Breaking news: Fiat has just signed a “non-binding term sheet” with ChryCo. The Italian automaker will acquire a 35 percent interest in Chrysler for… nothing. No cash. No assets. Niente. And yet the Chrysler – Fiat deal comes complete with the United Auto Workers’ (UAW) blessing. It’s a nice thought: a global alliance to pull Chrysler’s fat from the fire, save the taxpayer’s bacon and uncook the UAW’s golden goose. But there’s zero chance of Fiat riding to the rescue of Chrysler. It’s just another part of Chrysler’s Big Lie.
Adolph Hitler said The Big Lie was effective because most people “would not believe that others could have the impudence to distort the truth so infamously. Even though the facts which prove this to be so may be brought clearly to their minds, they will still doubt and waver and will continue to think that there may be some other explanation.” In this case, the lie is the idea that Chrysler is a viable automaker.
The fact that the company is utterly bankrupt without any chance of recovery is, obviously, besides the point. As long as there is hope that Chrysler has a future, the general public and their fear-mongering elected representatives will cling to the fiction that Chrysler can– indeed should– continue to exist.
To perpetuate that myth, to protect its federal lifeline, Chrysler must generate plausible possibility. Hence the stream of “news” coming out of Auburn Hills in recent weeks. Canada’s Magna Corporation may purchase Chrysler’s minivan plant. Nissan may produce a small car for Chrysler, and rebadge Dodge Ram pick-up trucks as Titans. A Chinese carmaker may buy unwanted (not to say unused) tooling for the soon-to-dead PT Cruiser. And now… Fiat buys into Chrysler.
In reality, Magna may want Chrysler’s Windsor minivan plant, but the company isn’t stupid enough to pay anything for it. Not when they can pick it up for pennies on the dollar after ChryCo’s collapse. In reality, Nissan is in deep trouble; it’s not going to build anything for Chrysler without [non-existent] cash on the nail. It’s also in no position to remount an attack on a market segment that’s both crowded and cratered (just ask Toyota).
In reality, China doesn’t need the PT Cruiser. And in reality, the Fiat deal has nothing to offer. Without any cash investment by the Italian automaker, without a single production-ready Italian vehicle on the horizon to lure Americans into empty, abandoned Chrysler showrooms, this non-deal does nothing whatsoever to ensure Chrysler’s long term viability.
The underlying causation for this non-news is simple enough. Lipstick. Pig. Apply.
On February 17, Chrysler will present their term paper to Congress: “How I Spent Uncle Sam’s $4b” (a.k.a. “The Three Headed Dog Ate my Automaker”). Chrysler’s representatives will attempt to prove that the company can [now] be restructured and resurrected to live a long, happy life. See? Things are happening! We’re building for the future!
Of course, Chrysler’s “business plan” was, is and will be complete BS.
CEO Bob Nardelli knew Chrysler was doomed to the dole back in December, back when he told Congress his employer could turnaround Chrysler’s fortunes with “just” $7b worth of federal loans. As is the way of such things, that was then. This is now. By mid-February, Boot ’em Bob’s boys will unveil phase II of their grand plan for Chrysler’s renaissance: get out of the manufacturing business.
The new plan is the same as the original plan: keep the brands and distribution network. Sell vehicles made by others rebadged as Chryslers. Limited capital and engineering required.
Meanwhile and in any case, Chrysler needs the same lifeblood as any other going enterprise: cash. Badge engineering and branding be damned; new car sales aren’t going to provide Chrysler with the funds it needs to sustain its operations and pay for its ongoing liabilities. Not now. Not later. Most likely, never. Asset sales won’t do the job, either. And Fiat’s sure as Hell not providing operational liquidity.
Blow away the smoke, pack away the mirrors, allow owner Cerberus to insulate themselves from accountability for their actions, and it’s clear that Chrysler has one source– and one source only– of cash: the U.S. taxpayer.
As any good politician knows, to fool some of the people all of the time, you need to change your story frequently. In other words, The Big Lie must be sustained by a steady diet of big ideas.
When it comes to Chrysler’s ongoing call on the public purse, the biggest of these is the Chrysler – GM merger. The concept: forget Chrysler and GM. We need to save American manufacturing! This American Leyland strategy is a stupendously bad plan which would make The General like Citibank: a company too big to fail with operating divisions that can never be properly integrated.
Which is exactly why it’ll happen.
Repost from the older entry:
It will not work…Chrysler’s problems remain: High labor costs, high legacy costs, old and unproductive factories, too much capacity, unattractive line-up.
FIAT is obviously gambling here. They don’t have much to lose. If the price for gas rises again, they’re looking at the Chrysler dealer network to sell their small vehicles, maybe even use some of Chrysler’s factories to build their cars (although that might even be too costly).
What FIAT did was to get a foot in the door of the American market. And very cheap at that. But right now there’s no room for FIAT, Alfa Romeo or Lancia on the US market. If the market recovers quick (don’t bet on it) and the gas prizes go back to pre-recession times (they will, but probably not anytime soon) then FIAT is the big winner here. If they won’t, FIAT hasn’t lost anything. For Chrysler on the other hand nothing has changed, other than they can get fully developed FIAT parts. But even from there, developing a new car is costly and time-consuming.
If you’re right about Nardelli’s plan, it would be a good idea to pause for a moment and consider the following brands that suffered the same fate (from the consumer electronics world):
Fisher
AR
HH Scott
Dual
These are just a few examples. All were leading manufacturing companies in their field. All ended basically the same way with fading prospects and little value beyond their names which were then utterly devalued by repeated and incessant whoring.
I used to work for Scott. It was during their “Prague Spring” when the then-current owners were slapping the name on stuff made by others and we had false hope that we would be allowed to design and build our own stuff. For a few product years in the beginning, it was even decent stuff made by a high-quality Japanese company. This strategy worked for a few years until consumers readjusted their expectations.
So, if history is a guide, expect Chinese-made Chargers, Road-Runners and Rams with bottom-of-the-barrel quality sold by unscrupulous people who will consider themselves successful if they can get away with it for more than a a year or two.
Depressing…
Robert,
Are you saying there’s a conspiracy? (i.e., “another part of ‘The Big Lie\'”)
Phrases like “without any chance of recovery” are bold, baseless assertions that seem to indicate an ability to foresee events which have not yet taken place.
Chrysler has a puncher’s chance of making it, but I cannot understand your refusal to acknowledge even the remotest possibility of their success.
Making up the conclusion before the story is complete is, well, just plain wrong in too many ways to mention.
@ tom:
Chrysler’s problems remain: High labor costs, high legacy costs, old and unproductive factories, too much capacity, unattractive line-up.
Old news. All points are being addressed going forward as part of the viability plan.
Greetings from Europe!
Americans remember, smaller is better, one day you will understand.
Cheers!
What did it take to get Ron G. to sign off on this POS? A bottle of Thunderbird?
(Note, this isn’t flaming, it’s phrased in the form of hypothetical speculation.)
Well I think that all of the “Chinese buy Chrysler”, “Chinese buy Saturn” and this deal all have the same problem other than the well known overhead problems. Unless you have a car engineered and ready to go in the NA market these plans are a non-starter.
I’m pretty sure that nothing FIAT has right now could possibly be ready for the NA market in less than two years. Chrysler buying FIAT drivetrains? Phfttt, how’s that going to work?
I think that this is just a low/no cost way for FIAT to get there nose into the tent. I’d bet that they want to see how the “loans” work out and try to craft a way to get theirs.
Or, if Chrysler finally falls apart maybe FIAT are thinking they can pick up some of the pieces. Long term, if they can hang on maybe they can do something with that, maybe.
Chrysler is definitely trying to keep the great lie going, but this is a risky strategy. Hopefully, like with original proponent of great lies, the increasingly risky strategies will end with a cowardly suicide.
Chrysler is now a majority foreign company; 20% German owned and 35% Italian owned.
55% of Chrysler LLC is owned by foreign companies that have no personal liability for Chrysler and no obligation to invest in it.
The 45% of Chrysler LLC that remains domestically owned is owned by a disreputable private equity firm with strong Bush connections (which went from an advantage to a disadvantage as of 12pm eastern time).
Chrysler has no American R&D argument, and no American ownership argument, so all they are left with is the UAW.
I can see (hopefully) the administration letting Chrysler fail in March as a concession to take the heat off the continued support of GM.
I still don’t get it. FIAT gets 35% for no investment? No cash? Why? Why doesn’t congress say something, as Chrysler need taxpayer money to limp along? Seems that foreign ownership will hurt that.
“without a single production-ready Italian vehicle on the horizon to lure Americans into empty, abandoned Chrysler showrooms,this non-deal does nothing whatsoever to ensure Chrysler’s long term viability.”
True that. No Chyrsler badged FIATs will be available before 2011. And no Chyrsler badged FIAT will be able to be sold for a profit with Chyrsler’s current cost structure. Still, I think you underestimate how long taxpayers are going to be subsidizing Cerberus.
Chrysler is not the problem with Chrysler; it’s Cereberus and that bald-headed buzzard John Snow.
Chrysler has had a miserable track record with management and overseers as of late. Clearly it needs some desperate rearranging, changing and reductions. Nevertheless, I still contend that it is a viable company with the right visionary management and obviously, capital; two things that won’t be coming from Fiat.
I don’t get why Fiat wouldn’t simply wait it out. Maybe they think Chrysler will keep getting our money and they can leverage taxpayer dollars to hold up a distro network for Alfas and Fiats.
Bunkie:
“expect Chinese-made Chargers, Road-Runners and Rams with bottom-of-the-barrel quality sold by unscrupulous people who will consider themselves successful if they can get away with it for more than a a year or two”
Except for the Chinese involvement, how does this differ from today?
I wonder if the Italian press is looking at this as a lifeline for FIAT?
PickupMan
With Fiat owning 35-percent and Daimler AG 20-percent of Chrysler Americans are 45-percent minority shareholders, yet U.S. and Canadian taxpayers are providing 100-percent of the bailout cash. Where are the Italian and German governments?
Chrysler has Mexican assembly plants in Saltillo and Toluca. Where is that government’s fair share?
I don’t know about the business aspect of this deal but I can think of a few Fiat Group cars that appeal to me now
500, Bravo, Grande Punto, Panda, 147, 159
Doesn’t anyone remember GM and Fiat being in a doom loop together not so long ago? Read on:
http://www.businessweek.com/bwdaily/dnflash/feb2005/nf20050214_8224_db016.htm
With Fiat owning 35-percent and Daimler AG 20-percent of Chrysler Americans are 45-percent minority shareholders, yet U.S. and Canadian taxpayers are providing 100-percent of the bailout cash. Where are the Italian and German governments?
It is a UAW payoff, that is why the American taxpayer is picking up the tab.
Cerberus is likely very happy they own only 45%.
The question is why would Fiat want in?
Cerberus handing them a few billion of taxpayer dollars. You betcha.
Hey Bob Nardelli, if you can get an Alfa Spider with that sweet little JTDM engine delivered to my local Dodge dealer, I’m in. You can tell big lies and I won’t care. You can vanish with taxpayer billions and I won’t care… I’ll be driving an Alfa Romeo Spider! :)
–chuck
Hey congress, where is my bailout so I can blow it all on a nice Italian holiday?
ok – Fiat clearly has a “cunning plan” (to quote a famous British comedy series). The guys in Turin aren’t stupid (whatever you think of their cars), and they have a track record of extracting money from US car companies……
Fiat wants a distribution point some time in the future if Alfa is ever to return and in offering their drive train technology they get that. Chrysler cannot afford to design small efficient engines and Fiat already make some gems so it makes sense.
But without cash Chrysler is doomed with GM not far behind. There is noway that Chrysler will survive the time it takes to bring these new vehicles to market without billions and billions in additional tax dollars.
“But right now there’s no room for FIAT, Alfa Romeo or Lancia on the US market.” – tom
Hey, there’s *always* room for the 8C Competizione.
Wasn’t Cerberus wanting the “revenue” stream that was Chrysler Financial (and GMAC) in reality? Perhaps they thought they could be like Porsche; a bank that happens to make cars that come with finance.
If this is the best that Cerberus Chrysler can come up with, it is time to call in the liquidators.
They needed to trim back their line up to a bare minimum 3 months ago. That’s right – no more Commanders, Dakotas, Aspen/Durangos, Avenger/Sebrings or Compass/Calibers.
The WSJ is reporting that Fiat has the option to increase it’s stake to 55%, that Fiat will take over operations (meaning car guys would be running things instead of finance guys), that Fiat’s contribution will be the retooling of a Chrysler plant to make small cars, and also providing engine/tranny technology.
This smells like Renault/AMC in the 1980s.
Fiat have something very rare these days; A car that doesn´t collect dust in the showrooms.
http://www.fiat500.com/eng/
You may not think that this car could sell in the usa, but look at Mini.
35% of nothing still equals nothing. Mebbe Chrysler could make a tribute car based on the 124, sorta like a Lada.
From what I read elsewhere, the deal is being brokered by the same guy weaseled 2 bil from GM back in ’05.
I, for one, can’t wait for my Hemi Panda.
If this means we can buy a ‘500’,or a ALFA
What can It hurt?
Go for it!
Fiat owns 35% (for nothing), Daimler 20% (valued at nothing), Cerebus…
Are these people operating from the script of “The Producers”?
BTW, nicely done, Mr. Farago
YES!
Fiat (and Alfa Romeo) now gets a large dealer network to sell their models.
I can now contemplate the ability to buy an Alfa Romeo state-side!
:-)
So Fiat pays nothing for an option on Chrysler. One of a few things happen.
1. The new administration spends billions to keep Chrysler alive for several years and then the market revives. In this case, Fiat sells designs and or parts to Chrysler. Meanwhile, the designs that are developed provide a contingency plan for the US market and Fiat makes money.
2. Chrysler goes down the tubes immediately and is liquidated. In this case, Fiat is out nothing, because they put in nothing.
3. Chrysler lingers on in sickly health and is parted out. In which case Fiat has a better view of which areas of the carcass to pick at. They also could sign up a few hundred Chrysler dealers, and perhaps buy Jeep, Mopar, and a minivan plant or two. When the market turns up, Fiat enters with a full lineup of Ram, Caravan, Challenger, Jeep, and a lineup of small cars from Europe like the 500.
So all in all, Fiat makes out well under all scenarios…
The only problem with Cerebrus is that they got sucked in to doing it the Chrysler way. Instead of going for broke and swinging the axe, they just puttered along doing nothing with the company.
This Fiat deal sounds like crap too. Why wouldn’t Fiat just scoop up dealers desperate for any chance to sell a car by the handful?
Frankly, why don’t we just get rid of the dealer network anyway?
Interesting take on this deal Robert. I can’t say I agree with it but you make some good points.
For another opinion to digest:
http://www.allpar.com/weblogs/2009/01/20/fiat-the-best-choice/#comments
This is really a fascinating study in how to look at something from two different angles.
I wouldn’t be so sure that the Alfa 159 and Brera aren’t ready, or very closely ready for US production. Before the bottom fell out of the market, FIAT was already trying to plan a way to distribute these cars here. There were talks about using Maserati dealerships. I’m sure Chrysler would be more than happy to take one of these and put a Chrysler badge on it.
Hmmm. Very strange. There might be an ulterior motive to Fiat getting into the Cerberus mess.
Fiat mainly sells in Europe and Brazil. Both markets have collapsed in 2008 and are not expected to recover in 2009. Fiat is going through a bad time right now. First, Luca De Meo ex-CEO of Fiat and Alfa Romeo left the company and joined VW Group (this news brought the value of the Fiat stock down -3%), second Fiat is closing or idling factories and sending blue and white collars alike back home for weeks and some say for month. Morale was down, and press articles about Fiat had nothing good to report.
This new Chrysler PR stunt brings some upbeat news and while it is not widely understood in Italy or Europe serves to increase desirability of the company and its value on the stock market.
Then there is the possible Daimler Fiat merger angle to consider. Daimler will be hammered hard by EU Co2 regulation in the future and would need a brand like Fiat to bring its average Corporate Co2 emission down below the imposed threshold to avoid paying penalties or Co2 Taxes.
Is this the beginning of a Daimler Chrysler Fiat adventure?
Why is it that you people comment out of ignorance. American factories utilize the highest quality and technology in the world. Fiat is a struggling company and has been for years. GM lost billions when they bought Fiat and then severed the relationship. Look at the French work rules. I am sure you dont even know what they are. Their rules make American workers look like slaves.
This “merger” seems to have as much going for it as the Graham-Paige/Hupmobile alliance.
Fiat is paying exactly the right price – 35% of nothing is still nothing.
What do French work rules and FIAT have to do with each other?
Scartooth; Do you talk about ignorance????
“American factories utilize the highest quality and technology in the world.” :)
It doesn´t show in their cars.
“Fiat is a struggling company and has been for years.” :)
It used to be, but not now.
“Look at the French work rules. I am sure you dont even know what they are. Their rules make American workers look like slaves”
Tell me more about the French work rules.
scartooth :
Chrysler’s lineup doesn’t back up your assertions.
@scartooth:
Wagoner, is that you?
RF – excellent analysis as always.
What amazes me is why the intellectually bankrupt Bush administraton and the corrupt Congress did not compel Cerebus to ante up the money to save their own portfolio company. Perhaps I have just answered my own question…
re: “So Fiat pays nothing for an option on Chrysler. One of a few things happen. 1. The new administration spends billions to keep Chrysler alive…2. Chrysler goes down the tubes immediately…3. Chrysler lingers on in sickly health and is parted out…Fiat makes out well under all scenarios…”
Rix / January 20th, 2009 at 7:34 pm
but this deal is a bad one for american taxpayers.
when this topic was discussed in some detail on cnbc within the last 24 hours, it was pointed out that, if/once chrysler becomes profitable, fiat has the option of obtaining an additional 20% stake in the company for only $25 million – but, the deal is contingent on chrysler getting an additional $3 billion in taxpayer funds from our government in the first place.
so under this scenario, fiat could end up with 55% of chrysler at a total cash outlay is only $25 million – while u.s. taxpayers contribute several billion but obtain no ownership whatsoever.
American factories are excellent, all problems lie in management and engineering
if/once chrysler becomes profitable, fiat has the option of obtaining an additional 20% stake in the company for only $25m ….so under this scenario, fiat could end up with 55% of chrysler at a total cash outlay is only $25 million – while u.s. taxpayers contribute several billion but obtain no ownership whatsoever.
A pretty crummy deal for us. I guess the only consolation is it’ll never come to that since they’ll never be profitable.