Chrysler and Fiat
The deal between Chrysler and Fiat announced today is truly remarkable for one thing: no cash changed hands. Here’s the news from MarketWatch.com:
Fiat gets 35% stake in Chrysler for no cash
Isn’t this odd?
Here we have Chrysler a cash strapped and near bankrupt company making a significant business deal in which its owners dilute their ownership and get no cash in return. Not just that, but Fiat has made no commitments for future funding either.
This is the kind of deal that is struck all the time. One company gives access to technology or another resource in return for wider distribution of its products through another company’s marketing channels. That is not extraordinary at all. It is part of the normal strategic give and take in big business.
What is strange is that Chrysler entered into this deal and received no capital injection. This is all while cash is Chrysler’s most urgent issue.
Is their situation so dire that there are no cash partners to be had? Or is it simply that they think they can cobble together a survival strategy with stunts like this and thus justify more government funding.
The Chrysler CEO’s comments seem to indicate that the taxpayer is the audience he needs to address most clearly. Rightly so. But does this deal assure us that Chrysler has a restructuring plan worth the government investing in? I don’t think it does. The benefits of this Fiat arrangement are going to be in a year or two not now, and who knows whether Chrysler will last that long?
All the US automakers are trying to ‘restructure’. What they need to do is radically shrink their operations to suit their reduced market shares. They need to cut costs to staunch the outflow of cash and find ways of acquiring capital to help them fund their transitions. Turning a company like Chrysler around takes a while during which it will continue to lose money. So the first priority, I would have thought, would be to get an infusion of cash.
This deal doesn’t do that. Which means that Chrysler has declared itself to be at the mercy of the government.
Let’s hope those restructuring plans are good enough to convince the government. The cash doesn’t seem to be coming from anywhere else.
