Fiat Will Dictate Terms To Chrysler

By Brendan Moore

03.31.2009

chrysler-logo-small1If you’re on the Chrysler acquisition project team (sorry, “partnership” team) at Fiat, you must be feeling pretty good right about now. Because whatever valuation you arrived at for Chrysler last month just got halved, courtesy of the United States government.

The Obama administration has publicly stated that if Chrysler doesn’t do a deal within 30 days, then they cease to exist. So, if you’re Fiat, you have to figure that Chrysler is going to sell  a big piece of itself for whatever price is acceptable to you, the buyer. It’s not like they have a lot of time to negotiate, and besides, if there is no sale, then they will go away forever. Chrysler is now what is called a motivated seller (partner).

If nothing else, it should cut the time allocated to due diligence and discovery by Fiat down to a very small amount of time.

I’m not saying it’s a done deal – Fiat may decide a big chunk of Chrysler isn’t worth buying even at 50% of the valuation they arrived at a month ago. Frankly, they could reach that same decision at 25% of last month’s valuation, considering all of Chrysler’s debts and liabilities, and, the massive re-jiggering the company will need. Remember, this is a company that Cerberus got for free a couple of years ago, before a deep recession and the recent movement to frugality (read: less Chrysler trucks and SUVs going over the curb) by United States citizens.

It’s quite possible that Fiat may even wait for Chrysler to go into bankruptcy, and then bid on only the assets they want, cafeteria-style. Then they wouldn’t have to do the shut-down of production lines themselves. Of course, they would then run the risk of losing the Jeep brand and the truck line to someone else that was also bidding piecemeal, and, bidding higher.

One thing’s for certain – if Fiat buys a controlling stake in Chrysler, it will be at a price they dictate. Chrysler has no other potential buyers (“partners”) at this point and does not have the option of holding out for a higher price later.

What an ignominious end for what used to be a great company. A long time ago, admittedly, but nonetheless, they used to be somebody.

COPYRIGHT Autosavant – All Rights Reserved

Author: Brendan Moore

Brendan Moore is a Principal Consultant with Cedar Point Consulting , a management consulting practice based in the Washington, DC area. He also manages Autosavant Consulting, a separate practice within Cedar Point Consulting. where he advises businesses connected to the auto industry. Cedar Point Consulting can be found at http://www.cedarpointconsulting.com.

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4 Comments

  1. I don’t see why Fiat would want Chrysler at any price. The market’s in a slump and Chrysler is years behind in any turnaround effort — who’d want to take on that mess? I believe Daimler has already valued their remaining shares in Chrysler at zero.

  2. Under ordinary circumstances, “Fiat Will Dictate Terms To Chrysler” would have made a great April Fools headline.

  3. Yes, I know, why would Fiat want a new ball and chain around it’s neck? The only possible answer is, as far as I can see, that (1) Fiat gets an instant dealer network, (2) Fiat gets an instant group of factories. They must think that the labor costs will be lower when it actually matters to them (maybe, being forced lower by the US Government as part of its requirements for continued financial lifeline?).

  4. “Remember, this is a company that Cerberus got for free a couple of years ago..”

    I am surprised that this little fact has gone unreported by the press for so long.

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