Eleventh-Hour Compromises From Chrysler Stakeholders, but Is Fiat Still Serious?
April 26, 2009
By Bill Visnic
With President Obama's economic advisor saying only that the administration is "hopeful" Chrysler LLC can wrap up a deal with Italy's Fiat S.p.A. by the end of the week in order to stave off a trip to bankruptcy court, key constituencies made gestures over the weekend a willingness to help keep alive the Chrysler-Fiat deal.
That is if Fiat even wants to.
Fiat let it be known last week the company also is a player in negotiations for major stake in General Motors Corp.'s Adam Opel AG unit, the cornerstone of GM's hobbled European operations. Fiat's disclosure may signal the company either doesn't believe the Chrysler deal can happen -- or already knows it won't happen in the brief days left to forge a deal with numerous recalcitrant Chrysler stakeholders.
The White House's economic advisor, Larry Summers, was elusive and decidedly noncommittal about the Chrysler-Fiat alliance on Fox News Sunday, seemingly underscoring the administration's insistence the deal happen by May 1 or Chrysler will be cut off from further government loan support.
But late during the weekend prior to the government's deadline, one important party indicated it is ready to help Chrysler make its case for restructuring outside of bankruptcy.
CAW Relents
The day before Summers' reserved television appearance, the Canadian Auto Workers (CAW) union had reached a deal with Chrysler to shave some $197 million from the benefits of its approximately 8,000 members. That contract was ratified on Sunday night.
Fiat chief executive Sergio Marchionne had for weeks insisted Fiat's continued interest in an alliance with Chrysler was contingent on wresting concessions from both of Chrysler's North American autoworker unions.
The CAW agreed to eliminate numerous benefits, but base wage and pension pay are not impacted by the new concessions, the Associated Press reported. The cuts apparently are enough to derive the $19 (Canadian) per hour in overall reduction required to reach the total labor-cost target of about $57 (Canadian) per hour.
Chrysler President and Vice Chairman Tom LaSorda, a Canadian-born executive with long and deep ties with the CAW, issued a statement expressing gratitude to the embattled CAW, which had withstood considerable pressure from Chrysler and Fiat.
Chrysler still needs to win a labor-cost reduction from the United Auto Workers union in the U.S., however.
Banks Buckling, Too
Meanwhile, another sticky wicket became slightly unstuck over the weekend when a group of secured creditors, comprised mainly of large banks and investment funds, said it would further reduce its demands for repayment of Chrysler's obligations.
The investors, collectively owed $6.9 billion, told the U.S. Treasury Department over the weekend they would accept a reduction to $3.75 billion. As recently as last week, they had insisted on $4.5 billion and a 40 percent equity stake in the new Chrysler-Fiat alliance.
But more important, the creditors' new offer drops a recent request that Fiat inject $1 billion in cash into the proposed alliance.
In requesting Fiat invest cash, the creditors evidently had ferreted out the sweetest part of the deal for Fiat and -- being berated to take a close-cropped "haircut" of $1 billion and little else for their nearly $7 billion in secured debt by everyone including Michigan's governor -- righteously stood their ground.
But as the deadline draws closer, the brinksmanship is softening on both sides, although even the latest offer from the debt holders might well still amount to more repayment that Chrysler and its negotiator, the Treasury, prefer.
Fiat Question Mark
But with stakeholders backing up and more contingencies for the Chrysler-Fiat alliance falling into line, some believe the largest question now might be the degree of Fiat's resolution to complete the deal.
Pursuing Opel in some senses mirrors the arrangement Fiat seeks for Chrysler. Early reports have GM letting go of Opel for as little as $650 million -- but even that evidently would effectively be returned via a GM investment for a like amount. Fiat reportedly is stalking a large stake in Opel, but possibly wouldn't be the sole investor.
Opel has larger models that complement Fiat's compact-car dominated model range, but the automaker remains a largely Europe-dominated operation.
Chrysler offers the attraction of an immediately available, no-cost U.S. sales and distribution network for Fiat-badged vehicles or Fiat-made vehicles wearing Chrysler badges. Despite a long-running fade, Chrysler's Jeep division continues to offer potential. And free access to Chrysler's underutilized North American manufacturing facilities also is a tempting prize.
Fiat's play may not be an "either-or" situation: If Chrysler can win the concessions it wants from its stakeholders and an increasingly desperate GM truly wants to unload Opel in the fashion early reports suggest, Fiat could grab significant parts of both companies without the investment of any cash at all.
Posted by Michelle Krebs at 4:39 PM under Chrysler , Featured , GM | Comments (0) | digg this | Seed Newsvine
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