Smoke and mirrors: Dissecting the Chrysler and Fiat puzzle
Today's Financial News - Posted January 20, 2009
Chrysler is desperate to find a way to stay in business. Bills are piling up and the clock is ticking down. Has Fiat stepped in and saved the day? Or is this more of the political maneuvering we have become seemingly immune to.
By Andrew Snyder, TodaysFinancialNews.com
Baltimore – (TFN): Chrysler may have a new global partner, but is today’s deal the lifesaver Detroit proponents have been praying for? Did Fiat step in and pull Chrysler from the brink of bankruptcy?
I think we all know the answers.
Other than taking the time to write up a few press releases, Fiat does not risk a thing by taking a 35% stake in Chrysler. It does not have to lay out any cash, yet it gains access to a well-known American brand and its widespread dealer base.
Fiat can now work at bringing its fuel-efficient, small-car lineup back to an American market that has been craving small, quirky European brands. For a hint of their target market, just look at Mini Cooper and its recent success. The value of these trendy cars are holding up nicely, even as car sales plummet.
But what is in this deal for Chrysler?
On first take, there appears to be very little. Chrysler merely gets access to Fiat’s engineering knowledge and a European market where its cars will likely be met with little demand.
Again, Fiat is not shelling out any cash, does not promise to ever fund any of Chrysler’s liabilities and the deal will not relieve Chrysler of its $4 billion obligation to Uncle Sam.
Same old political maneuvering
But, and this is very important, the deal does buy Chrysler some time. In February, the Big Three have to fly, drive, or hitchhike back to Washington and explain to the new administration why the government should continue writing checks. Detroit has to prove their long-term viability.
Chrysler overtly states that today’s deal is “a key element of Chrysler’s viability plan.” That line says it all. Chrysler is merely trying to prove to Washington that it is working towards some sort of goal.
How can Obama possibly say no when the Italians are getting involved and Chrysler says, “Just give us time. Let the deal work out.”
Chrysler may have earned itself another check from Washington and given Cerberus a temporary reprieve, but in no way is this deal going to pull Chrysler from the grasp of bankruptcy.
It is a good deal for Fiat, which is taking advantage of a down-and-out competitor, but nothing more than a marketing campaign for Chrysler. Do not waste your time thinking it is anything else.
Next Article: This drug-resistant “superbug” could be the biggest source of “Jackpot Justice” since asbestos litigation
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