Chrysler: Looking for a Miracle to Survive

From the vault of “Oh Gee, What a Shock” comes the latest pronouncement from Fiat: Concessions or No Chrysler Deal. According to the Associated Press:

Automaker Fiat Group SpA will walk away from a deal to take a 20-percent stake in Chrysler LLC if the U.S. automaker’s unions don’t agree to major cost cuts, Fiat CEO Sergio Marchionne said in an interview published Wednesday... Chrysler… needs concessions from creditors and unions to ink the Fiat deal.

My comment: As I suggested in a prior post (see Finally a Sensible Approach), Chrysler needs much more to survive than Fiat and the $6 Billion that the US Government has promised. Moreover, since Chrysler has no other options and the federal government has given Chrysler an ultimatum with respect to the Fiat deal, Fiat can play a very strong hand in any negotiation. And they will.

Absolutely we are prepared to walk. There is no doubt in my mind,” Marchionne told the Toronto Globe and Mail. “We cannot commit to this organization unless we see light at the end of the tunnel.”

Marchionne said there is a 50 percent chance the deal will fail because of lack of progress in labor negotiations in both the United States and Canada.

“The dialogue is out of sync,” Marchionne said. “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.

My comment: I think Marchionne’s estimate, that there is 50% chance that the deal goes through, is wildly optimistic. As with GM, it will be very difficult for Fiat/Chrysler to extract meaningful concessions from the auto unions and Chrysler’s various creditors. Some creditors (e.g., secured bondholders) would likely be better off with Chrysler in bankruptcy than make the kinds of concessions that would allow the Fiat deal to go through. Therefore, and as I alluded to in my previous post, Chrysler now needs a miracle to survive.

And we wait…

Comments

[jadziasman:]

Yeah, sure, a miracle (LOL!).

That miracle would be called the U.S. taxpayer.

Even if the Fiat deal falls through, it's unlikely that Obama will pull the plug immediately.

As Michael Scott said on the next to most recent episode of "The Office" - 'Everyone deserves a second second-chance.'

Bank on it.

Apr 15 05:54 PM

[zagrebzagreb:]

If memory serves the Daimler-Chrysler "merger" (which was in fact no such thing) ended up costing Daimler over $20 billion.... Plus the distractions of integrating the company, such as huge losses in quality of product for once top of the line Mercedes Benz... A horrible experience all around, and I'm sure on the minds of those in charge at Fiat.

I can't see any company wanting to get into bed with Chrysler, especially as an arrogant/idiot prone investment group now controls the company.

Apr 15 06:04 PM

[niteshift:]

7% is the amount add to cost of a car built buy a union worker. thats what is reported by the automakers them selfs. the U.A.W. has since agreed to cut wages and benefits. so it now less then that! in a large company such like Chrysler in sure there are other places to cut cost. it can not always be put on the worker. why must you be mad at workers? your mad cause they are tring to better there pay,benefits(for there familys),retirement? for a company to make it in this hard time(and good times as well) it takes good mang. and good workers. the workers seem to understand that and have reopened there contract and seem to agree to cuts in pay and benefits. so why are U bashing them now?

Apr 15 06:37 PM

[bpolori:]

I agree. Fiat should run away from this deal and never look back! The Unions will break them unless they get control in the beginning. You cannot even give an inch to the UAW! They are so used to always getting whatever they want and, thus, the current state of the US auto industry. Buy parts of Chrysler after chapter 7 liquidation is the best option for Fiat. Learn from Daimler. They lost billions!

Apr 15 06:38 PM

[Jeremy Suen:]

Chrysler, like what GM has done, should just move to China to serve the Communists.

www.theautochannel.com...

www.autoblog.com/2006/.../

Apr 15 07:46 PM

[DavidR:]

How is it that everyone is so quick to forget the world class quality of the Yugo (a rebadged Fiat), but so slow to forget the past mistakes of the US auto industry? Wow, Fiat... I can just see the new advertising slogan: Jeep, designed by American Motors, modified by Chrysler, facelifted by Mercedes, and bailed out by Fiat. I guess that makes it a true world car.

Apr 15 08:07 PM

[Bill C.:]

Get your facts straight. Daimler robbed Chrysler!! They took thei 18 billion in cash, and all thier best engineers, sucked them dry and ran. You the public was told how Chrysler was dragging them down.But the fact was Daimler was already in a downward spiral. Consider this and make your own assessment. The year before Daimler took over Chrysler was selling so many vehicles their workers were given a ten thousand dollar profit sharing bonus and Chrysler had eighteen billion in cash reserves. That same year Daimler employees recieved almost no profit sharing bonuses. The year after they took over Chrysler Daimler employees got eight thousand Dollars, Chrysler employees got about five hundred dollars and thier cash was gone. Check the real facts and even you can figure this one out.


On Apr 15 06:38 PM bpolori wrote:

> I agree. Fiat should run away from this deal and never look back!
> The Unions will break them unless they get control in the beginning.
> You cannot even give an inch to the UAW! They are so used to always
> getting whatever they want and, thus, the current state of the US
> auto industry. Buy parts of Chrysler after chapter 7 liquidation
> is the best option for Fiat. Learn from Daimler. They lost billions!

Apr 16 03:00 AM

[Auto Guy:]

The Chrysler-Fiat deal has less than a 50/50 chance at this point. The orginal post is wrong in one aspect when it mentions bondholders. Chrysler has no bondholders, it has shareholders and banks (GM has unsecured bondholders, which is why the government has more power). The banks at Chrysler have the power to make or break a deal since in a bankruptcy they would end up with all the assets of Chrysler that were pledged to them in the Cerberus buyout (plants, property, equipment, brands, IP, company logo, etc) and none of the liabilities (pensions, union contracts, employees, etc). If I was in their shoes and thinking in purely economic terms, I would force this to a bankruptcy court, take the assets and while doing that be cutting a deal with Fiat for some of the assets and the Chinese for anything that is left over.

Fiat knows this. The Government knows this. The auto suppliers know this. Everyone is just positioning so that they get enough to survive the chaos that will be the end of Chrysler. I hope that it ends differently, but the odds are no in their favor.

Apr 16 08:32 AM

[Auto Guy:]

Yugo was built by the Yugoslavians under a license from Fiat based on older models and designs. Fiat did not have any control of the factory, but did help with some of the design of the early Yugo cars, although not the version that came to the States as I recall. They were not rebadged in the sense that we think of in North America, ie taking another company's car built in their factory and literally putting another company's name on it to sell.


On Apr 15 08:07 PM DavidR wrote:

> How is it that everyone is so quick to forget the world class quality
> of the Yugo (a rebadged Fiat), but so slow to forget the past mistakes
> of the US auto industry? Wow, Fiat... I can just see the new advertising
> slogan: Jeep, designed by American Motors, modified by Chrysler,
> facelifted by Mercedes, and bailed out by Fiat. I guess that makes
> it a true world car.

Apr 16 08:38 AM

[Auto Guy:]

Also, Fiat has proven that they can turn a failing company around. Fiat has some of the best diesel engines in europe (other major european makers actually use them) and they have some really nice designs (Fiat 500, Alfa 159, etc). I travel to Italy relatively often for business. They have made a lot of progress.

The most interesting thing about what was said by Fiat's CEO is that Italy has one of the worst labor environments in Europe, France is their top competitor in this endeavor, and they are railing on the UAW and CAW. As far as I can tell, the UAW and CAW have not blocked the streets to the plants in protest (happens all the time in Italy and France) or set anything on fire (also happens, but less frequently).

These are interesting times the the US auto industry. Toyota and Honda are losing money hand over fist too, they just have deep pockets from years of currency manipulation to make their imported cars cheaper and a very "flexible" and helpful government that doesn't advertize when they are giving their auto industry money.


On Apr 16 08:38 AM Auto Guy wrote:

> Yugo was built by the Yugoslavians under a license from Fiat based
> on older models and designs. Fiat did not have any control of the
> factory, but did help with some of the design of the early Yugo cars,
> although not the version that came to the States as I recall. They
> were not rebadged in the sense that we think of in North America,
> ie taking another company's car built in their factory and literally
> putting another company's name on it to sell.

Apr 16 08:56 AM

[john s. gordon:]

signor marchionne is famous for driving a hard bargain.
> jack

Apr 16 10:56 AM

[twilsondodge:]

For those of you that blame Chrysler you need to learn a little about history. Chrysler was a very profitable company when they were purchased by Daimler and Daimler sucked them dry and tried to run them like they did Mercedes and they destroyed them. The purchase by Daimler was the worste thing that ever happened to Chrysler. Well maybe not the worste The Dog's that guard the gates of Hell have'nt done much better. The perfect storm that has consumed the American auto manufacturer is also taking a toll on Toyota and Honda as well so those of you that are downing the big three open your eyes Toyota and Honda are just as in just as bad of shape as the big three. Fortunately for them they are in a better position to weather this storm. If the government forces the big three to build smaller fuel efficient hybrids that 1 in 10000 people will buy it will do nothing to improve there positions. If fuel efficient Hybrids were the answer then Honda and Toyota would be up instead of thier business being down 40 % just like Chryslers was last month

Apr 16 12:26 PM

[not afraid ...:]

Well, the unions need to give in, right now there is no time to play around. once the economy gets better and Chrysler starts making money, they can strike and hit the company up for more everything.
but right now they are about to lose everything, the unions needs to take one for the team. If Fiat wants in and they say the unions need to yeild, then, the unions better listen up. it's all common sense. the union leaders are not afraid of losing their jobs. they dont care if the chrysler people do tho.
organized labor's sword cuts both ways, now the union needs to cut off it's own arm to live. what i dont understand is, in this day and age of better working conditions and freedom to change jobs, why do we need unions anyway? if you got problems with workplace safety there is OSHA, and there is such a thing as minimum wages laws, and legally, companies cant hire underaged or illegals. so why do we need the union to push these issues?
i am sure it is not just to uphold the seniority list. if that is the case then shouldnt the oldest employee everywhere run everything?
where does ability and reliablity come in to play?
if you are a dilligent hard worker, you have no need for a union.
Unions are for lazy people who want everything while calling in sick every friday and monday or abusing FMLA.
and job security? what a joke. look at all the plant closings.
so why are the plants closing? cause they are too expensive to run. the reason why they are too expensive to run? union wages.
i work at a very nice salaried job, but i still manage to find time to work part time as well on weekends since i like having extra money. i like driving my expensive car and living in a nice house.
but i work for it, no one hands me anything for free. and you know in the last 30 working years of my life. not once have i felt like i needed job security, because, i am always recognized as a hard worker. i have changes jobs to 3 major companies and always hired on the first interview, always comming with glowing recommendations from former employers. no need for any union at all. my only stint with a unionized job was my parttime job. i had to pay union dues from the very first day. with no guarantee for my future employment. i needed to pass the probationary period for the comapny before any union benefits would kick in. so i got ripped off for 3 months of dues for nothing. of course i passed no problem. then i saw so many co-workers call in sick on saturdays, which is why the company hired parttimers for weekends. i also found out from fellow employees that most of them had FMLA leaves authorized so they could use it for fridays and mondays "doctor appointments" but they all got unionized pay and benefits while working only 3-4 days a week! one employee scheduled to work tues-sat never came in on saturday's shift for 4 months straight. i know, i took over the job they were supposed to do. four months of saturdays but they never got fired. (thanks to the union) i wonder what you union supporting people would thnk if your kids teacher or school bus driver called in sick every monday for 4 months and you had to drive your kids to school just to find out the teacher called in sick so you needed to find a sitter for the day.
that is what management had to deal with every saturday morning at my parttime job. and guess what? since i was the one who always worked the "hole" without "being trained for it" and "not in my job description", i got offered a manager's job. doing exactly what i was doing at union wages, but now doing it for a managers salary 5x more than a union employee, while working just a little over part time hours! of course the union and fellow employees complained about it, but could do nothing as there were no employees willing to committ to comming every saturday.
so i speak from both ends of the union debate

Apr 16 01:38 PM

[The Betsy:]

All of this is true.


On Apr 16 12:26 PM twilsondodge wrote:

> For those of you that blame Chrysler you need to learn a little about
> history. Chrysler was a very profitable company when they were purchased
> by Daimler and Daimler sucked them dry and tried to run them like
> they did Mercedes and they destroyed them. The purchase by Daimler
> was the worste thing that ever happened to Chrysler. Well maybe not
> the worste The Dog's that guard the gates of Hell have'nt done much
> better. The perfect storm that has consumed the American auto manufacturer
> is also taking a toll on Toyota and Honda as well so those of you
> that are downing the big three open your eyes Toyota and Honda are
> just as in just as bad of shape as the big three. Fortunately for
> them they are in a better position to weather this storm. If the
> government forces the big three to build smaller fuel efficient hybrids
> that 1 in 10000 people will buy it will do nothing to improve there
> positions. If fuel efficient Hybrids were the answer then Honda and
> Toyota would be up instead of thier business being down 40 % just
> like Chryslers was last month

Apr 16 07:34 PM

[Paul Killinger:]

It would be nice to see this American icon survive. Maybe both bankruptcy and a new alliance with another automaker can save them. They've already inked a truck deal with Nissan. Perhaps they'd be a better fit than Fiat. Of course, it's become SO expensive to design and build vehicles in the U.S. that no company may make it.

Apr 17 06:45 AM

[speculari:]

When Sergio Marchionne says there is a 50% chance of the "deal" going thru... he is being utterly facetious. It is his little "italian" joke. Because there is no "deal", and there never has been... no one has seen a single "lira" come out of Fiat's purse.

Apr 17 09:38 AM

[zagrebzagreb:]

All of this blame on American Unions is ridiculous...

The labor cost per hour is at least as onerous in Germany as it is here, and yet German car companies have generally thrived, while Chrysler and GM have simply died. That is upper management's responsibility.

Apr 17 01:47 PM

[Auto Guy:]

Honda may be in a better position, but Toyota is exposed. Both have reached out to their government for help. Toyota's issue is two fold. First, they followed Ford, GM and Chrysler into large trucks and SUVs in recent years in North America. Second because their home market Japan still represents about 1/2 their worlswide sales and this market is more depressed that the North American market. The Japanese market may not recover as fast as the US market either since younger buyers are shunning cars in Japan. Honda is in a better position, but they still have had their had out to the Japanese government to help them with their troubles in the US marketplace. In an odd twist of fate, Honda is actually renting the parking lot of a closed Cleveland area Ford assembly plant to park cars that they can not get dealers to take.

The real issue for all automakers in North America is a severely depressed market averaging about a 9.4 million annualized selling rate (the real annualized build rate in North America by the auto companies for the first quarter of 2009 was closer to 7 million units, but that is another story and why we are seeing the supply chain fail in the auto industry). This 9.4 million rate is about half of what North American has performed at in the years 2005-2007 and about 30% lower than we saw in 2008. This is generally driven by consumer confidence, not the products that the companies are making which explains why all automakers' sales are down 25-45% from 2008. If you think your job might be in jepordy, then you don't buy cars, or houses or much else. This is what we are seeing.


On Apr 16 12:26 PM twilsondodge wrote:

> For those of you that blame Chrysler you need to learn a little about
> history. Chrysler was a very profitable company when they were purchased
> by Daimler and Daimler sucked them dry and tried to run them like
> they did Mercedes and they destroyed them. The purchase by Daimler
> was the worste thing that ever happened to Chrysler. Well maybe not
> the worste The Dog's that guard the gates of Hell have'nt done much
> better. The perfect storm that has consumed the American auto manufacturer
> is also taking a toll on Toyota and Honda as well so those of you
> that are downing the big three open your eyes Toyota and Honda are
> just as in just as bad of shape as the big three. Fortunately for
> them they are in a better position to weather this storm. If the
> government forces the big three to build smaller fuel efficient hybrids
> that 1 in 10000 people will buy it will do nothing to improve there
> positions. If fuel efficient Hybrids were the answer then Honda and
> Toyota would be up instead of thier business being down 40 % just
> like Chryslers was last month

Apr 18 10:26 PM