The Obama administration has said that the American automaker needs to make a deal with Italian carmaker Fiat by the end of April or do without government money - and that would mean bankruptcy. Chrysler is seeking $6 billion.
Interestingly, Fiat wants to build its cars in the United States. It’s a good company and has strong expertise at making the small fuel-efficient cars that are hot right now. Plus, Fiat makes the Alfa Romeo.
The idea is that Chrysler would survive as a part of Fiat and use the Fiat platforms for new models. Fiat is not talking about shipping its cars to the United States to be sold by Chrysler.
The plan is to redesign and re-engineer Fiat platforms for the American market. That would mean retooling factories in the United States to build those cars, which could take two to three years.
It’s good to remember that Chrysler’s Dodge Ram trucks are popular and lauded. Its minivans are one of the best-selling in the world. And Jeep is one of the best-known and best-loved brands in the world. Chrysler’s weakness is in cars. If it is going to take up to three years to get Fiat-engineered cars, then Chrysler could engineer its own new cars if the government would just hand the company the money to do so.
If Chrysler can survive two to three years without Fiat-based cars, why does it need Fiat? Well, the explanation is that Chrysler is weak internationally, and the argument is that a Fiat-Chrysler deal would give it an international platform. But the deal would give Fiat 20 percent of Chrysler. Fiat has said that the deal wouldn’t go forward unless the U.S. government gives Chrysler $6 billion. Fiat chief Sergio Marchionne has said that he is not going to put any money into Chrysler.
The U.S. government also has demanded more labor-cost reductions at Chrysler and debt reduction. We hear that the owner of Chrysler, Cerberus Capital Management, pushed the automaker into taking on $20 billion of debt when it took over. My question is: What happened to the $20 billion? It hasn’t put it into new product. High-ranking Chrysler officials have said that the company was making money until the collapse last year, when fuel prices surged to $4 a gallon.
Cerberus paid $7 billion to buy a majority interest in Chrysler from Daimler of Germany. I wonder whether some of that $20 billion went back to Cerberus to cover the purchase cost. But Cerberus/Chrysler is a private company, so we’ll never know.
Mr. Marchionne, Fiat’s chief, could probably provide excellent leadership for Chrysler. He was educated in Canada, so he has some familiarity with the North American auto world. Chrysler is in the midst of a battle with its union autoworkers in Canada and is demanding concessions, even threatening to shut plants if it doesn’t get them.
Chrysler has been on and off the rocks for decades. It received government guarantees in the 1980s that saved the company. The government even made a profit on the deal; it took warrants against the loan, which are like stock options, on Chrysler and made lots of money when the stock soared.
In those days, Lee Iacocca was heading the automaker, and he went directly to the American people to win public support. The last Chrysler crisis came a decade ago, and it was then-President Robert Lutz who led the revival with a series of successful products: the Ram pickup, the beautiful Chrysler 300 sedan and the cute PT Cruiser.
These became popular, strong models, demonstrating that Chrysler has breakthrough design talent. In fact, of the three Detroit companies, I think Chrysler has the best on design.
Too many people seem to have written Chrysler off. But Chrysler has come back too many times. I wouldn’t count it out.
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