of three separate milestones. One is providing distribution for Chrysler cars outside of NAFTA, which is obviously a positive for the company's revenue base. Second is introducing a new fuel-efficient engine into a U.S. factory. And third is introducing a 40-mile-per-gallon car into a U.S. factory. These will be Chrysler factories. Chrysler will sell these cars, and obviously it's going to try to sell as many of them as it can.
But it's Fiat's technology which experts value at many billions of dollars which will enable Chrysler to very quickly move up the curve and introduce these new engines and these new cars, which otherwise Chrysler would not have been able to do without years and years of additional work and billions of dollars of development cost.
Q Thank you. This is more on the technical side for the first-day filings. Looking at the dealers, are all dealers going to be included as critical venders, or are you going to look to reject some of those franchise agreements immediately? And the same thing for suppliers -- are all of the existing suppliers going to be considered critical, or are there going to be some that are going to be reduced from this filing?
SENIOR ADMINISTRATION OFFICIAL: We're not going to get into that level of detail. The company will be making filings that will reveal its plan. But I think, broadly, the President's admonition a month ago will be followed out, which is that, broadly speaking, the venders to the company and the dealers to the company will continue to be paid in the ordinary course.
SENIOR ADMINISTRATION OFFICIAL: The only think I'd add to that is we, as we've said in previous calls and as evidenced by our supplier program, we are very focused on the situation in the supplier community. We understand and we know how difficult it is. We've said before we cannot help every company and every industry, but we are monitoring very closely the situation and the supplier base and we will do the best we can to assist it, not just in the context of Chrysler, but in the context of the entire automobile situation.
Q Okay, just let me rephrase here. Does the -- will the bankruptcy be used to disallow any franchise agreements for dealers?
SENIOR ADMINISTRATION OFFICIAL: I think my colleague indicated earlier that there will be some reduction in the overall size of the dealer network, and obviously that matter will be dealt with in the bankruptcy.
Q Great, thank you.
SENIOR ADMINISTRATION OFFICIAL: Can I just say one other thing, because we're hearing a lot from some of the lenders who decided not to participate and somehow feel that they were not fairly treated. Every lender had the opportunity to participate in this offer. And as has been reported and I wouldn’t deny it, we attempted last night to even include some additional considerations so that every lender could feel fairly treated. Every lender was communicated with directly and knew exactly what the opportunity was to participate and knew what the deadline was. And for any lender today to say that they weren’t fairly treated or they didn’t know, or this or that, is just completely not true.
SENIOR ADMINISTRATION OFFICIAL: One other thing I want to say that I think is important -- this has been an exceedingly challenging and difficult process over a 30-day period. There have been a lot of sleepless nights and a lot of eaten pizza. I think it's really important to note the incredible role played by the Chrysler management team led by Bob Nardelli. He's really been a stand-up guy here. It's hard to imagine a more challenging time to be the chief executive of a corporation, and he led his team to this place and I think he really deserves recognition for what he did.
MS. PSAKI: Okay. Thank you, everyone, for joining the call. Just a reminder, this is embargoed for noon eastern time, and the -- this can be attributed to -- for background, to senior administration officials. You will receive a fact sheet shortly. Thank you.
11:14 A.M. EDT