On the same day it confirmed its newly forged alliance with Fiat SpA and its filing for bankruptcy protection under Chapter 11, Chrysler LLC announced that GMAC will now become its preferred lender for dealer and consumer business.

As part of Chrysler’s restructuring and with the backing of the U.S. Treasury, the company said it has reached an agreement in principle with GMAC to offer long-term finance options for Chrysler dealers and customers with standard rate installment products, including floorplan financing for Chrysler dealers. GMAC also has a four-year agreement for incentivized retail financing with limited exclusivity.

“GMAC is please to be part of the solution to restructure and stabilize the
U.S. auto industry,” said GMAC CEO Alvaro G. de Molina, who added that GMAC will leverage its servicing platform to provide customer service. “We intend to work through the operational process quickly and effectively to ensure that the appropriate level of credit is available to support the sale of Chrysler vehicles.”

Molina said he expects support from the U.S. government in form of liquidity and capital. He added that GMAC has not acquired the existing assets and liabilities of Chrysler Financial, which put outs its own statement shortly after Chrysler LLC's announcement.

"With today's events surrounding Chrysler LLC's filing for bankruptcy protection, Chrysler Financial, an independent company, will be assessing the effect of this decision on its lenders, investors, dealers and employees," read a statement from Chrysler Financial. "While the planning has gone on for several months, the ultimate impact on our constituents will be assessed over the next few days."

Chrysler LLC also announced that its chief executive, Bob Nardelli, plans to leave the company following its emergence from Chapter 11 and after the completion of its alliance with Fiat. “Now is an appropriate time to let others take the lead in the transformation of Chrysler with Fiat,” said Nardelli, who will return to Cerberus Capital Management LP as an advisor. “I will work closely with all of our stakeholders to see that this new company swiftly emerges with a successful closing of the alliance.”

Nardelli, who has lead the company since August 2007, said the alliance with Fiat allows both companies to optimize their respective manufacturing footprints and global supplier base, while providing each company access to additional markets. He also said Fiat powertrains and components will be produced at Chrysler manufacturing sites.

The discussion over forming a global product alliance between the two companies started more than a year ago. The discussions, however, evolved and expanded over the last several months, as Chrysler and many of its stakeholders worked on concessions to significantly lower the company’s cost base and enable fulfillment of a broader strategic alliance.

“This partnership transforms Chrysler into a vibrant new company with a wealth of strategic advantages,” said Nardelli. “We want to personally assure everyone that the new company will produce and support quality vehicles under the Jeep, Dodger and Chrysler brands, as well as parts under the Mopar brand.”

Nardelli said employees will transfer over to the new company, and that it will be business as usual for dealers. He added that all warranties will be honored without interruption.

Despite substantial progress on several fronts, however, Chrysler was not able to obtain the necessary concessions from all of its lenders, which would have avoided the need for a bankruptcy proceeding. As a result, and under the direction of the U.S. Treasury, Chrysler and 24 of its wholly-owned subsidiaries today filed for voluntary petitions under Chapter 11 of the U.S. Bankruptcy Code in U.S. Bankruptcy Court for the Southern District of New York.

“Even though total agreement was not possible, I am truly grateful for all that has been sacrificed, on the part of many of Chrysler’s stakeholders to reach an agreement in principle with Fiat,” said Nardelli. “My No. 1 priority has been to preserve Chrysler and the thousands of people who depend on its success. While I am excited about the creation of the global alliance, I am personally disappointed that today Chrysler has filed for Chapter 11. This was not my first choice.”

During the restructuring process, the government will provide sufficient debtor-in-possession (DIP) financing to allow the company to honor warranty claims, pay suppliers and keep its dealer body operational.

The company will also use structured bankruptcy to rapidly implement other necessary changes, such as agreed-upon wage and benefit structure for active and retired employees that is competitive with those of transplant manufacturers. Other changes include a reduction of debt-to-interest expense, the disposition of idle assets, as well as a restructuring of its dealer network and supplier agreements.

“We want to recognize the administration, the U.S. Treasury, the President’s Auto Task Force, as well as member of Congress and representatives at the state and community level, and Canadian Federal and Ontario Provincial governments for their energy and efforts in helping to move this new company forward,” Nardelli said. “To be sure, there will be many changes as we move forward to implement our plans. But today, from many great parts, we begin to build a vibrant new company with less debt, a stronger balance sheet, richer product portfolio, supported by a well-positioned finance company.”

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