Chrysler and Fiat's Latest Tiff: Not Unexpected, Not Good 21 comments
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Several months ago, Fiat announced an alliance with Chrysler in which it would take a 35% ownership stake in Chrysler. In a post entitled Fiasco for Fiat, I discussed the alliance’s prospects for success, and what the deal meant for Chrysler and its creditors. With respect to Chrysler’s outstanding debt, I wrote:
As a Chrysler creditor (a U.S. taxpayer), anything that increases the likelihood, even infinitesimally, of receiving a return on my investment makes me happy. The U.S. taxpayer (and by corollary, the U.S. government) should therefore be positively predisposed toward this deal, taking comfort in the fact that, at the very least, in exchange for a 35% ownership stake in Chrysler, Fiat should be commensurately responsible for 35% of the liabilities. This should come as welcome news, assuming Fiat can keep Chrysler viable long enough to repay the U.S. government.
I then expressed incredulity at Fiat’s willingness to sign itself up for 35% of Chrysler’s liabilities:
Personally, I can’t believe that signing up for 35% of the liabilities of Chrysler would not be enough to scare off Fiat, …or any other potential investor for that matter.
But who am I to object. Caveat Emptor.
Well guess what?? Surprise, surprise. Fiat is not willing to assume 35% of the liabilities. According to recent reports (see Fiat Not to Take Debt), Fiat, while interested in owning 35% of Chrysler’s upside, is not interested in inheriting 35% of Chrysler’s problems. It’s like Geithner’s Public Private Investment Partnership - Fiat wants to be able to benefit from the upside while Chrysler’s current shareholders/creditors bear the downside risk (heads I win, tails you lose). According to the AP article:
A public tiff between Italian automaker Fiat SpA and Chrysler LLC apparently ended Friday when Chrysler rescinded a statement on its Web site that Fiat would be responsible for part of Chrysler’s debt if the two companies join forces.
Chrysler, in a Web video on Thursday explaining why an alliance for the two companies would be good for Chrysler and the country, said Fiat would be responsible for 35 percent of what Chrysler owed to the U.S. government.
But Fiat on Friday denied that it would be responsible for any of Chrysler’s debt.
…Chrysler, in a statement issued Friday, reversed the claim it made on the Web and said Fiat would become an equity holder.
“To clarify, this does not mean Fiat would assume responsibility for any of Chrysler LLC’s debt,” the statement said.
Fiat Group said in a statement Friday said it “intends to make absolutely clear that the proposed alliance will not entail the assumption of any current or future indebtedness to Chrysler.”
I have to admit, from a transactional perspective, I am not sure exactly how such an arrangement could be structured - i.e., how a firm can acquire 35% of the residual claims to a firm but not also be liable for 35% of the outstanding claims on the firm. Call me crazy, but that’s what I thought “ownership” meant. But that’s something for the lawyers to figure out.
What most interests me is what Fiat’s lack of commitment to Chrysler might mean for Chrysler’s prospects of receiving additional government aid. Answer: It cannot bode well for Chrysler.
Personally, I do not believe Chrysler deserves additional government loans with or without Fiat (see The GM and Chrysler Plans, Aid for Chrysler? Just say No! and Is the End Nigh for Chrysler? for details). That notwithstanding, the latest Fiat developments cannot help.
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This will give Ford & Possibly GM a chance to get healthy again & get American autos back in to the confidence of the american public that is still favoring the foreign made vehicles.
GM needs to trim its dealerships, models offered, cut cost, close old plants, & sell off all assets that are not absolutlely necessary to become a viable player in the world market again.
I personally have said that if Cerebus wasn't willing to infuse capital that they have into Chrysler because it is too risky, why should the US taxpayer have to bare that risk?
No one can truly say that Chrysler would not have had issues in this economy. Still, a large part of the issue is the continuous influx of GM (Lasorta), Daimler, and Cerebus executive management and their own personal agendas. There are so many chefs in the kitchen no one knows if there is an order let alone for which meal.
www.thetruthaboutcars..../
What will happen if we give them money is that Fiat will export their Fiats and Alfa Romeos to US, Chryslers's car plants will still close, and the best case scenario has the majority of the new Chrysler-Fiats built in Mexico.
If it does work, then the majority of the profits go back to Germany and Italy....
Tell me again why this is a good deal.
Chrysler does have some valuable assets and brands. They were supposed to build the next generation of Nissan trucks, so sell them the truck division. GM could use the minivans since it doesn't have any right now. Jeep/Hummer should be a viable joint venture -- two great off-roading names together.
Liquidate the rest and the US automotive marketplace gets stronger.
Looks like Ford is the winner.
>>>antonio
Time to put down the kool aide and walk away, Antonio. Here's a dose of reality. The ten best selling cars in Canada? Here's a list. Note the absence of Chrysler models.
Honda Civic
Toyota Corolla
Mazda 3
Toyota Yaris
Chevy Cobalt
Hyundai Accent
Pontiac G5
Toyota Camry
Nissan Versa
Ford Focus
As for their being the "only" US automaker? LOL. All that means is that they are the most dependent on the US market. Which means they are in more trouble than the others.
And there is no way they source 90% from the US. I dare you to post any data which would support that.
In fact, they don't produce anywhere near 90% of their vehicles in the US. The Charger? Not US built. The 300? Not US built. The PT Cruiser? Mexico. The new Challenger? Imported. The Magnum (are they still making those?)? Imported. All the minivans? Not in the US. Even the Hemi is buit in Mexico.
Once they drop the losing line of midsized cars (which no one can even name) they will be in the position of not building ANY cars (trucks only) in the USA.
How's that for All American?
The have the most diverse mix of vehicles of any U.S. auto manufacturer, which considering their relative size is remarkable. And the 300 just missed (due to styling and marketing) becoming our first serious competitor to popular foreign sports sedans. (And it still could be.)
And you can't blame Fiat. Why would they invest more than they have to to help Chrysler out? They're in the driver's seat, if you will. In exchange for their small car technology, we'll all be winners in due time.
Diamler's stake in Chrysler is 19% and Fiat is assuming that percentage and an additional 16% thus bringing their total to 35% and total foreign ownership to 35%...so don't get your knickers in a knot over nothing...
I really think instead of focusing on Chrysler or the American car companies, you should focus on the HUGE waste at AIG and the banking industry...afterall a currency has no value if noting inside a countries borders is being produced...Learn Economics not just english...
>>>antonio
Just to set the record straight.
Chrysler builds about as many American tanks as Toyota does. Zero.
General Dynamics is the contractor for the Abrams tank and the LAV. BAE is the manufacturer for the Bradley IFV.
Chrysler hasn't produced any defense equipment since the 1980s.
I'm afraid that if we let one of these companies fail, we will start a cascading effect throughout not only the auto industry, but suppliers, dealers, even down to the "Mom & Pop" shops around the corner. Fiat's proposal is odd at best, but it may work out. The small car market is no friend to Chrysler and by getting some of the technology from Fiat, this could help right the ship. They need a better sense of direction at the top levels and stop wetting their fingers and raising them in the air to see which direction the consumer is going. They need to be pro-active instead of re-active, because by the time the react to the market place, they have already missed their opportunity.
I'm sick of hearing about how great Honda & Toyota are. I wouldn't own a rice burner if it was the last vehicle for sale. Gotta Schwinn?
On Mar 25 10:22 AM Tony C wrote:
> <<<most of you dont know a thing! Chrysler is the best selling company
> in Canada 1st time ever. Also their market share has risen from 9.4
> in 2008 to 11.9 in 2009! Chrysler is the only American car company
> left on the planet! They have 90 % of their sales, employees, and
> parts purchased right here in the USA ! Get off your high horse Hondas
> and support your American workers, and industry! Like Toyota is going
> to build tanks if the US goes to war! Stop bashing, and start supporting!
> Belly-achers!
I'm just not convinced the Fiat deal is a good deal. Let the German government loan them 20%, the Italian government 35% and the US government the balance and I'll come onside.
With industry volumes running at approximately half of the normal volume, the last thing that this industry needs to get healthy is more vehicles coming into the US marketplace.
Even worse, our tax money is going to fund the importation of these vehicles. Since we already have overcapacity here and sales volumes are so limited, every imported vehicle displaces a domestically produced one. Thus we are going to be paying to put our own auto manufacturing people out of work.
At a macro level, I just don't understand how this makes sense for the US.
www.examiner.com/x-313...~y2009m3d24-Latest-Car...
according to WSJ:
"in the latest meeting about the alliance on Wednesday, the task force indicated that the two companies may need to make adjustments to the deal in order to make it more acceptable to the U.S. government, according to the two people who attended the meeting."
online.wsj.com/article...
seems to me like the Fiat stands to lose a lot here. The multiair and multijet technologies are easily worth billions, while 35% of nothing is worth the same as 20% of nothing (aka Daimler 20% share). If Fiat, who could drastically turn around Chrysler, are being treated much worse than Daimler, who ravaged Chrsyler, Fiat would be much wiser to give this a miss and go for Saab. Saab vehicles with multiair engines and twin-stage turbo multijets (e.g. the Saab 9-3 1.9 TTiD is in fact a Fiat engine) would also have dramatically lower emissions.