Chrysler-Fiat: "Value" for Fiat Means "Free"
April 17, 2009
By Bill Visnic
With a May 1 deadline to make a deal with stakeholders -- a prerequisite of subsequently partnering with Fiat S.p.A. -- bearing down on Chrysler LLC lest the Obama administration's Auto Task Force take Chrysler into some form of bankruptcy, the posturing is heating up, particularly from Fiat Chief Executive Office Sergio Marchionne.
First, Marchionne threatened Fiat will deep-six its offer to tie up with Chrysler if the company cannot wrest further wage concessions from its U.S. and Canadian labor unions, concessions presumably to bring wages to parity with non-unionized Japanese transplant automakers in the U.S.
The unsubtle warning failed to immediately produce the desired result from either the United Auto Workers or the Canadian auto workers unions.
So Marchionne apparently took a different tack Thursday in Europe. Bloomberg News reported Marchionne as saying he would prefer if Chrysler was not forced into bankruptcy, saying it would not be the best way to achieve "value" for anyone.
Marchionne's position on a Chrysler bankruptcy should surprise nobody in the business world -- it's the last thing Fiat wants. If Chrysler is forced into bankruptcy, Fiat's free access to Chrysler plants -- as well as a plump $6 billion in promised additional federal loans that could be used to retool those facilities -- goes up in smoke.
From there, if Fiat truly has designs on reentering the U.S. market by building U.S.-legal versions of its own cars or assembling models for export, it will have to pay hard cash to obtain any Chrysler assets such as assembly or engine plants. And hard cash for the requisite retooling of those facilities.
That's hard cash Fiat doesn't have (the company had $8 billion in debt at the end of 2008), and Fiat's euros have considerably less dollar-buying power now than even a year ago. Last year at this time, a Euro fetched roughly $1.58. Now, a Euro is worth only about $1.32.
"Our preference obviously is to find a solution" for restructuring Chrysler outside of bankruptcy, Bloomberg reported Marchionne as saying. "Selling assets from a company that is in liquidation is not necessarily the best way to achieve value for any of the people involved."
That's particularly true for Fiat, considering its proposal for linking with Chrysler now stands at earning a 20 percent stake in the company in return for no monetary investment. Instead, Fiat will provide Chrysler access to Fiat small-car platforms and certain powertrain technologies.
As owner of a large portion of Chrysler, it is presumed Fiat could reallocate and reconfigure Chrysler's manufacturing assets at will and with the U.S. Treasury's money and blessing. If any type of "payment" from Fiat to Chrysler for Fiat's use of Chrysler North American facilities is implicit in the deal, that detail has not been mentioned.
Marchionne's statement of the obvious regarding Chrysler's potential bankruptcy -- oddly balanced with contradictory talk of Fiat actually ponying up to buy Chrysler assets if it must -- comes as he also weaves from assertiveness about how the situation must be resolved to an "aw, shucks" superficial humbleness when agreeing he might just as well run the two companies.
Recent history does not point to bright prospects for a transcontinental auto merger, much less for foreigners running a U.S. automaker. Most recently, a cadre of German executives could not bring prosperity to the DaimlerChrysler alliance after nearly a decade of trying. And various non-American executives could not halt a steady market-share and profit decline at Ford Motor Co.
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