SEARCH BLOG: AUTOMOBILES
The following article from the Wall Street Journal sums up the mess at Chrysler. The last sentence sums up Fiat's proposed contribution... and why I'm so skeptical about the success of this new relationship. After all, if Mercedes couldn't pull it off with Chrysler, what makes anyone think that Fiat can do better?
These are desperate times at Chrysler and one is left with the impression that Fiat is the last grasping at straws. I hope there is more to it than the obvious.
This is Fiat's latest mini-car "winner." I see a very small market for this in the U.S. [pardon the pun].
By NEIL KING JR. and JEFFREY MCCRACKEN
President Barack Obama pledged to give Chrysler LLC "a new lease on life" by ushering the storied auto maker into a bankruptcy reorganization that will empower its union and put Italy's Fiat SpA in charge while elbowing aside its creditors.
Administration officials said the bankruptcy could last a relatively short two months and lead to a healthier Chrysler. But the intervention Thursday to preserve the 84-year-old company is far from certain and could stall in court, especially if aggrieved parties such as creditors and dealers mount a legal challenge.
The move also could disrupt the country's already-fragile automotive suppliers and scare away Chrysler's already-scarce customers.
The plan envisions a partnership between Fiat and the United Auto Workers union, one of the more peculiar ownership structures in Chrysler's tortured history. The filing may pave a path for General Motors Corp., whose own U.S.-imposed deadline for reorganization is a month away.
Chrysler's Chapter 11 filing -- the sixth-largest ever -- is designed to arrest the decline of a company that popularized the Jeep and the minivan. It marks the latest in a series of government interventions. Earlier, Washington took stakes in troubled banks and insurance giant American International Group Inc.
The administration is determined to protect UAW jobs and salvage the third-largest domestic auto maker, even at the expense of Chrysler's secured lenders. Critics among the lender group charged that the deal would upend established bankruptcy practice by putting junior creditors on par with secured ones.
The filing, made in New York's Southern District, was the culmination of months of wrangling that started last year when Chrysler and GM appealed to Washington for a bailout. It ended with an agreement that eventually could see Fiat taking over Chrysler, a new union pact covering about 150,000 workers and retirees, and a contentious, multibillion-dollar debt-for-cash swap.
The Treasury will contribute $3.3 billion to the plan: $2 billion to pay off Chrysler's lenders and the rest to pay the company's bills during bankruptcy. It said it is prepared to pitch in $4.76 billion more to keep Chrysler running for several years. That's on top of $4 billion the government lent Chrysler in previous months, a debt forgiven as part of negotiations with the UAW and lenders.
President Obama, in a noon speech at the White House, had to explain why he planned to save Chrysler and its workers by forcing the company into bankruptcy. A partnership with Fiat, he said, would give Chrysler "a chance not only to survive, but to thrive in a global auto industry."
Mr. Obama and his auto task force had long seen the merits of washing away some of Chrysler's liabilities through bankruptcy. Fiat can now pick the operations it desires while more easily shedding hundreds of dealer franchise agreements and other obligations it doesn't want.
At the same time, in an echo of the tensions that have run high between Washington and Wall Street, the president and his aides blamed the filing squarely on about 20 smaller investment firms and hedge funds. This group voted against the government's last offer to eliminate $6.9 billion in debt owed them.
They "decided to hold out for the prospect of an unjustified, taxpayer-funded bailout," Mr. Obama charged. Rep. John Dingell, a Michigan Democrat, called the holdouts "rogue hedge funds" and "vultures" and said in a statement that they "will now be dealt with accordingly in court."
The smaller lenders and funds pose some threat to the process of restructuring Chrysler, said attorneys and bankers involved in the matter. They'll likely argue in court the U.S. is overriding contract law, bankruptcy law and constitutional protections against the seizure of private property.
The group, calling itself the "non-TARP lenders," a reference to the Troubled Asset Relief Program that's aided banks, said in a statement that it has "a fiduciary responsibility to all those teachers, pensioners, retirees and others who have entrusted their money to us." The most compliant of Chrysler's big creditors -- among them J.P. Morgan Chase & Co and Citigroup Inc. -- have received hundreds of billions of dollars in TARP aid.
Fiat will contribute no money to the alliance. It has committed what it says are billions of dollars in technologies and designs for fuel-efficient vehicles.
Let's hope that Chrysler designers can make a silk purse out of Fiat's ugly sow's ear.