Chrysler's Italian Lifeline Full of Knots
April 03, 2009
By Bill Visnic
With fewer than 30 days now to cement a partnership with Italy's Fiat S.p.A. or else, Chrysler LLC's prospects for survival -- at least in something resembling its current form -- are slimmer than the lapels on Fiat President Luca Cordero di Montezemolo's suit.
Thirty days to structure a complex, transcontinental and cross-cultural manufacturing and product-development alliance when both companies are in financial distress, auto markets on their home continents are dangerously depressed -- and their respective top management as recently as last week wasn't even on the same
page regarding the most basic elements of the deal?
Auto-industry alliances often do not turn out well -- and can be assumed not to begin any better when devised under the condition that one party has a date in bankruptcy court if the plan doesn't happen.
Yet that's precisely the situation with the Chrysler and Fiat deal. And within hours of
President Obama's announcement Monday that Chrysler had a 30-day deadline to cut a deal with Fiat, the Italian automaker's CEO Sergio Marchionne,
who had met with Obama's auto task force in March, was jetting to Detroit, with a Washington stop expected.
Still, almost since the companies first confirmed in January they were talking, there's been a schizophrenic aura making the Chrysler-Fiat proposal seem as much circus -- or tragic Italian opera -- as a genuinely workable plan.
Even the framework of the deal changed just this week, with Fiat's initial stake, for which it still will not pay a dime in cash but instead will barter engineering and vehicle platforms, would be lowered to 20 percent from the originally planned 35 percent.
The irrationality of it all may now be validated by President Obama himself as media outlets report that the president is "prepared to let Chrysler LLC go bankrupt and be sold off piecemeal if the third-largest U.S. automaker can't form an alliance with Fiat."
Doubtful in 30 Days
The improbability for Chrysler and Fiat to pull together a deal in 30 days -- or any amount of time -- seems to be accelerating by the day. Consider:
- A condition of Chrysler receiving the $6 billion in new loans it requested -- and without which Fiat said it won't complete the alliance -- is the erasure of most of the company's current secured debt. Yet these lenders would be first in line for reimbursement if the company goes bankrupt -- seemingly a better choice for these lenders than gambling on being paid off only if the Chrysler-Fiat alliance succeeds.
- Senator Bob Corker (R-TN), an ardent critic of federal aid for GM and Chrysler, voiced his opinion of the motives behind the deal. He was reported as saying of the proposed Chrysler-Fiat alliance, "In essence, the company's being given to Fiat."
- Sheldon Stone, a partner at Amherst Partners LLC, a Michigan-based restructuring consultant, told Bloomberg News, "It is an impossible goal. The likelihood is that the 30-day period is going to allow Chrysler to get their house in order for a bankruptcy."
Negative Waves
In fact, although the companies are assumed to have been working for months on the deal, recent situations indicate chaos abounds for the parties that now have 30 days to stitch together a plan.
This week, Chrysler scrambled to clarify a press release, carefully reworking a statement attributed to CEO Bob Nardelli that said Chrysler, owner Cerberus Capital Management LP and Fiat had reached an agreement on the proposed alliance. The company took pains to subsequently say the parties had the "framework" of an agreement.
Earlier last month, the companies that supposedly are working diligently on a complicated industrial alliance appeared confused on a basic point. Nardelli told the press Fiat would assume an amount of Chrysler's debt equal to Fiat's ownership stake in Chrysler.
Not true, Fiat quickly replied. Nardelli took haste to clarify as well.
And in what likely is a bellwether, President Obama said on Monday the government will back the warranties of vehicles sold by Chrysler and GM.
Some are speculating this new assurance about warranties is a preemptive move to bolster consumer confidence in the two automakers as all involved parties, including the president and his Task Force on the Auto Industry seemingly now speak daily of bankruptcy.
If Chrysler and Fiat somehow manage to concoct from their "framework of an agreement" a definitive plan that passes muster with the task force and President Obama, critics are left to wonder what a further $6 billion injected into Chrysler-Fiat will achieve to improve Chrysler's near-term liquidity crisis.
Unless the companies' plan includes something on the order of a miracle of manufacturing agility -- that might be plausible if they were Japanese automakers -- it will be a likely minimum of 18-24 months before the alliance could generate showroom-ready product for sale on either side of the Atlantic. And unless auto sales in Europe and the U.S. make a quick and extraordinary recovery, at typical rates of domestic-automaker cash burn, the U.S. Treasury's next $6 billion loan to Chrysler might not see the company through the summer.
Posted by Michelle Krebs at 7:56 AM under Analysis , Chrysler , Featured | Comments (0) | digg this | Seed Newsvine
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