Arrivederci, Chrysler
At this point, one might wonder just what’s in it for us taxpayers. Optimists will tell you that we keep 50,000 or so direct employees working and perhaps another 500,000 or so indirect people (suppliers, dealers) off the dole. And we get that terminally cute Fiat 500.
While saving jobs is an admirable goal, when you dig a bit into the shadowy details of this deal, it is quite fascinating. To start with, Fiat gets its initial 35% stake in Chrysler by simply providing access to its car lineup. If things work well, according to press reports, Fiat has an option to acquire 55%, or controlling interest in Chrysler for an alleged additional $54 million. Since Daimler spent $38 billion to acquire Chrysler, back when billions seemed like really big numbers, there may be a few eyebrows raised in Germany these days.
Of course Fiat isn’t buying the same Chrysler that Daimler purchased. Back in 1998, the two companies were nearly equal in size, talent, and profitability. Today, Chrysler is a shadow of its former self. The money guys at Cerberus stripped away Chrysler Financial so that’s not part of the deal. And to add a further note of irony, after we bailed out the financial company by lending it $1.5 billion, it has lent precious little to car buyers. Apparently, Chrysler Financial has better things to do with its capital.
Even Chrysler’s iconic headquarters building, complete with product development and a test track facility doesn’t belong to the automaker. That would be another Cerberus spin-off and a deal so sweet that it’s on the books for far less than its appraised value. According to a report in the Wall Street Journal, the 458 acre campus was acquired by Cerberus for $325 million. At the time, Chrysler’s book value for the property was $800 million and a year earlier, Daimler was offered $1.2 billion for that very same real estate. One can only wonder what other deals lurk in the volumes of accounting footnotes.
Chrysler has recently negotiated an arrangement with Nissan that would have the Motown manufacturer build trucks for the Japanese company and get Nissan’s small and midsize car products. So why not a marriage of these two (three if you include Renault) automakers? The answer may be the financial risk of Nissan/Renault stretching itself too thin and the automaker’s understandable reluctance to acquire the UAW union with its seniority structure and work rules.
So if Chrysler is to be saved, it looks like we taxpayers had better pony up the $3 billion and hope for the best. But for my small part of this ownership, the minute Fiat exercises its controlling option, we get our bailout loans paid back with interest. When that happens, I might celebrate by zipping around in a U. S. produced Fiat 500. Arrivederci!
Didn’t we already rescue Chrysler once in the ’80s? That turned out splendidly, didn’t it? I see no reason another bail-out would result in a more positive outcome this time around.
Let them fail.
Italians like unions and socialism so maybe
they are a good match. Also beware Jeep,
anyone who owned it is defunct(Willys, Kaiser,
AMC and now Chrysler). Looks like bad karma,
except for Jeep.
On the plus side, the real disaster of the Daimler merger was that the Germans actively tried to wreck Chrysler’s attempts to improve their higher end cars because of their fears for the value of the Mercedes marque. At least with FIAT, this won’t be a problem.
Unfortunately, any deal that includes UAW employees, labor contracts and hostile work rules is doomed to fail. That’s the main reason Chrysler is on the ropes to begin with.
No company can compete against $40 per hour labor costs with $75 per hour labor costs. It’s a fatal mathematical albatross, and Chrysler is history.
A few months ago, when Mervyn’s department stores was closing for good, we saw a thing on the news with the actual Mervyn himself decrying the fall of his company, which he had sold 20+ years before. Apparently Mervyn himself was a canny character, and he decided to avoid one of the pitfalls of retail businesses: he always owned his own stores. I don’t mean the businesses, I mean the real estate and the structures that are built on it. Guess who the new owner of Mervyn’s was, eventually? You guessed it, Cerberus Capital. Care to guess what they did with Mervyn’s? They sold the physical stores to another entity they owned, a real estate holding company. I didn’t see the sale price during the broadcast, but the rent the company was charged for occupying buildings it used to actually own put Mervyn’s out of business. Then Cerberus (pretty much in the same month) asked the taxpayers for a bailout of Chrysler. Cute, isn’t it?
Had Lee Iacocca simply put personal differences aside and not prevented Bob Lutz from becoming CEO, Chrysler’s history would be far different. Bozo Bob Eaton took control of Chrysler in the early 1990s when a chimp could have made great profits – Jeep, the LH models and the new Ram truck. Unfortunately Eaton decided to line his pockets while selling Chrysler down the river.
Iacocca admits this was the biggest mistake in his career,
Oscar – actually, the 80′s loan did turn out splendidly. It was repaid ahead of schedule and with interest. Brian C. and Roy are correct…Chrysler failed in the 90′s mostly due to Eaton and then the Germans raiding profitable Chrysler to fix Mercedes when it was in the red.
It’s getting obvious that what we really need is a simple constitutional amendment to address this madness:
Neither the United States, nor its constituent states, shall subsidize any incorporated entity nor shall they transfer any funds to the same except to procure goods and services for the use of official government responsibilities. All transfers of wealth to private citizens, except for the refunding of taxes, shall be subjected to the full scrutiny of the judiciary without limitation, and shall only be lawful in such cases as they may present a clear public benefit or are for the purpose of redressing an injustice committed against that individual.
I have bought my last GM or Chrysler car.
For me, the red flag here is this: the last I knew, Fiat’s products were junk. I used to work with a woman in Buffalo, NY, who was dating a Fiat salesman from Toronto, ON. When he’d visit her, he would NOT drive a Fiat, saying he didn’t dare take one that far from the dealership. This was a trip of around 70 miles one-way, if I remember correctly.
Now, maybe they have improved since then. But do we want to bet three billion big ones on that hope?