President Obama is expected to announce tomorrow that Chrysler will in fact file for bankruptcy; according to a report by Bloomberg. The Wall Street Journal, however, says that Obama currently has two speeches drafted for tomorrow’s press conference: one if the struggling automaker files for Chapter 11, and one if it doesn’t.

The Chapter 11 option seems the most likely at this point as it would make the alliance with Fiat a smoother process.

The only way Chrysler will avoid the “B” word is if the companies that it is indebted to agree to accept a cash offer in exchange for that debt. That may sound like a more than fair trade, were it not for the fact that the cash value is just $2 billion, in exchange for $6.9 billion in debt.

While the federal government has made an agreement with the largest lender, other major players, including Oppenheimer Funds, Perella Weinberg Partners and Stairway Capital are holding out. According to David Cole at The Center for Automotive Research in Ann Arbor, MI, if those lenders have insurance policies that cover them completely in the case that Chrysler fails, then it’s in their best interests to see that bankruptcy is the solution.

President Obama, speaking on the topic at a Town Hall meeting in St. Louis today said that if bankruptcy happens it will be “real quick.”

But with billions on the line and numerous big players involved it’s not clear how even the Federal Government could stop the restructuring of Chrysler from taking years in court.

The Washington Post has reported that a Chrysler/Fiat alliance would see Chrysler CEO Bob Nardelli ousted from his current position in favor of an executive from Fiat.

[Source: Automotive News]

As we reported last week, General Motors has indeed made the decision to kill the Pontiac brand. The news comes as a part of a new viability plan (yes… another one) submitted to the federal government today.

The new plan will see Pontiac eliminated by the end of 2010, but that’s not all… not by a long shot. Also included in the new proposal is a long list of drastic and sweeping changes that General Motors says are much needed in order to stay in business. Among the list of big changes is the fast-track dissolution of Saturn. Originally scheduled to be dismantled by the end of 2010, the plan now states that the niche brand will be eliminated by the end of this year.

Also on the chopping block are half of all current U.S. General Motors dealerships. Not surprisingly, GM’s previous viability plan wasn’t pessimistic enough, calling for 34 percent of the current 6,246 dealerships to close. That number is now a solid 50 percent.

Other major cuts include the closing of three plants and the loss of 7,000 more hourly workers. This would put the number of hourly workers at 40,000 – 7,000 less than the last viability plan said there would be and 21,000 less than there were in 2008.

In total GM will cut 14 models from its lineup, with just 34 different vehicles being offered in 2010.

Most importantly, however, is that General Motors will offer current debt holders stock in order to reduce the company’s debt. But if too few debt holders cash in, then GM will go bankrupt. And that is looking quite likely as GM says it needs approximately 90 percent of its unsecured debt covered or else it believe the U.S. Treasury will not see the company as viable.

General Motors still faces the likelihood of filing for Chapter 11 but in the mean time it will run with its new viability plan and concentrate on its core brands: Chevy, Buick, Cadillac and GMC. With just over a month to go before the Obama Administration’s June 1st deadline, however, nothing is really certain. Maybe there will be another viability plan? Maybe more will be cut…

[Source: Automotive News]

Chrysler Canada Headquarters in Windsor, Ontario

While President Obama outlined his plan yesterday for General Motors and Chrysler, the Canadian government was forced into some more immediate action.

Chrysler Canada, which is currently threatening to remove all of it’s manufacturing facilities from the country if the Canadian Auto Workers (CAW) union cannot make concessions, made an emergency request to the Canadian government for an advancement on a government loan.

The Canadian government has agreed to loan Chrysler Canada $4 billion to help restructure the company if they meet certain requirements. One billion of that was set to be advanced, however, Chrysler Canada is in such dire straights that it made a request yesterday for a $250 million immediate advance, without which it could not make payroll.

“Very clearly, if the money had not been forwarded today, they would not have been able to meet payroll today or tomorrow,” said Industry Minister Tony Clement. Without the funds Chrysler Canada would have had to file for bankruptcy.

[Source: The Globe and Mail]

Photo Courtesy whitehouse.gov

While President Barak Obama’s press conference on what his administration is doing to solve the crisis in the U.S. auto industry focused mostly on helping out General Motors and Chrysler, he did give brief mention of a few initiatives aimed at jump-starting car sales at the consumer level.

Two main programs were discussed, including a scrappage program and tax deductions.

President Obama said that he will be looking into ways to see if there is any money to set aside in a fund to create a scrappage plan. While no specifics were given as to the details of the plan, usually these programs give consumers a significant rebate on the purchase of a new car when they trade in or “scrap” their old car. Often cars must be close to 10 years of age to qualify.

A similar program was launched in Germany several months ago with resounding success, boosting car sales by 21 percent in February over the previous period a year earlier. President Obama said that such a plan in the United States could increase car sales by as much as 100,000 units in 2009.

It is not clear if the scrappage plan would apply to just GM and Chrysler products, or to any vehicle manufactured within the United States, or to any vehicle at all.

The second incentive would allow for tax paid on a new car to be deducted from one’s income tax. This program is further developed as President Obama said his administration has already begun working with the IRS. A specific time frame has also been given that would seen the tax deduction apply to any vehicle purchased between February 16th and December 31st of this year.

The scrappage plan, once it goes into effect, would be retroactive as of today.