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2009 Fiat 500 Abarth
Fiat looks to snatch up more former American automaker holdings

Italian automaker Fiat SpA is snatching up the broken remains of American automakers and forging an automotive juggernaut.  With a deal with U.S. automaker Chrysler ready to trigger once Chrysler emerges from Chapter 11 bankruptcy protection, Fiat will already have a major equity stake in the recovering Chrysler and a means to distribute its small fuel-efficient vehicles across North America.  But Fiat wants more, much more.

Fiat met in Berlin Monday with German officials to discuss a possible bid on GM's chief European holdings -- Opel (Germany) and Vauxhall (UK).  The group would be spun off to form one of the world's five biggest automakers.  Together with Fiat's main company and the Chrysler equity stake, the move would form a $106B USD company under the control of Sergio Marchionne, chief executive officer of Fiat.

One obstacle is union resistance.  Germany's largest automotive union, IGMetall, has previously voiced opposition to the tie-up, fearing job cuts.  Another key obstacle is the Fiat-proposed government aid for the deal.  Fiat hopes to be given $6.6B USD in aid to pick up the struggling European brands.  Further, it also has a rival suitor -- Canadian group Magna International.

If a deal can be reached, along with its Chrysler offerings, Fiat believes the combined company would sell 5.5 million vehicles a year, above the analyst-estimated survival threshold.  Fiat also plans to reduce Opel and Vauxhall to only four platforms, cutting $1.3B USD in costs.  Cars would continue to be sold under the separate brand names.

The move would give Fiat a strong presence in several continents -- a potentially dominant position in Europe and Britain, a strong North and South American presence, and a means to launch into other markets.  Gregor Matthies, a Munich-based partner at Bain&Co. who focuses on the auto industry, states, "If they can make this happen within five to eight years, they could emerge as a strong global competitor."

One key problem about the deal though would be that Fiat might have to assume more of GM Europe's debt than with the Chrysler deal.  Fiat already has $8.6B USD of its own debt, and its bonds currently are "junk" status.  It does have a few "jewel assets", high performing brands like Iveco truck unit or Case-New Holland, however, overall it is struggling to turn the corner to profitability.

Max Warburton, a London-based analyst at Bernstein Securities, is among those to question the possible tie-up.  He states, "Can a spun-off collection of loss-making auto companies really be liquid and viable?  What happens if [the new company] needs to be recapitalized?  Will Fiat need to sell a jewel asset?"

Mr. Matthies says that the success or failure of the potential company, would likely rest on CEO Marchionne, who has thus far seemed an energetic and effective leader.  He concludes, "It all comes down to 'Super Sergio,' driving it from the top with ruthless, pragmatic focus on speedy implementation."



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ha
By SandmanWN on 5/5/2009 1:50:23 PM , Rating: 5
So a junk bond status company with 8 billion in debt has just finished purchasing a union invested company with billions in debt.

Now they want to buy another union invested mess with even more debt.

The auto industry is such a mess. Maybe all the junk bond debt laden union companies will combine into one super black hole and collapse under its own weight finally leaving us with a viable auto industry. Well its just a thought...




RE: ha
By JasonMick (blog) on 5/5/2009 2:30:18 PM , Rating: 1
Or maybe they're small scale evidence of the ever-expanding universe theory, currently supported by many physicists. Maybe they will all just use up their energy and burn out, floating away into nothingness as cold husks. ;o)

</physics sarcasm>

But seriously, I agree the whole industry -- be it Japan, U.S., or Europe is pretty messed up right now. Just a few companies (like Tata Motors) seem to have it together.


RE: ha
By TA152H on 5/5/2009 3:15:30 PM , Rating: 5
Saying the whole industry is messed up is absurd, and it is just typical 20-20 hindsight. It is completely disingenous too, since you probably were not saying it before these problems happened.

You can not possibly believe that car makers should have planned and managed their companies to sell 40% less cars than they were, just in case something completely unexpected happened and the market collapsed. It's nonsense.

They need to keep investing money in development, keep their factories going, with the high costs involved, because to do otherwise would condemn them to death in normal market situations.

Toyota, etc... did it right. They are losing money, but because the market collapsed and they were not built for it, nor should they have been. But, they were smart enough to have the financial reserves to weather it, and still be strong when more normal buying patterns return - and they will. Any company not losing money now is probably very poorly run, or in an exceptional situation, since we are in a very abnormal buying market, and should the normal market return, they will not be able to meet demands. Again, there are always exceptions, but my point is, losing money right now is fine, it's expected since the unexpected happened. Now, if you need to beg the government for money, that's different. But, companies like Toyota that have the cash reserves to ride it out are not a mess at all, they did it right, and they'll be in fine shape. They did what they were supposed to.


RE: ha
By AEvangel on 5/5/09, Rating: 0
RE: ha
By TomZ on 5/5/09, Rating: -1
RE: ha
By Bateluer on 5/5/2009 5:23:36 PM , Rating: 5
Oddly enough, people were buying the econoboxes. Since American automaters weren't making them, or weren't making decent ones, the sales were going to Toyota, Honda, etc, who did make them.

As I recall, when gas for 4+ USD per gallon, no dealership could keep a Prius on the lot for more than a day. Most had waiting lists.

Fact is, 99% of people do NOT need a truck at all. Most people are just fine with a Prius/Corolla/Focus/etc. Now, if you want a truck, that's fine, its your to to purchase and drive almost any vehicle you want. But call it what it is, a want, not a need.


RE: ha
By TomZ on 5/5/09, Rating: 0
RE: ha
By Spuke on 5/5/2009 6:12:29 PM , Rating: 2
quote:
Fact is, 99% of people do NOT need a truck at all. Most people are just fine with a Prius/Corolla/Focus/etc.
People don't need anything but love, shelter and food. Everything else is a want.


RE: ha
By Jedi2155 on 5/5/2009 7:47:12 PM , Rating: 4
To get love, shelter and food you usually need a job and a girl. To get either of those you need usually need a car. Especially in LA.


RE: ha
By Spuke on 5/6/2009 12:18:36 AM , Rating: 3
quote:
To get love, shelter and food you usually need a job and a girl.
Love comes from people that love you. Also, a cave is shelter and animals and plants are food. You don't need a job to get any of this. Most of what we have are wants. But who wants to live in a friggin cave? I don't. So we band together to make our collective lives better. Now you got people feeling guilty about having a better life but instead them making changes to their own lives to make themselves feel better, they just want the rest of us who are comfortable to change. Misery loves company.


RE: ha
By mindless1 on 5/6/2009 3:01:07 PM , Rating: 2
Since our health and lifespan went up dramatically since the caveman era, it is fair to say better shelter is a need, not a want.

Most people aren't feeling guilty, it's just that those who do, keep rambling on about it trying to change others instead of themselves.


RE: ha
By borowki2 on 5/5/2009 7:32:40 PM , Rating: 3
GM makes plenty of econoboxes. It's just that they can't sell them here because of the Two-Fleet rule. I'm sure many cost-conscious Americans would buy GM's inexpensive European models if available, but the since only domestically manufactured cars count towards meeting CAFE standards, the company can't bring them here.


RE: ha
By yomamafor1 on 5/6/2009 11:19:32 AM , Rating: 3
People only buy small cars and efficient sedans because they couldn't afford the gas. Once the gas came down in price, guess what? Prius and Civic Hybrids had a hard time selling.

American wants big SUVs and trucks, period. That's why even Toyota is churning out trucks and SUVs / Crossover like there's no tomorrow. Why? Because we WANT them. We just couldn't afford it when the gas price is high.


RE: ha
By Spuke on 5/6/2009 2:48:17 PM , Rating: 1
quote:
We just couldn't afford it when the gas price is high.
Actually most people could afford it, they just didn't bother to do the math. The people that dumped their trucks/SUV's before paying them off just spent MORE money than if they had kept the truck and paid the higher gas costs. My wife and I figured if we bought a ~$10k car it would've cost us $150 MORE per month including the savings in gas by going to a more fuel efficient used car. No savings there. So what we (or she) did do was cut out her Starbucks coffees. That equaled the price difference in gas to what was comfortable and what the current pricing was at the time.


RE: ha
By mindless1 on 5/6/2009 3:06:03 PM , Rating: 2
You've gone off on a tangent, it's not necessarily people getting rid of their truck, it's people chosing to buy the smaller vehicles during the period of higher gas prices as an addt'l vehicle owned or replacement that was already needed.

Plus, something people seem to overlook is truck owners seem less concerned with driving something not the latest greatest, will drive their vehicle for a longer period of time. If that truck isn't hauling heavy loads all the time it may hold up better in major integrity areas such as suspension too, and those with fewer frills have fewer things to break. How many shadetree mechanics have a reasonable expectation they can repair a prius? Perhaps some but it would be ego moreso than with traditional ICE vehicles that change incrementally.


RE: ha
By Spuke on 5/6/2009 6:12:58 PM , Rating: 2
quote:
You've gone off on a tangent, it's not necessarily people getting rid of their truck, it's people chosing to buy the smaller vehicles during the period of higher gas prices as an addt'l vehicle owned or replacement that was already needed.
Right, it's not about people selling off their one year old $50k trucks for a Nissan Versa and taking the $30k plus hit to get 30 mpg nevermind that they just lost a few decades worth of fuel payments in the process. Sorry, but most of those people were shortsighted and did not do the math. Sure, there were some people that were in the market to buy a new car and decided not to keep the truck but MOST of the people dumped their present trucks/SUVs for more economical cars.

quote:
Plus, something people seem to overlook is truck owners seem less concerned with driving something not the latest greatest, will drive their vehicle for a longer period of time.
Right again, people drive their trucks like cars and replace them as often. That's why the new truck cycle, until recently, mirrored cars. It used to be that the car makers would intro a new truck every 6 or 7 years but when they got popular they mirrored cars. Now they will be back on the old cycle.


RE: ha
By tmouse on 5/6/2009 8:26:45 AM , Rating: 2
While you're right, in general, the US auto new car sales/leases still break down to small cars representing 46% of the market with mid size being 30% and full size around 20% for 2008. The F150 story is a little skewed, yes it is the best selling model, but it falls into 2 categories, business and consumer. Since 1965 consumer car purchases have dropped over 50% while business purchases have gained 50%. The light truck sales boon correlate quite well with the real estate boon starting in the late 90's and we will need another 2 years of data to see if it drops with the collapse. There is a bit of apples to oranges in the comparisons since they are not from the same population distributions. Now I will not deny Americans prefer large cars, some of it is due to our larger physical dimensions, much is due to our need for the perception of our cars reflecting our affluence. You can get a smaller exotic/sports car that's really expensive, but the prices skyrocket rapidly or you can get a large car for a relatively smaller percent increase in price than a smaller eco-car. Now fuel prices can drastically effect this, as seen by the short lived but dramatic drop in sales in all large trucks, SUV's ect in the 5-6 months of the last fuel crisis.


RE: ha
By Spuke on 5/6/2009 6:14:28 PM , Rating: 2
quote:
While you're right, in general, the US auto new car sales/leases still break down to small cars representing 46% of the market with mid size being 30% and full size around 20% for 2008.
Post a link to this information.


RE: ha
By tmouse on 5/7/2009 9:09:45 AM , Rating: 2
It's a small pet peeve of mine but the world would at least SEEM a nicer place if people would add the word "please" when one places a request. Seems less confrontational.

Anyways here is the link

http://www.bts.gov/publications/national_transport...


RE: ha
By austinag on 5/5/2009 2:49:47 PM , Rating: 2
I wish I could send a message back in time to mid 80's GM and UAW telling them that their strategies of reducing cost and sacrificing quality and innovation would lead to a potential buyout of some of their major assets by Fiat; talk about scared straight, they'd have their sh** together in about 5 seconds.


RE: ha
By AEvangel on 5/5/2009 3:42:31 PM , Rating: 5
No...they wouldn't they would continue on their path to increase payouts to stockholders. That is the problem with some publicly listed companies is that the stockholders don't care about the long term viability of the company only the quarterly earnings report.


RE: ha
By gamerk2 on 5/5/2009 4:50:42 PM , Rating: 2
Too true; Investors only care about the stock price so they can buy/sell. And as investors are an easy way to raise money quickly, coorporations manage to the stock price, not the health of the economy.


RE: ha
By TomZ on 5/5/2009 5:18:33 PM , Rating: 4
quote:
stockholders don't care about the long term viability of the company
They certainly do care if they plan to hold the stock for a long period of time.

But really, stockholders only serve the purpose of providing capital for the business. It is up to the board and management to ensure the long-term viability of the company.

You have a really shallow understanding of business.


RE: ha
By mindless1 on 5/6/2009 3:08:11 PM , Rating: 3
... except that if you didn't have a crystal ball at the time (if you were even alive yet), you'd have been clueless this would happen too.

Hindsight is always 20/20.


RE: ha
By LemonJoose on 5/5/2009 4:48:22 PM , Rating: 2
Perhaps this is Fiat's own bid to become "too big to fail." Maybe they know they are in a bad position and just want to make themselves large enough to garner government bailout support of their own a few years down the road.


RE: ha
By DeepBlue1975 on 5/5/2009 6:02:01 PM , Rating: 2
Enter the Fi-GM BlackHole.
Problem with the final revision of this car is that not even light coming from the headlamps will be able to escape.
Good news is that emissions won't be a problem with this car, as they won't be able to escape the car either.

One of the main concerns is that people will have to start looking at other cars' motion or equip other cars with gamma ray detectors to be able to know where the BlackHole is.

As a side note, publicists are thinking about the following slogan for the BlackHole ad campaign:

...The car with the "hole" package.
One you'll never forget.
One you'll never wanna leave.
One you'll never be able to leave even if you wanted to.
Enter the BlackHole.


RE: ha
By borowki2 on 5/5/2009 7:11:35 PM , Rating: 2
I think GM Europe is relatively competitive. Many of the cheaper Opel models are made in Poland, for instance, where labor cost is relatively low. Union bargaining power is also curbed by the European common market. Companies often can wring extra concessions by threatening to more their factories east.


RE: ha
By Samus on 5/5/2009 8:43:24 PM , Rating: 2
one thing italian auto manufactures don't know is how to stay in business. i lost track of how many times ferarri and maseratti have been purchased...


In related news...
By DigitalFreak on 5/5/2009 2:17:15 PM , Rating: 5
Chrysler's financial advisers are now saying that Chrysler will probably never be able to repay the government loans. Is anyone surprised?




RE: In related news...
By DigitalFreak on 5/5/2009 2:18:39 PM , Rating: 2
RE: In related news...
By TomZ on 5/5/09, Rating: 0
RE: In related news...
By geekfool on 5/5/2009 3:00:26 PM , Rating: 3
Sorry, but Chrysler would be in a comparable position to where it is now regardless of who happened to win the election in November. Its problems began long before Obama was elected, and they weren't just going to magically disappear based upon the outcome of an election. Methinks you're just looking for a scapegoat.


RE: In related news...
By Rugar on 5/5/2009 3:18:58 PM , Rating: 5
I think his concern is with trying to give holders of secured debt the shaft and not with Chrysler being an epic fail. Telling secured lien-holders that they should get in line behind unsecured lien-holders is a pretty serious issue. This goes against centuries of contract law and the constitution itself. And to then go on television and call them "vultures" because they want what is legally coming to them is just wrong. The reason many of these firms were willing to give Chrysler loans in the first place is because they knew that, worst case, they could always sell off the assets used to secure the loans. Prepare for a long legal battle that will most likely reach the Supreme Court.

I'm not suggesting that had someone else been president things would have been different. That's a hypothetical that we will never be able to answer.


RE: In related news...
By TomZ on 5/5/2009 3:58:23 PM , Rating: 4
Exactly my point - how can the rights of the secured creditors be disregarded as though they mean nothing? Not to mention Obama's chiding them for trying to hold their positions.

And I also disagree with the forced merger with or purchase by Fiat. Why does the government think that will work, and why should they be doing that in the first place?


RE: In related news...
By Spuke on 5/5/2009 5:46:22 PM , Rating: 2
quote:
Why does the government think that will work, and why should they be doing that in the first place?
Because Fiat already has a bunch of small cars that "everyone" wants.


RE: In related news...
By TomZ on 5/5/2009 5:56:35 PM , Rating: 2
LOL, exactly! Let the brainwashing continue!

Obama to Americans: you really want to buy a small car. It's the "right" thing to do. Repeat after me....


RE: In related news...
By sinful on 5/5/2009 2:41:39 PM , Rating: 5
quote:
Chrysler's financial advisers are now saying that Chrysler will probably never be able to repay the government loans. Is anyone surprised?


Correction: ONE of Chrysler's financial advisers (as in, a single guy) has said ONE of the loans given to Chrylser is highly unlikely to be repaid - and that's because it's (assumed) that the particular portion of the loan debt will be wiped out during the BANKRUPTCY proceedings.

"Not having to repay" and "never be able to repay" are extremely different.

Additionally, it's just assumed they won't have to repay it - it hasn't been determined if they will or not.

Fiat has to repay $6 Billion in government loans if they want a majority stake in Chrysler.


RE: In related news...
By sinful on 5/5/2009 2:42:34 PM , Rating: 2
RE: In related news...
By DigitalFreak on 5/5/2009 2:44:42 PM , Rating: 2
quote:
Also on Monday, one of the top financial advisers overseeing Chrysler’s restructuring testified in bankruptcy court Monday that there is a ”low likelihood” that the automaker will be able pay back its billions of dollars in government loans. But Robert Manzo, an executive director with the restructuring group Capstone Advisory Group, said he doesn’t view the government financing as ”free money.” ”They’re offering financing with a low likelihood of being repaid,” he said.


One? Loans (plural) are mentioned in the article.


Debts
By eddieroolz on 5/5/2009 3:51:54 PM , Rating: 2
quote:
Fiat already has $8.6B USD of its own debt, and its bonds currently are "junk" status.


So this is like a GM buying another GM eh...

Get your own problems solved, Fiat. Being too big was what killed GM.




RE: Debts
By ipay on 5/5/2009 3:59:56 PM , Rating: 1
quote:
Not producing motor vehicles that people want to buy was what killed GM.


Fixed that for ya.


RE: Debts
By TomZ on 5/5/2009 4:19:05 PM , Rating: 2
Duh, GM has been #1 in sales globally for decades, and only recently became effectively tied with Toyota for that distinction. If nobody wanted their cars, they wouldn't be #1, would they?


RE: Debts
By gamerk2 on 5/5/2009 4:53:30 PM , Rating: 2
Toyota has 3 brands, GM has 9. And yet Toyota is selling more.

In short, GM assumed that if they make it, people would suck it up. All those brands that don't sell do nothing but add costs. For god's sake, their brands are competing against each other for sales (Chevy and GMC, for instance)


RE: Debts
By omnicronx on 5/5/2009 4:59:07 PM , Rating: 2
quote:
For god's sake, their brands are competing against each other for sales (Chevy and GMC, for instance)
GMC is the upscale version of Chevy, not exactly direct competition. Furthermore most GM vehicles that do overlap use many of the same parts, are built on the same chassis etc.. from this perspective it does not actually cost that much more. Furthermore it does not really matter if they were competing against one another, a sale is a sale.

9 brands was way too much, but it was not the reason that GM failed. GM is still the best selling brand worldwide and have been for the last 75 years.


RE: Debts
By Rhl on 5/5/2009 6:25:11 PM , Rating: 2
A sale is not a sale... you're forgetting about the overhead costs of having two different brands from the same company compete against each other. It's a cannibalization of revenue and is a waste of money.


RE: Debts
By TomZ on 5/5/2009 6:41:06 PM , Rating: 2
Tell that to companies like P&G which have lots of brands that "compete with one another." They've been very successful with that approach.

http://www.pg.com/company/who_we_are/global_produc...

The trick is to be careful about the overlap.


RE: Debts
By Hare on 5/6/2009 10:56:33 AM , Rating: 2
Outstanding analogy. However I kind of doubt that it's the same thing from business perspective to put different wrappers on toothpaste (durables) compared to making motor vehicles with their own sales channels etc. Maybe it's just me but I have a feeling that the ROI might be somewhat smaller with the former (even negative).


One positive
By Davelo on 5/5/2009 4:42:03 PM , Rating: 2
That Fiat Arbath looks pretty cool. Not too many econo boxes I can see myself driving. This one is passable.




RE: One positive
By Durrr on 5/5/2009 5:24:42 PM , Rating: 2
There's a top gear episode on it, and the history of "Abarth". It's a pretty funny history and car lol.


RE: One positive
By Spuke on 5/5/2009 7:26:04 PM , Rating: 2
I like it too. I won't buy it though because it's FWD. I'm done with FWD for the time being. I may return someday but for now I'm into RWD. Plus it doesn't have enough power although it's relatively lightweight.


Do you know what are you talking about?
By axias41 on 5/6/2009 2:54:57 AM , Rating: 2
Fiat has 5 billions € of cash.
Of all debs of Fiat, 6 billions have to be repaid this year, and the remaining in the future. So this year Fiat need only 1 billion: they expect to have a net cash flow from the third quarter.
In the first quarter, Fiat had a loss of 411 millions € (http://www.repubblica.it/2009/02/sezioni/economia/... a lot less than other car companies.
For me, it is clear that DT does not know what it is talking about, DT is not a financial magazine.




RE: Do you know what are you talking about?
By SandmanWN on 5/6/2009 9:44:21 AM , Rating: 2
I am sure they are adding in Chrysler debt. They did just buy another car company ya know...


By axias41 on 5/6/2009 4:17:37 PM , Rating: 2
They are not adding Chrysler debt. Tha article claim Fiat has "$8.6B USD of its own debt", so 5B € more or less.


Great picture
By lufoxe on 5/5/2009 2:50:33 PM , Rating: 2
<geekyness>

As I was reading the article it does sound like some scheme that would come out of Pinky and the Brain. Worst part is I imagines Brain coming up with this then saying that he would "rule the world"
</geekyness>

In all seriousness now, If Fiat can get away with it, I don't see why not, but I do not want a single bit of my taxes going to this anymore. That money can go to good use elsewhere




RE: Great picture
By freeagle on 5/5/2009 5:10:31 PM , Rating: 2
You've just provided me with the only important information in this article - the name of the cartoon in the picture.

Thanks!!


Pension
By peterlws08 on 5/5/2009 6:34:52 PM , Rating: 2
I don't understand why Fiat would buy GM Europe...

These car companies could become profitable if they didn't have to look after their pension obligations.




Is It Just Me...
By cubdukat on 5/6/2009 2:29:17 PM , Rating: 2
...or does this seem somewhat incestuous?

Personally, I think Fiat should probably wait until after things stabilize with Chrysler. After all, it may not work out; after all, Fiat did leave the US market in disgrace thanks to non-existent quality control, massive rust issues and electrical systems that must have been designed by pre-schoolers. The saying "Fix It Again, Tony" didn't just materialize out of thin air.

If they don't work well with Chrysler, it would be just that much more disastrous if they decide to bring Opel and Vauxhall products over here under the Saturn banner, or whatever they decide to call themselves. Then it'd be three automakers in deep bankruptcy.

Having said that, I'm looking forward to having Fiat back in the US. It's about time there was an affordable Italian car.




Super Sergio
By jijitus on 5/7/2009 12:08:47 PM , Rating: 2
Super Marchio would've been nicer :)




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