The US government is getting ready for a Chrysler Chapter 11 bankruptcy filing, US media reported last night.

Sources told the Detroit Free Press the treasury is preparing for a bankruptcy filing that would allow a Chrysler-Fiat partnership to proceed.

An unnamed administration official described the preparations as contingency planning, a point emphasised by Michigan Democrat senator Debbie Stabenow late on Thursday. “They are preparing all options,” Stabenow was quoted as saying.

Chrysler has only until next Thursday, 30 April, to agree labour cost cuts with both US and Canadian unions and restructure debt or face bankruptcy restructuring overseen by the government which last month authorised loan funds only to take it through to the deadline.

The Free Press has previously reported that the Obama administration wants to protect retiree health care, often a target for reduction in a bankruptcy, to a greater degree than the debt of banks and bondholders.

How well do you really know your competitors?

Access the most comprehensive Company Profiles on the market, powered by GlobalData. Save hours of research. Gain competitive edge.

Company Profile – free sample

Thank you!

Your download email will arrive shortly

Not ready to buy yet? Download a free sample

We are confident about the unique quality of our Company Profiles. However, we want you to make the most beneficial decision for your business, so we offer a free sample that you can download by submitting the below form

By GlobalData
Visit our Privacy Policy for more information about our services, how we may use, process and share your personal data, including information of your rights in respect of your personal data and how you can unsubscribe from future marketing communications. Our services are intended for corporate subscribers and you warrant that the email address submitted is your corporate email address.

The paper said that any promise to protect UAW benefits could, however, strengthen the resolve of creditors holding US$6.9bn in secured loans who already contend the UAW union is receiving preferential treatment. Obama’s auto task force asked creditors on Wednesday to reduce their loans to $1.5bn in return for 5% of the restructured company.

“The taxpayer will be on the hook for billions of dollars,” subsidising pensions and health care for retirees under 65, University of Maryland economist Peter Morici told the Free Press. “Or the entity that emerges from bankruptcy will be crippled and require continuous government subsidies.”

Sources told the Wall Street Journal Chrysler would file for Chapter 11 bankruptcy protection if it reached a deal with its lenders, allowing Fiat to cherry-pick the existing operations as part of a plan agreed to in principle by the United Auto Workers union.

“It should surprise no one that the administration is planning on contingencies, but we remain focused on the goal and engaged with all stakeholders to bring Chrysler and Fiat to a working partnership,” an anonymous administration official told the New York Times.

Chrysler spokeswoman Lori McTavish was quoted as saying: “As we move forward in this process, we believe it’s important to keep all options open.”

The WSJ’s sources said Chrysler would be liquidated and assets either sold off or closed if a satisfactory deal isn’t reached with the creditors.

Fiat chief Sergio Marchionne yesterday said he was committed to Chrysler and “we continue to make progress” in talks over taking an initial 20% stake – which could eventually reach 51% –  in return for Chrysler using its small car platforms and technology and Fiat gaining access to US factories and dealer networks.

Meanwhile, German magazine Der Spiegel has reported that Fiat could take a majority stake in Opel which faces a 1 June deadline to present a viable restructuring plan and has been refused direct government aid.

Chrysler last night insisted an alliance with Fiat would make it viable.

“On 30 March, the administration recognised the viability of Chrysler LLC and its products, in combination with a Fiat alliance,” it said in a statement.

“Chrysler has consistently said that its viability will be enhanced through an alliance with Fiat, as it represents a change in the company’s business model that expands its global competitiveness.

“As we move forward in this process, we believe it’s important to keep all options open. Chrysler will continue to work through the end of the month, based on the direction given by the presidential auto task force, to secure the support of the necessary stakeholders and reach a successful conclusion that the administration and US treasury deems appropriate.”