Italian-owned Fiat ready to jump start bankrupt Chrysler

[The Lawspeaker]

Italian-owned Fiat ready to jump start bankrupt Chrysler

Sergio Marchionne's company will take majority control in five years if US car-maker repays $10.5bn


Fiat, the Italian car-maker, could end up with majority control of ailing US auto giant Chrysler in five years time if the new company to emerge from bankruptcy manages to repay all its loans to the American government.

Sergio Marchionne, the chief executive of Fiat, has struck a deal with Chrysler and the US government which gives him an initial 20 per cent stake once a company is given the go-ahead. The plan is for Chrysler, maker of the Dodge and Jeep marques, to complete its bankruptcy proceedings in 30 and 60 days and then sell its assets on to the new company.

Fiat's stake will then rise to 35 per cent on certain conditions, rising again to 51 per cent as early as 2013 if Chrysler is able to pay back the government loans of $10.5bn (£7bn).

As part of the new funding deal, the Washington will have an 8 per cent stake in the new Chrysler and the right to choose four independent directors while the Canadian government will take a 2 per cent shareholding. The United Auto Workers, Chrysler's main union, will also take stock in return for an agreement to cut labour costs and give up rights over strike action.

Mr Marchionne, credited with turning Fiat into one of the fastest growing car-makers in the world, said that bringing the two companies together will "create a powerful new automotive company, while helping preserve jobs and a manufacturing industry that is critically important to the US and Canadian economies."

Fiat is not paying anything for its stake but will in return be providing Chrysler with its technology, particularly for its smaller, more fuel-efficient cars. One of Chrysler's problems has been adjusting to the harsher economic climate and the recent spike in fuel prices.

This weekend, Chrysler, the third biggest US car-maker, is working on closing all its plants by Monday and temporarily laying off its staff. But the company has promised that all workers will continue to be paid until the new company is created, that dealerships would stay open and that all insurance warranties will be honoured.

Chrysler was forced into Chapter 11 bankruptcy proceedings last Thursday after the collapse of support from its creditors who refused to help restructure its $6.9bn of debt.

But the bankruptcy judge may yet face objections from some hedge-fund shareholders who have opposed the deal to swap the debt for $2bn of cash.

President Barack Obama, when announcing the rescue operation, blamed "a small group of speculators" – hedge-fund investors – for the bankruptcy. But analysts reckon the bankruptcy will go through as a majority of investors are ready to support the plan.

Next in line for US surgery is General Motors, which has until the end of May to reach agreement with workers and debt-holders to cut costs.

Source: The Independent (http://www.independent.co.uk/news/business/news/italianowned-fiat-ready-to-jump-start-bankrupt-chrysler-1677849.html)

[Vulpix]

This has struck me from the beginning as an odd parternship :confused:.

Fiat is easily one of the worst European car makers.

This article from Forbes (http://www.forbes.com/2009/04/07/jerry-flint-fiat-chrysler-business-autos-flint.html) explains it better:


This deal makes no sense to me. It would take two to three years for Chrysler and Fiat ( FIA - news - people ) to figure out how to make this work. In that time, Chrysler could design and build its own new cars as long as the government is providing the money. So why does it need Fiat?

...

Here's the problem: Today's Fiats and Alfa Romeos aren't engineered to meet the U.S. laws for safety and emissions. So they must be re-engineered, or new models designed to meet our standards. But that's not all. Then the North American plant or plants must be retooled to build these cars, and the workers retrained. By any standard, that is a two to three year job.

So Chrysler must continue to live by its own efforts and with maybe more government money for two to three more years. But if it's going to take that long, then Chrysler could build its own cars. I've covered the auto industry for more decades that I care to remember, and I can't figure it out. And don't be so sure that Americans would leap to buy Fiat-inspired cars. They never have.

...

[Jägerstaffel]

Yeah, seems like a recipe for disaster in my mind.

I can only imagine the monstrosity of a hybrid this union will create.

[Treffie]

Unfortunately Chrysler were very slow in reacting to changes in the motor industry - they've had a few years to sort out of their problems and hadn't done much about it. I can see the benefits of bringing in Fiat to help them out - Fiat is one of the largest manufacturers of fuel efficient engines in the world and make engines for GM, Ford and others, so to house these engines into Chrysler bodyshells would only improve the fuel efficiency of Chrysler vehicles.

Naturally, there are huge benefits in a tie up for Fiat also - Chrysler will give Fiat access to the huge US market which it hasn't really been able to tap into.

I'd rather see Chrysler survive by joining up with another manufacturer than be killed off altogether.

[Æmeric]

Daimler-Benz purchased Chrysler (well, they called it a merger of equals:rolleyes:) in 1998 for 40 billion & lost their entire investment. Chrysler is cursed by US trade policies, legacy costs - courtesy of the UAW - and government regulations which required them to build cars with high fuel mileage that no one wanted to buy (Americans prefer Japanese if they want small with high fuel mileage). Chrysler may finish off Fiat. I remember that Fiat once sold cars in the US but pulled out years ago. I don't remember if they ever returned.

The Asian automakers & their trade practices are a major problem for the longterm survival of Detroit. Volkswagen has been in the US since before I was born & they never reaked the damage to the US auto industry that Toyota & Honda (and now Kia & Hyundai) have caused. As I pointed out Fiat withdrew from the US market, because of the Japanese. Three things need to happen for Detroit to recover. 1: We have to say goodby to freetrade, which is not practiced by Asians anyway. 2: The unions have to be brought to heel. Detroit has been dying a slow death for 40-years because of militant UAW policies. It use to be that a UAW member was better off financially then most college grads. They were more like a crime syndicate then a labor union, extorting as much as they could from their victims (the auto companies), only making enough concessions over the last 30-years years to avoid bankrupting bankrupting the Big Three. Now they are at the end of the road, facing the final demise of the jobs Detroit provided & with the pension funds of their employees saddled with nearly worthless stock. 3: US governemnt interference. In order to meet federal guidelines on mandatory gas mileage, Detroit has been turning out cars with high fuel mileage that Americans didn't want to buy from Detroit - they prefered to buy them from Japan. The profits from the automobiles that Americans did want to buy from Detroit - trucks & SUVS - had to subsidize the production of the vehicles that had to be sold at a steep discount to get them off the lots. Washington should have allowed Detroit to focus production on what they were good at & what the consumers were willing to buy from Detroit.

We still have plent of autoplants in the US. Toyota, Honda, Kia, Nissan etc.... they all have assembly plants, mainly in the Southern States. Their labor costs are generally $12-$15 an hour less per worker then Detroit, mainly because they are not saddle with legacy costs & the UAW. And US regulation on fuel standards do not have a negative effect on them as high fuel mileage compacts are their specialty.

[Vulpix]

Now they want Opel too:


Fiat could buy Vauxhall and Opel (http://news.bbc.co.uk/2/hi/business/8032213.stm)


http://newsimg.bbc.co.uk/media/images/45525000/jpg/_45525064_000738443-1.jpg

Italian carmaker Fiat is in talks about buying the European business of General Motors (GM) - which includes the UK's Vauxhall and Germany's Opel.

Fiat is already trying to take over some of Chrysler, the US carmaker that has applied for bankruptcy protection.
And it said it was considering merging its carmaking business with those of Chrysler and GM Europe.

Saab is also part of GM Europe, but may not be part of the discussions as it is being reorganised under Swedish law.
Vauxhall employs about 5,000 people in the UK while Opel employs nearly 26,000 in Germany.

In a statement, GM Europe confirmed that it was, "in talks with several possible investors" and added that, "we see good and realistic interest of some of these possible investors".
But it declined to name any of the possible investors and said it did not want to "speculate about the content of the talks between the German government and the Fiat management".

'Ideal partner'

Fiat chairman Luca Cordero di Montezemolo said Opel would be an "ideal partner" and that a takeover was an "extraordinary opportunity".
GM faces potential bankruptcy in the US and has until 1 June to restructure.

Opel has said it needs 3.3bn euros (£2.9bn; $4.3bn) to get through the economic crisis, but the German government has encouraged it to find an investor.

It has said it does not intend offering Opel a bail-out, but that it would offer investors state support.
Mr de Montezemolo told Italy's Corriere della Sera newspaper on Sunday that a Fiat takeover of Opel would create "a very strong group".

Group chief executive Sergio Marchionne will meet the German economy and foreign ministers and the head of the Opel works council on Monday to assess the viability of a deal.

But there has been some doubt about whether Fiat could cope with such growth.

"They're going to be a global powerhouse, I guess. Who would have thought?" said Erich Merkle, an independent auto industry analyst in Grand Rapids, Michigan.

"It'll make them a very large automaker, but we've seen that large isn't necessarily indicative of success."
Five years ago, GM paid $2bn to avoid having to take up an option to buy Fiat's carmaking business.

GM challenge

In an interview with the Financial Times, Mr Marchionne said that buying Opel would be a "marriage made in heaven".
However Canadian car parts maker Magna International has also put forward what the German government has called a "rough concept for a commitment with Opel".

German Economy Minister Karl-Theodor zu Guttenberg said that any investor would have to present a plan that kept Opel plants open in order to secure government support.

Last week General Motors (GM) said it was to cut 21,000 US jobs in 2009 and phase out its Pontiac brand, as it aims to meet the deadline set by the US government to overhaul its business and show that it is viable.

It must complete its restructuring by then to gain the government loans it needs to avoid bankruptcy protection.
Like US rivals Ford and Chrysler, GM has seen sales fall sharply in its core home market in recent years, a decline that has intensified as the recession has continued.

[SwordoftheVistula]

Chrysler already has a bad reputation for quality. The Dodge Ram trucks and Jeeps are pretty decent, but American laws (called the CAFE standards) force auto companies to make a roughly equal amount of small cars and larger vehicles, and Chrysler is terrible at making anything that is not a jeep, minivan, or truck. My first car was one (2000 Dodge Stratus aka Chrysler Cirrus), and the transmission went out around 70k miles.

If Fiat already has a bad reputation for quality, then this is truly a disaster in the making. I don't expect them to ever gain a majority stake anyways, I expect the combination of the US government and autoworkers' union (UAW) to play them for suckers.

[Vulpix]

If Fiat already has a bad reputation for quality, then this is truly a disaster in the making. I don't expect them to ever gain a majority stake anyways, I expect the combination of the US government and autoworkers' union (UAW) to play them for suckers.

Fiats sell well in Italy because of heavy government subsidies, but the cars are poor quality. It's not surprising, considering that their engineers are paid peanuts. I've heard even their top engineers only get around 1600 (one thousand six hundred)€ per month...

[RoyBatty]

Developing new models costs a lot of money which Chrysler doesn't have and if they don't develop new models they're doomed as a business so it's a Catch-22 for them.

Fiat's engine technology can be adapted for the US assuming it isn't 100% in line with current US regulations. It's unlikely that it would require complete re-engineering.

Jeeps (diesel ones) make use of Italian engines (VM Motori which Chrysler used to part own but then ironically enough sold their stake to GM). GM used to be in an engine partnership with Fiat as well so relations are pretty intermingled already and Fiat should be able to make deals happen.

The chances of Chrysler repaying its loans are slim barring a miracle so it's hard to see how Fiat will take a large stake in the company. Seeing as they're not paying cash AND they're getting access to the US market via Chrysler they don't appear to have much to lose from this deal.

[Treffie]

Fiats sell well in Italy because of heavy government subsidies, but the cars are poor quality

I wouldn't say that they're poor quality, they're at least on par with Ford who they share Fiat chassis with (new Ford Ka). During the 1970's and 80's they had a poor reputation for being rust buckets but this was because they bought in from Russia.

[Vulpix]

Well... Fiat ranked dead last in this customer satisfaction survey.


The 2008 UK Car Customer Satisfaction Index (CSI) Study is based on the evaluations of more than 16,000 UK car owners after an average of two years of ownership. The study includes 28 brands and 100 models. Owners provide detailed evaluations of their vehicles and dealers, which covers 77 attributes grouped in four measurements of satisfaction. In order of importance, they are: quality and reliability (30%); vehicle appeal (28%), which includes performance, design, comfort and features; dealer service satisfaction (22%); and ownership costs (19%), which includes fuel consumption, insurance and costs of service/repair.

Source (http://www.jdpower.com/corporate/news/releases/pdf/2008047.pdf)

http://img124.imageshack.us/img124/9773/jdpwoer.jpg

[SwordoftheVistula]

I don't know what Fiat would gain from buying Vauxhall, since Vauxhall basically sells rebranded Chevrolets.

Maybe they just want the dealer networks, which is what I suspect they want from Chrysler, though Daimler-Benz wasn't able to make good use of these.

[Vulpix]

I don't know what Fiat would gain from buying Vauxhall, since Vauxhall basically sells rebranded Chevrolets.



That's not really true :confused:... Compare:

http://www.vauxhall.co.uk/vaux/pages/cars/carRange.jsp

with

http://wwww23.chevrolet.com/pages/mds/vehicles/allVehicles.do?evar2=HP_Mast_View_Vehicles

[SwordoftheVistula]

Ok, they are all rebranded Opels now, except the Antara (Chevy Equinox) and the VXR8 (some Australian company).

Still, they do not actually make any vehicles of their own, and Fiat already has dealerships in the UK, so I don't really see much point to purchasing them, unless they really want Opel and GM refuses to sell Opel without Vauxhall as part of the package.

[Vulpix]

Ok, they are all rebranded Opels now, except the Antara (Chevy Equinox) and the VXR8 (some Australian company).

Still, they do not actually make any vehicles of their own, and Fiat already has dealerships in the UK, so I don't really see much point to purchasing them, unless they really want Opel and GM refuses to sell Opel without Vauxhall as part of the package.

Yes, Vauxhalls are rebadged Opels. Little point to the brand if you ask me.

[Treffie]

Yes, Vauxhalls are rebadged Opels. Little point to the brand if you ask me.

I can't see the point either, I think it's only the Vauxhall Astra that's built in the UK now.

Here's an article that I read recently, I had a feeling that Citroen-Peugeot and Renault had been ranked below Fiat. Can't find the proper link now though.

http://www.people.co.uk/news/tm_headline=french-car-manufacturers-voted-worst-in-poll&method=full&objectid=21289179&siteid=93463-name_page.html

[Vulpix]

Here's an article that I read recently, I had a feeling that Citroen-Peugeot and Renault had been ranked below Fiat.

I can't say that surprises me too much :p...