Bailout Watch 355: Stormclouds Gather Over The Chrysler-Fiat Wedding

The man who knows how to get something for nothing (Fiat’s Sergio Marchionne) has “absolutely no intention” of running Chrysler as part of the two firms’ automotive axis, reports Automotive News [sub]. Marchionne will fill one of Fiat’s three seats on Chrysler’s seven-seat board, as he attempts what he describes as the “mission impossible” of turning Chrysler around. But before the dramatic-but-overplayed theme music cues a Fiat-led revamping of the ailing automaker, Chrysler’s stakeholders will have to make meaningful concessions, including debt-for-equity swaps. But will Marchionne accompany ChryCo CEO Bob Nardelli for future rounds of bailout beggary? Of course not. After all, the Fiat deal confirms the suspicions of at least one US Senator, that injecting cash into Chrysler would simply invite a takeover. And sure enough, Automotive News [sub] reports that officials concede that giving U.S. taxpayer money to an automaker tied to an overseas-based company will raise red flags in DC. Chrysler spokesfolks insist that the Fiat deal is consistent with the “stipulations and obligations” of the U.S. Treasury Department loan, but then they wouldn’t be insisting if there weren’t some question, would they? As Farago reported earlier, the promise of more federal money is what got Fiat sniffing around in the first place. And now there’s trouble afoot.

Chrysler’s Frank Klegon admits that the deal might not have happened were it not for the $4b in federal loans. Oh yeah, and the Fiat alliance could fall apart if Chrysler fails to secure another $3b in federal sugar. “I think that is part of the deal,” Klegon tells AN. “That is part of the process, the expectation is that that is an important part of it.” Which means that legislators will be faced with a choice of either giving $3b to a foreign-domestic joint venture, or not, in which case Fiat would pull out and Chrysler would enter bankruptcy. And Barney Frank is telling the Freep that a Fiat tie-up “could trigger repayment,” depending on how “tied up” the two become. Not good.

Meanwhile, the necessity of that taxpayer cash became all too obvious today when Automotive News Europe [sub] reported that Fiat had slashed its 2009 profit outlook and is carrying more debt than it expected. Though a trading profit of 1b Euros is still forecast, that is expected to net the firm only 300m Euros after restructuring charges. This after Fiat had forecast trading profits of 1.5b-2.3b Euros in 2009. High restructuring costs – mainly due to realigning residual values of its leased vehicles – reduced Fiat Group’s 2008 net profit to 1.72 billion euros from 2.05 billion euros in 2007.

But the real shocker is Fiat’s debt situation. Fiat is carrying 5.9b Euros in industrial (non-financial services) debt, a revelation that sent its stock plummeting over ten percent today. Fiat had 3.9b Euros of liquidity at the end of 2008, and it has announced that it will suspend share repurchase programs and dividends except for on savings shares. In short, Fiat is in no position to inject cash into Chrysler, and will almost certainly pull out from the alliance if ChryCo failsto secure more government liquidity.