Chrysler appears to be on a fast-track to clear bankruptcy court and start afresh in an alliance with Fiat, after a key ruling that could allow a quick sale of its assets, analysts say.
But the troubled automaker still faces a long road ahead as it tries to emerge from court protection and gain traction in a difficult North American market.
US Bankruptcy Judge Arthur Gonzalez rejected objections from a group of Chrysler creditors and approved a timetable late Tuesday for the sale of the automaker's main assets.
That move could come as soon as May 27 and could allow a new firm to inherit the Chrysler nameplates.
The ruling is a major victory for the administration of President Barack Obama, who has pressed for a "quick rinse" bankruptcy that erases a large chunk of Chrysler debt and creates a new firm that gets some additional global muscle.
Robert Lawless, a University of Illinois law professor specializing in bankruptcy said the latest ruling clears a big hurdle.
He said the legal strategy used in other cases in recent years would leave the old Chrysler LLC under court supervision, but sell the factories and other assets to the new entity led by Fiat.
"What happened will be very important in getting those productive assets back in operation," Lawless said.
"It goes a long way to accomplishing the goal that Obama and Chrysler wanted."
Jonathan Lipson, a Temple University law professor, said the case is highly unusual because of the involvement of the White House but consistent with precedent on quick bankruptcy asset sales to help preserve a company's value.
"If the court had not entered the schedule, that would have signaled a problem," Lipson said.
"The plants are idled. If this doesn't happen quickly it could drag on and be disastrous" for Chrysler's future.
Lipson said the judge must allow competing bids but that it is unlikely that another group could in the coming weeks get enough information to make a credible bid.
Lipson said that despite the objections of some lenders, it is not unusual for a bankruptcy court to brush aside those complaints and reduce the outstanding debts.
"The whole idea of Chapter 11 is to create a flexible system to allow companies to renegotiate their debt," he said.
Chrysler lawyer Corinne Ball told the court hearing there is no other way to save the automaker.
"Chrysler is ... already dying. They can't last till the end of June" without the sale, she said.
Jeremy Anwyl, chief executive at the auto research firm Edmunds.com, said Chrysler still faces many obstacles in proving its viability.
"Getting through bankruptcy as quickly as possible is key," he said.
He said Chrysler has "a history of inspired products" but has struggled to find its niche in the US marketplace.
Surprisingly, he said his firm's research shows a rise in consumer interest in Chrysler, debunking the notion that people won't buy a car form a company in bankruptcy.
Anwyl said the Chrysler bankruptcy sends a strong message to creditors of General Motors that the US government take a tough stand even if it means pushing GM into court protection as well.
"Anyone who thought the government would hesitate to push Chrysler or GM into bankruptcy would have to say this is a serious threat," he said.
He said that Obama sent a message to creditors of both firms "that he is coming down clearly on the side of protecting the US auto industry."
The small group of creditors trying to derail the deal argued they were being treated unfairly and that the restructuring had been all but sewn up in advance by the White House.
The new firm would be majority owned by the United Auto Workers (UAW) union, with small stakes by the US and Canadian governments, which would contribute some 10.5 billion dollars to the venture.
Fiat would initially take a 20 percent stake in the firm that would rise to 35 percent and could reach 51 percent as early as 2013 if Chrysler is able to repay its government loans.
Source: AFP American Edition
