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Tim O'Brien | May 1, 2009

The announcement that Chrysler LLC and 24 of its wholly-owned US subsidiaries have filed voluntary petitions under Chapter 11 of the US Bankruptcy Code - under the direction of the US Treasury - was not unexpected.

Without agreement from all creditors for a debt restructuring, the filing for Chapter 11 protection was inevitable. The recalcitrant group of investment companies and hedge funds that had rejected the company's plans, perhaps hopeful of extracting more US tax-payer dollars, now have 'to take a number' and wait their place in the queue.

With Chapter 11 in place, and having secured significant concessions from creditors and the powerful autoworkers union, Chrysler has the breathing space to complete its restructuring process and cement its global strategic alliance with Fiat SpA, which was also announced today.

"This partnership (with Fiat SpA) transforms Chrysler into a vibrant new company with a wealth of strategic advantages,” Bob Nardelli, Chairman and CEO of Chrysler, said.

“It enables us to better serve our customers and dealers with a broader and more competitive line-up of environmentally friendly, fuel-efficient high-quality vehicles."

Chrysler began courting Fiat more than a year ago. The announced alliance will allow Chrysler and Fiat to share product development, optimise their manufacturing footprints and supplier bases, and also provide each with access to new markets. Fiat powertrains and components will also be produced at Chrysler manufacturing sites.

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Under the Chapter 11, the US Government has agreed to provide "sufficient debtor-in-possession (DIP) financing to allow continuation of business as usual". This will allow Chrysler to honour warranty claims, pay suppliers and keep the dealer body operating to serve Chrysler customers.

"Chrysler dealerships remain open for business serving our customers. All vehicle warranties will be honoured without interruption and consumers can continue to purchase our vehicles with complete confidence,” Mr Nardelli said.

Ownership of the new entity brings together some odd bed-fellows. The Voluntary Employee Beneficiary Association will own 55 percent of the new company and the US and Canadian Governments will hold a 10 percent stake.

Fiat is to initially take a 20 percent ownership holding. It will be able to increase its ownership by 15 percent in three increments of five percent provided it brings a 40 mpg vehicle platform to Chrysler to be produced in the US; another five percent for providing a fuel-efficient engine family to be produced in the US for Chrysler vehicles; and a further five percent for providing Chrysler access to Fiat's global distribution network for the export of Chrysler vehicles.

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As announced today, and certain to bring some joy to long-suffering US tax-payers, Fiat cannot however become a majority owner until all US Government loans have been completely repaid.

As a part of the restructuring, as announced today most Chrysler manufacturing operations will be "temporarily idled effective Monday, May 4, 2009". Following which, normal production schedules will resume once the transaction is completed - which is anticipated within 30 to 60 days.

But what will it mean for Chrysler Australia? (Wait there's more...)

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