Fiat's Marchionne: Union Concessions or We Walk Away
April 15, 2009

By Michelle Krebs

TORONTO -- Fiat CEO Sergio Marchionne told a Toronto newspaper that a Fiat-Chrysler partnership had only a 50-50 chance of success because of lack of progress in talks with union leaders, especially those in Canada. He said that the Italian automaker is prepared to walk away from the proposed alliance with Chrysler, which must be completed in two weeks, if the union doesn't cut costs. That likely would leave Chrysler headed to bankruptcy court.

"Absolutely we are prepared to walk. There is no doubt in my mind," Marchionne said in an interview with Toronto's Globe and Mail newspaper. Instead, he said, Fiat would find another international partner.

Nomura analyst Michael Tyndall told Reuters Marchionne was probably not bluffing in talking tough with the unions. "He's playing hardball," he told the newswire, adding that the unions' position would make the deal too costly for Fiat. "We want them [Fiat] to walk away...I don't see any benefits in this deal."

Indeed, a Chrysler-Fiat union is getting little support in Europe. On Wednesday, European firm Cheuvreux cut Fiat's rating to "underperform" from "outperform."

In a speech on Tuesday, President Obama said it is his "fervent hope that in the coming weeks, Chrysler will find a viable business partner." His administration has given Chrysler until April 30 to consummate an alliance with Fiat, which now exists as a framework only, or face bankruptcy.

Part of finalizing the deal requires Chrysler's unions to match the lower labor costs of plants run by Japanese and German carmakers in the United States and Canada to complete the deal and obtain an additional $6 billion from the U.S. government. Canadian unions reportedly are especially resistant to the idea.

And the tough-talking Marchionne had some harsh words for the unions on both sides of the border, who need to end their sense of entitlement, he said.

"The minute you talk to me about historical entitlement in an organization that is technically bankrupt, it's a nonsensical discussion," Marchionne told the Globe and Mail. "There is no wealth to be distributed."

Marchionne, who was educated in Canada, started his career in Canada and holds dual citizenship with Canada and Italy, added: "From what I can tell from a distance, the CAW may have taken more rigid positions. The dialogue is out of sync. I think they need to see what state the industry is in. Canada and the U.S. are coming in as the lender of last resort.

"No one else would put a dollar in. This is the worst condemnation of the viability of this business," he continued. "We are not anti-organized labor. No one wants to remove the UAW or the CAW from the table. But it will happen if a bankruptcy process drags on.... The UAW and the CAW have a unique opportunity here to change the framework of the discussion."

But union concessions aren't the only obstacle between a Chrysler-Fiat marriage. Chrysler's lenders so far have refused eliminate most or all of the $7 billion owed to them.

And by the way, Fiat is not putting cash into the deal as it currently stands and is unlikely to in the future. Under the current framework of the Chrysler-Fiat alliance,  Fiat would take an initial 20 percent stake in Chrysler in exchange for the small-car technology.

Short of Fiat injecting cash into Chrysler, Marchionne vowed to the Globe and Mail that he would do whatever it took to save the U.S. carmaker, including becoming chief executive, as reported on Monday that he would under certain management arrangements. "Fundamentally, that's possible, but the title isn't important," he said. "What's important is that they hear me."

Marchionne shed a bit more light on what a Chrysler-Fiat partnership would look like if it goes through. Some of Chrysler's 30 plants would be closed, though he wouldn't say which ones would be targeted. Labor costs would be lowered.

Chrysler's headquarters in Auburn Hills, Michigan, would be thinned out even further. "Fiat has an incredibly flat management structure," he said. "Chrysler needs a flat management structure."

In terms of product, Chrysler as a brand might be downgraded so the stronger Dodge and Jeep brands could be developed, he said. Marchionne said the Fiat Cinquecento (500), the hot-selling car launched in 2007 and credited with ensuring the revival of Fiat, would be introduced in North America as early as next year. It would be built in North America and would probably carry the Fiat badge because the company considers the Cinquecento a brand in its own right.

Chrysler would launch its own small car based on the Cinquecento platform, as Ford has done in Europe with the new Ka. "Chrysler needs its own Cinquecento, meaning a model that is the remaking of Chrysler," Marchionne told the paper.

Alfa Romeo would produce Alfas in either Canada or the United States, Marchionne said. Last year the Ontario government tried to convince Marchionne that he should build the Alfa in Ontario. He said Ontario Premier Dalton McGuinty tried to "sell" him an auto plant. The new Alfa 149, to be unveiled next year, would be built in North America, as would the successor to the larger Alfa 159.

But a Chrysler-Fiat alliance remains a big if. Moody's rating service earlier gave a Chrysler bankruptcy a 70 percent chance. In the Canadian newspaper interview, Marchionne would not offer odds on a bankruptcy, other than to say that a filing for Chapter 11 bankruptcy protection was "an option" in the absence of a partnership agreement. He did not rule out a Chapter 7 liquidation filing, it said.

Back in Europe late Wednesday, Marchionne, responding to his comments to the Global and Mail,  old reporters in Zurich, as reported by Bloomberg News, that Chapter 11 bankruptcy and suvival by selling assets are not Chrysler's best options. However, he said, if Fiat and Chrysler fail to come to an agreement and Chrysler goes into bankruptcy, the Italian automaker would consider buying assets of Chrysler.

"Our preference obviously is to find a solution" with the U.S. Treasury, unions and lenders, Marchionne said. "Selling assets from a company that is in liquidation is not necessarily the best way to achieve value for any of the people involved."

An industry expert told Bloomberg whether the two will come to an agreement is unclear. "It will be difficult to predict how it will end until the last day of negotiations," said Umberto Bertele, head of Milan's MIP business school. "They will find an agreement with unions at the end. Banks are the main problem."

Photos

1 - Fiat CEO Sergio Marchionne said in a newspaper interview Tuesday that the Italian automaker will walk away from a deal with Chrysler without union concessions. (Photo by Fiat)

2 - Chrysler President Jim Press, promoting the Chrysler-Fiat alliance at last week's New York auto show, hinted Chrysler would get a version of the popular Fiat 500. (Photo by Edmunds.com)

Posted by Michelle Krebs at 5:17 AM under Chrysler , Companies , News , Personalities | Comments (2) | digg this | Seed Newsvine

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