Fiat-Chrysler Marriage Is Troubled Even Before Consummation
January 23, 2009
By Michelle Krebs
The proposed marriage between Chrysler and Italy's Fiat is showing signs of strain even before it is consummated.
Some Congressmen already are expressing concern about Chrysler's planned alliance with a foreigner and using federal funds to do so. Fiat has made obtaining additional federal funds a condition of the wedding to occur.
At the same time, Fiat's turnaround showed its fragility as the automaker reported fourth-quarter earnings that plummeted and a cash burn that is raging.
On Thursday, Sen. Robert Menendez (D-N.J.) wrote a letter to newly inaugurated President Barack Obama urging him to require Chrysler to repay recently granted federal loans immediately if Fiat takes a controlling stake the company.
Fiat and Chrysler have signed a deal whereby Fiat would take a 35 percent stake in the company for no cash down; the Italian automaker said it may pay an additional 20 percent for a measly $25 million if Chrysler shows signs of life this year. Chrysler recently received a $4-billion federal loan and is asking for another $3 billion, a requirement by Fiat for its alliance to occur, as are concessions from the United Auto Workers union.
Sen. Menendez insists Chrysler should pay back the $4-billion loan, saying "American taxpayers paying to prop up the foreign auto industry." The New Jersey senator said in his letter to the President: "As a potential partnership between Chrysler and Fiat moves forward, I am asking you to address the potentiality of foreign control and require the immediate payback of the loans already dispersed should such a scenario present itself...I am sure you would agree that the responsible action is to ensure that American taxpayers are not financing foreign auto makers."
At the same time, Republican Sen. Robert Corker of Tennessee, who gained Congressional rock star status during last fall's hearings on aid to U.S. automakers, told the Wall Street Journal that giving additional federal funds to Chrysler is "somewhat troubling for all of us as U.S. taxpayers," though, he admitted, "for Chrysler itself, it may be the best outcome."
During last fall's hearings, Corker, a businessman who asked piercing questions of U.S. automakers and particularly privately owned Chrysler, had advocated letting Chrysler die. He has been openly bothered by the fact that Cerberus Capital Management, the majority owner in the automaker, will not invest any more money into the company. And now comes the deal with Fiat that calls for the Italian automaker taking a 35 percent stake in Chrysler with absolutely no cash down.
"It's an interesting set of questions for American taxpayers, who in essence could have $8.5 billion into Chrysler and the finance company when it is all said and done," Sen. Corker told the Wall Street Journal.
Fiat Profits Fall; Labor Restless
As all this discussion was going in the U.S., Fiat announced in Italy Thursday that its fourth-quarter earnings dropped 71 percent and its debt ballooned to nearly $8 billion three times what analysts had estimated. In response, Fiat said it would not pay a dividend for 2008. Fiat's stock tumbled 15 percent, and the Italian government said it may help its automakers.
Worse, Fiat CEO Sergio Marchionne painted a grim picture of the 2009, with vehicle sales predicted to be 20 percent lower than were those in 2008.
"In my view it is going to be the toughest year ever [for the car industry]," Marchionne told reporters. The year "will test every ounce of leadership skills we have," he added.
And Fiat is confronting labor issues. Its Pomigliano plant, the largest industrial plant in southern Italy, has seen production lines slow to a trickle. Since August, it has operated at full capacity only four weeks; its 5,300 workers have collected only 60 percent of their normal pay. Now, the plant is closed until March 15, a move communicated to workers only by a note on the plant gates when they arrived at work.
Workers interviewed by London's Financial Times are wary of the Fiat-Chrysler deal. They fear Fiat will start production in the U.S. of its smaller, more successful models, like the Fiat 500, while Pomigliano, which produces the nine-year-old Alfa 147 and the uncelebrated Alfa 159, will close down.
Posted by Michelle Krebs at 7:53 AM under Business , Chrysler , Companies | Comments (0) | digg this | Seed Newsvine
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