Fiat Says It Will Walk Away From Chrysler Unless Their Terms Are Met

By Brendan Moore

04.15.2009

fiat-group-logo-smallSergio Marchionne, the CEO of Fiat, told reporters today that Fiat will walk away from their non-binding agreement to take an initial 20% stake in Chrysler LLC and share their small car technology with the American company if their terms are not met.

He was referring specifically to Fiat’s demands that the union give greater concessions than they have agreed to so far.

Chrysler has so far refused comment on Marchionne’s statement other than to say that they are working towards resolution of the Chrysler-Fiat deal by the federal government’s April 30 deadline for restructuring, which is a mere 15 days away at this time. Chrysler has gotten $4 billion USD in government aid so far, and April 30 is the drop-dead date that government has mandated as the last day for Chrysler to do a deal with Fiat. The Obama administration has said it will not give Chrysler any more money after April 30 if the Fiat deal doesn’t happen, and if the government cuts off funding, Chrysler will almost certainly go out of business (through bankruptcy) immediately. Chrysler’s assets would then be sold piecemeal as part of the bankruptcy process.

It is difficult to see how Chrysler can influence the CAW (Canadian Auto Workers) and the UAW (United Auto Workers) any more than they already have; any further level of concessions will have to come from the unions’ belief that it’s going to be Fiat’s terms or nothing.

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Up until now, the biggest problem was believed to be Chrysler’s creditors (banks and hedge funds) and the $6.9 billion USD that Chrysler owes those creditors, and, the US Treasury’s auto task force’s insistence that the debt be settled for 15 cents on the dollar. The creditors are not going for it.

Observers, as well as some politicians that represent regions where the auto industry is a major employer, have stated that they believe that Marchionne’s statement is a negotiating tactic. Well, perhaps.

Would it be a surprise if Fiat is trying to dictate terms to Chrysler? Chrysler has no other prospective buyers, they’re broke and they have only 15 days before they go out of business. And, the auto industry is in shambles, so there is certainly no reason for them to take on a very sick patient in the hopes that the market will rebound soon and make the patient better. You know, if I’m on the Fiat team, I think I’d do the same thing. Chrysler is distressed merchandise.

But there is always the possibility that it’s not a negotiating tactic; that Fiat is genuinely concerned about taking on Chrysler, and that whatever assumptions they dialed into their mid-case scenario regarding Chrysler’s future require far greater concessions from the unions.

Whatever their motivation, Fiat is in the driver’s seat here. Chrysler’s creditors will probably buckle if it actually looks like the company will go away completely, but the union is more intransigent. They are the wild card in this equation.

It is hard to say how this will go down, but I guess we’ll all find out soon enough.

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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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  1. a poster on Jalopnik nicknamed “Pessimipopotamus is off to the LB Grand Prix” had posted the following comment dated from Nov 2008
    http://jalopnik.com/5078705/and-now-for-todays-moment-of-zen?t=8779358#c8779358 the more interesting stuff to read is what he titled “phase 6” and “phase 7”. Unless a miracle happens, this scenario could probably materialize (and Nostradamus might probably spin on his grave).

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