Canadian Chrysler plants shut down as parts not delivered

Chrysler Canada stopped production at its assembly plants here today after some suppliers did not deliver parts.

The move by suppliers came because of concerns about payments in view of the parent company filing for bankruptcy court protection in the U.S. yesterday

A Chrysler Canada spokesperson emphasized that the company has not filed for protection from creditors here and has no intention of doing so.

Spokesperson Mary Gauthier could not comment on when the company expects to resume output at the Canadian plants, which produce thousands of minivans and cars weekly.

"A number of suppliers have stopped shipment of parts to our manufacturing facilities," Gauthier said. "This has halted operations in our Canadian assembly plants. We will continue to monitor operations and provide updates as available."

Chrysler employs about 8,000 workers at assembly plants in Windsor and Brampton.

When Chrysler said yesterday it would cease operation at its U.S. plants while it restructures over the next 30 to 60 days, many of the company's parts suppliers stopped production.

This resulted in a parts shortage that affects Chrysler's Canadian operations too, although Chrysler Canada is not directly covered by its parent company's filing for protection from creditors.

Canadian Auto Workers president Ken Lewenza says the North American auto industry is so integrated that Chrysler's Canadian plants couldn't continue to operate on their own.

Detroit-based Chrysler LLC has indicated it could be in bankruptcy court for a couple of months, which has resulted in a shutdown of U.S. operations south of the border until it emerges from court.

Lawyers for Chrysler LLC are expected to ask a federal bankruptcy judge Monday to let the ailing automaker start using a new infusion of $4.5 billion in loans from the U.S. Treasury Department so it can operate under bankruptcy protection.

At a hearing Friday in Manhattan bankruptcy court, Chrysler attorney Corinne Ball said the company will also file its motion to sell substantially all of its assets to Italian automaker Fiat Group SpA before Saturday morning.

The moves, along with typical first motions approved at today's hearing, set in motion a chain of events designed to ensure that the bankruptcy process is the quick and "surgical" one that Chrysler and the U.S. government have promised.

"We have to move at a good speed throughout this proceeding,'' Ball told Judge Arthur Gonzalez.

She noted that the company's restructuring efforts have the support of its dealers, suppliers and most of its lenders.

"I don't think that any American can doubt that these are extraordinary times," Ball said. "And we are quite mindful of the view of many experts that no car company can survive in Chapter 11. To that we say, 'yes we can.'''

Attorneys packed the courtroom for Chrysler's first hearing since it filed for Chapter 11 bankruptcy protection Thursday with an ambitious plan to emerge in as little as 30 days as a leaner company aligned with Fiat.

In the early morning hours before the hearing began, attorneys lined up outside the bankruptcy court for the Southern District of New York under overcast skies with coffee and rain gear in tow of hopes of securing a spot.

The large, windowless courtroom filed up quickly and two overflow rooms with video and audio feeds were opened up to accommodate the crowds.

Gonzalez approved Chrysler's motion to allow the automaker to pay $48.8 million in employee and contract worker pre-bankruptcy wages, benefits and businesses expenses. The motion also references an estimated $86 million in employee vacation benefits that it may not ultimately have to pay.

Gonzalez also approved Chrysler's motions that will let it continue to honour its warranties and continue its current banking practices.

The hearing was briefly halted after a woman standing in the warm and stuffy courtroom apparently fainted.

Eventually, Gonzalez will have to reach a decision on creditors that hold $6.9 billion of Chrysler's debt.

Four banks holding 70 per cent of the debt agreed to a deal that would give the creditors $2 billion. But a collection of hedge funds refused to budge, saying the deal was unfair and would only return a small fraction of their holdings.

President Barack Obama on Thursday chastised the funds for seeking an "unjustified taxpayer-funded bailout" after Chrysler and his auto task force cleared the company's other hurdles. Along with the Fiat deal, Chrysler adopted a cost-cutting pact with the UAW this week.

The White House said Chrysler could come out of bankruptcy in 30 to 60 days. Under normal circumstances, it would be difficult to complete such a large bankruptcy so quickly.

But John Pottow, a University of Michigan professor who specializes in bankruptcy, said the government's level of involvement is much greater than in a typical corporate bankruptcy.

"If you have the president of the United States who wants something to happen, I think anything's possible in bankruptcy protection," he said.

Chrysler's bankruptcy filing is the latest step in a drastic reordering of the American auto industry, which has been crushed by higher fuel prices, the recession and customer tastes that are moving away from the gas-guzzling SUVs that were once big money makers.

The government has sunk about $25 billion in aid into Chrysler and rival General Motors Corp.

GM faces its own day of reckoning on June 1, a date the administration has set for it to come up with its own restructuring plan. GM has announced thousands of job cuts, plans to idle factories for weeks this summer and has even offered the federal government a majority stake in the company as it races to meet the deadline.

Like at Chrysler, debt may be the stumbling block. GM has asked its unsecured bondholders to exchange $27 billion of debt for a 10 per cent stake in the automaker. The creditors balked, saying that would leave them with just pennies on the dollar and that they deserve a majority stake if they give up their claims.

When Chrysler emerges from bankruptcy, the United Auto Workers union will own 55 per cent of the automaker and the U.S. government will own 8 per cent. The Canadian and Ontario governments, which are also contributing financing, would share a 2 per cent stake.

Under the deal, Chrysler would gain access to Fiat's expertise in small, fuel-efficient vehicles. The U.S. automaker eventually wants to build cars that could get up to 40 miles per U.S. gallon (5.8 L/100 km), far more economical than its current fleet focused on minivans, Jeep SUVs and the Dodge Ram pickup.

In exchange, Fiat would initially get 20 per cent of the company, but its share could rise to 35 per cent if certain benchmarks are met, and Fiat said Thursday it could get an additional 16 per cent by 2016 if Chrysler's U.S. government loans are fully repaid. Fiat would also gain access to the North American market through Chrysler factories and dealerships.

Fiat CEO Sergio Marchionne said he was preparing for Chrysler to ``re-emerge quickly as a reliable and competitive automaker.''

The Fiat deal and bankruptcy cap a disastrous time for Chrysler.

Chrysler lost $8 billion last year and its sales through March were down 46 per cent compared with the year-earlier period, leading some auto industry analysts to question whether Chrysler can survive even in bankruptcy.

But company executives told reporters Thursday that Chrysler vehicles with Fiat's fuel-efficient technology should reach showrooms in 18 months.