 (Source: The Insurance Institute for Highway Safety)
 Sergio Marchionne, CEO of Fiat S.p.A.
Fiat puts the unions willingness to deal in the face of disaster to the test
Fiat is playing a hardball game of “Deal or No Deal” with the United Auto Workers union, which has been resisting proposed cuts in benefits and pay that would come as part of a government-suggested merger with Chrysler.
The roots of the current talks began months ago, when Chrysler granted a 35 percent equity stake to Fiat SpA in exchange for help preparing its bailout plan. Then President Obama rejected the plan and called for Fiat and Chrysler to fully merge. Obama's auto task force offered the pair $6B USD in a one-time bailout fund to facilitate the merger and Chrysler's recovery, should they reach a deal. The alternative is bankruptcy, which many believe would involve complete liquidation of Chrysler's assets.
The weeks have gone by with little progress made to complete the merger, thanks in part to union resistance. Fiat is unwilling to assume the kind of baggage that comes with the deep health care and pension debts that the union brings with it. Now, with only 2 weeks left to cut a deal, it has issued an ultimatum -- make the cuts or we walk.
Sergio Marchionne told Wednesday's Globe and Mail that he believes there's only a 50 percent chance the deal will be reached. He states, "Absolutely we are prepared to walk. There is no doubt in my mind."
The point of division is proposed cuts, which would lower wages and benefits at UAW Chrysler plants in the U.S. and Canada to those at comparable German and Japanese automaker plants (non-union) in North America. The U.S. UAW branch has shown some willingness to reach a deal, but the Canadian unions are showing particular resistance. Chrysler may abandon its Canadian plants anyway, though, if it doesn't receive bailout funding from the Canadian government, according to its previous comments.
Nomura analyst Michael Tyndall believes Mr. Marchionne has little to lose from forfeited negotiations and is likely not bluffing. He also believes that the unions are wholly opposed to the deal. He states, "He's playing hardball. (The unions) want them (Fiat) to walk away ... (they) don't see any benefits in this deal."
Even if Chrysler can cut a deal with the unions, there's the prickly situation of its debt. It owes $7B USD to creditors, mostly banks. Chrysler wants them to forgive most or all of this debt -- or to possibly exchange it for some equity. The creditors have laughed off this suggestion thus far. The current sentiment seems that they would be more willing to drive Chrysler into the ground and extract whatever they can from liquidation.
While the deal faces enormous obstacles, auto enthusiasts would love to see it happen, both in that it would keep Chrysler alive and that it would bring new European cars to America. If Fiat can reach a deal it will bring its Cinquecento (500) car, wildly popular in Europe, to the States next year. Furthermore, it would begin producing Alfa Romeo, a popular luxury brand, in the North America.
Chrysler did have a bit of good news to report. Michigan Governor Jennifer Granholm announced that the state was awarding new funds to A123 battery company, which recently opened a plant in Livonia, Mich. The state is heavily investing in the effort, offering $125.5M USD to help finance the new plant, which created 844 jobs. The plant should prove a big boost to Chrysler's electric car efforts, should Chrysler survive its current crisis.
"I mean, if you wanna break down someone's door, why don't you start with AT&T, for God sakes? They make your amazing phone unusable as a phone!" -- Jon Stewart on Apple and the iPhone
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