AFSCME 3357-HOF'S BLOG

Fiat/Chrysler Deal would Cost Taxpayers at least $3 Billion More
Fiat Stock Tanks

Even though there are some cheerleader stories in the mainstream media touting yesterday's announced Fiat/Chrysler deal. There are signs that for the stakeholders on both sides of the transaction and for the taxpayers at large, this deal is coyote-ugly. Let's put it this way, it was no accident that this deal was announced on the day of President Obama's inauguration.

To me, the overarching theme of this deal is desperation. Chrysler couldn't give itself away to Nissan or Volkswagen, two companies with which it has existing alliances and business deals. Nissan, which with its partner Renault has been an automotive success story for the past few years, has been hit hard by the auto industry meltdown, and is in no position to make acquisitions. Volkswagen has come out of the current unpleasantness relatively well. In a large part, that's because Volkswagen has avoided stupid deals, so no point in changing course now.

That leaves Fiat. Fiat has come a long way since 2005, when GM paid $2 billion for the privilege of not buying the Italian company. Fiat has been successful in selling its 500 and Punto series small cars. Nevertheless, I wonder how fundamentally strong the company really is. Apparently the stock market wonders. Fiat stock is trading at about 1/4 of its value in May 2008, and is still trending sharply downward. In other words, Fiat may be no more stable than Chrysler. So if Congress didn't already have its hands full looking into Chrysler's and Cerberus's finances, to evaluate this deal, it will have to examine Fiat's books as well.

According to Today's Wall Street Journal, an additional $3 billion in US Government money to Chrysler is a prerequisite to the Chrysler/Fiat merger. I looked for confirmation of this online, and didn't see it. Whether or not it is a term of the deal, there is no way for Chrysler to survive without continuing infusions of cash to pay for continuing overhead as well as for the tooling of the plants necessary to build the Fiat designs. Under ordinary conditions, it takes a couple years to bring a rebadged existing car to the United States as an import if it meets US safety and emission rules. Under normal conditions, it usually takes longer than two years to retool an assembly plant to produce an unrelated model. This might have been a viable plan if they had started in earnest two years ago. Now it is too little, too late.