Chrysler & Fiat Shift Closer To A Deal
Wednesday, April 29, 2009SUSIE GHARIB: Chrysler is close to signing a deal with Fiat as the U.S. auto maker races toward the government's deadline, midnight tomorrow. Sources at Chrysler tell NIGHTLY BUSINESS REPORT to expect a deal in the morning. Treasury Department officials are still negotiating with Chrysler, its lenders and other investors to keep the auto maker out of bankruptcy. But sources close to the talks say Chrysler could still enter bankruptcy. President Obama is planning to make an announcement tomorrow morning and his aides are reportedly preparing two versions of the speech, depending on how things go tonight. Washington bureau chief Darren Gersh is standing by with the latest. Darren, what's going on?
DARREN GERSH, NIGHTLY BUSINESS REPORT CORRESPONDENT: Hi Susie, look, as you know, for years Chrysler has been the weakest of Detroit's big three, but it looks like all this deal making has bought the company a new lease on life. With its partnership with Fiat, an agreement with its major debt holders and a new labor pact, Chrysler has dodged disaster once again. A source familiar with the negotiations says Chrysler will survive and avoid liquidation. Analyst Rebecca Lindland says the new Chrysler has a chance to come out of this a much stronger competitor.
REBECCA LINDLAND, SR. AUTO ANALYST/IHS GLOBAL INSIGHT: They'll be a more diversified company with the Fiat alliance. They'll have a lot of their legacy issues resolved. They'll have a much stronger union contract and something that helps their financial performance a lot better, so they can be a better company. It's just whether they can survive the surgery and come out of it better and stronger than ever.
GERSH: While Chrysler's major debt holders agreed to cut their losses, dozens of others did not. That could lead to a bankruptcy filing tomorrow to force those debtors to restructure. That source familiar with the talks tells NIGHTLY BUSINESS REPORT whether that happens in or out of bankruptcy remains uncertain at this point. In court or out, Chrysler's deal gives Fiat a 20 percent initial equity stake in the company, eventually rising to 35 percent. The United Auto Workers would own 55 percent of Chrysler in return for writing down $6 billion of pension and health costs. And the U.S. and Canadian government would provide financing to help the company through bankruptcy. The company hopes that any trip to court would be a short one, a prediction not shared by many analysts.
LINDLAND: Any time you go into bankruptcy court, you could have complications. You could have unintended events happen and so our big concern is that even as they go into bankruptcy court, they may not be able to emerge quite as quickly and cleanly and surgically as everyone says.
GERSH: While Chrysler dealer Tammy Darvish is eager to sell Fiat products, she worries a bankruptcy filing will make it too easy to tear up dealer franchise agreements. To be ready, Darvish confirms the National Association of Automobile Dealers has hired a law firm to represent their interests in bankruptcy court.
TAMMY DARVISH, VP, DARCARS AUTOMOTIVE GROUP: What we're just doing is our due diligence and being prepared. And more so right now it's just an education process for us. We need to understand what this really means for us.
GERSH: And you know Susie, it might take years to really know whether Chrysler and Fiat can succeed in the marketplace, let's alone repay you as taxpayers.
GHARIB: Darren. I know you've been talking to a lot of people in all this. Who really are the winners here if the deal goes through? Is it Fiat? Is it the United Auto Workers union? It's certainly not going to be taxpayers, right?
GERSH: You know, I think maybe one of the questions is who loses the least. Look, the U. A. W. had to give up its pension and health benefits quite a bit. In return, you could say that that was not an assured thing that they were going to get those benefits, but in return they own most of the company. So you could say that they came out pretty well. But Fiat looks like they stand to get access to the U.S. market, something they've wanted and never could have thought they would have gotten a couple years ago so, they look like they have a chance to be a big winner here.
GHARIB: I know you've been talking to Chrysler dealers. How do they feel about an alliance with Fiat?
GERSH: I think they're very concerned about what this means for them. A bankruptcy filing would mean that the company could essentially tear up a lot of their franchise agreements, so they're concerned that this is going to be used as a hammer to extract savings out of dealers and the dealers think they are just doing their job selling cars. They are optimistic I think about Fiat. They're hopeful. But also Fiat has not proven it knows how to sell in the American market. It's pretty obvious there.
GHARIB: So there's been a lot of back and forth with Chrysler for weeks now. What does this tell us of what we can expect the negotiations for General Motors and its future?
GERSH: Maybe this is the preview, the first act as it were and I think the government is clearly laying down markers showing that it is willing to be very tough, go right up to the wall, perhaps force the company into bankruptcy and Chrysler is much smaller than GM. So maybe they're being hard here so that they can extract savings for GM which is the bigger ball game. It's a bigger company, much more big impact on the U.S. economy.
GHARIB: Just a few more hours left and we'll find out how the whole thing plays out. Darren, thanks a lot for filling us in. Darren Gersh reporting from Washington.
