Fiat, one of Europe's oldest and largest car companies, will probably take a 35% stake in Chrysler with the option to push that ownership to 55% later. Instead of buying the equity with cash, it will put up capital to retool part of Chrysler's production capacity to build smaller cars. The major issues from the negotiation are settled. The parties will seek approval from Treasury which has been giving Chrysler financial support.
Given that Chrysler's sales dropped 53% last month and that it is hemorrhaging market share in the US, its only real market, the investment is a puzzle.
According to The Wall Street Journal, "The pact with Fiat could give Chrysler a stronger case as it seeks more loans from the U.S. government. Chrysler nearly ran out of money late last year." That may not be true. Treasury could simply turn to Fiat and say, if you want to own Chrysler, you can fund it. If your equity stake is a value to you, show us the money.
Beyond that, the US car market is shrinking so fast that no company may be able to make money here for another two years. Chrysler and Fiat would like to pick up more of the small car market, but that is dominated by Japanese companies who are unlikely to yield any of it. They have strong balance sheets and can outlast weaker companies.
Put in a sentence, the deal can't work.
Douglas A. McIntyre is an editor at 24/7 Wall St.
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Reader Comments (Page 1 of 1)
1-20-2009 @ 5:34AM
hshneid said...
Beyond that, the US car market is shrinking so fast
1-20-2009 @ 5:35AM
hshneid said...
"Given that Chrysler's sales dropped 53% last month" - bad for Chrysler.
1-20-2009 @ 5:58AM
al coholic said...
It's hard to believe that money can't be made by car manufacturers when even the deflated sales are over 10 million.
1-20-2009 @ 9:07AM
DK said...
"Put in a sentence, the deal can't work."
- It all depends on your perspective. I will assume it works just fine for Cerberus and their plan to ultimately exit the investment.