Fiat May Soon Be Able To Drain Chrysler's Cash Raise The Cash For Chrysler

by Bertel Schmitt

Published: April 23rd, 2013

fiat may soon be able to strike drain chrysler s cash strike raise the cash for

Fiat could be close to raising the cash needed to buy the rest of Chrysler, two people familiar with the matter told Reuters. Apparently, the money will not come from a sale of Alfa to italophile Volkswagen, as previously surmised, but from banks. But knowing banks, they probably won’t simply move the $4 billion across the counter. These days, they often just find a willing buyer for a hefty fee …

The talks with the banks are expected to conclude next month, and should lead to raising the money needed to buy the 41.5 percent of Chrysler which are held by VEBA, the United Auto Workers’ retirees’ healthcare trust.

Marchionne wants to merge Fiat and Chrysler to use Chrysler’s cash to offset Fiat’s losses. This sounds very familiar to the old DaimlerChrysler lore, usually told with a “merger of equals” tossed in to sound witty. Amazingly, this is yet to be brought up. Perhaps this is because this time, the UAW will be the recipient of the cash. Once they have it, the sermon of “they just drained Chrysler’s cash” can commence anew.

#BertelSchmitt #Chrysler #Fiat

Bertel Schmitt

Bertel Schmitt comes back to journalism after taking a 35 year break in advertising and marketing. He ran and owned advertising agencies in Duesseldorf, Germany, and New York City. Volkswagen A.G. was Bertel's most important corporate account. Schmitt's advertising and marketing career touched many corners of the industry with a special focus on automotive products and services. Since 2004, he lives in Japan and China with his wife <a href="http://www.tomokoandbertel.com"> Tomoko </a>. Bertel Schmitt is a founding board member of the <a href="http://www.offshoresuperseries.com"> Offshore Super Series </a>, an American offshore powerboat racing organization. He is co-owner of the racing team Typhoon.

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14 of 53 comments

Mini22 on Apr 23, 2013

At this point Fiat needs Chrysler to help it survive in Europe. Sales in Brasil are strong.Sales in the US are certainly on the upswing. However together they are not enough to offset the losses in Europe. The plan appears to be dramaically increasing its exports from Italy and Poland while reducing product sold in Italy and th rest of Europe. Alfa when it becomes optimized would probably sell 70 to 80% of its product abroad. To get Alfa going and produce more product for Fiat they need cash.Chrysler is generating cash but Fiat cannot touch it until it gets control of Chrysler.So one could assume Marchionne has 2 choices. The preferred choice is getting a loan from banks to to buy the shares owned by VEBA. The other option is to sell Alfa and Magnetti Marelli to VAG. One wonders if this option would generate the cash necessary to fund Fiat enough to be able to buy those VEBA shares.It is also wrong to assume that by owning 100% of Chrysler that Fiat would be dumb enough to drain Chrysler of cash. Marchionne is a money man and a shrewd one at that. If you recall he forced GM back in 2004 to pay Fiat 2 billion to getout of having to own it. This enabled Fiat to be saved as a company. Marchionne saw a golden opportunity in Chrysler when the US came calling.True some of the improvements in Chrysler cars were already on the drawing boards. However Fiat had to implement them in record time(18 months). This ultimately helped generate enough sales for greatly improved profitability month to month by Chrysler.From 2014 forward, however there is to be a lot more integration of platforms with Chrysler and Fiat, including RWD platforms. As you all should know the more a company utilizes shared platforms the cheaper it is to produce the products.This is th reason why Fiat needs to own more of Chrysler. Integration, intergration ,integration.

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Genuineleather on Apr 23, 2013

The biggest difference between DaimlerChrysler and Fiatsler is that the role of succubus has reversed across the pond. Mercedes has been consistently profitable for decades; the same cannot be said for Chrysler and its perpetual boom/bust cycle. It was MB money that covered up huge losses at ChryCo for years, despite conspiracy theorists' nonsensical claim that Daimler "sucked Chrysler dry". The Germans got zip out of Chrysler, and their shareholders took a $40 billion bath for the privilege. The only people who made out were Chrysler's shareholders and C-suite executives. Was Daimler's management of Chrysler poor? Absolutely. They have proven time and time again (Maybach, Mitsubishi, Fokker, smart) that they cannot successfully run a company not called Mercedes-Benz. Fiat, on the other hand, will finally demonstrate what "sucked dry" really means.

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- Wheeljack on Apr 23, 2013
  
  Keep on believing that. There are many ways a parent company can suck a subsidiary dry and Daimler perfected them all. The only reason why there were losses at Chrysler is because Daimler slashed budgets and set mandatory goals for pulling huge cost out of the products, resulting in the cheap interiors and slipshod quality. Once you are selling products like that, it's inevitable to circle the drain and become a loss maker. Meanwhile, as we see under Fiat stewardship, put money into the product and sales will take off and money will flow in. If nothing else, the Fiat sucess story with Chrysler proves how completely inept Diamler was and definitely calls into question their claims that Chrysler "lost them money".
  
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- Onus on Apr 24, 2013
  
  If you do some research you would know that Chrysler was swimming in Cash when Daimler Benz acquired them. This was Chrysler post bankruptcy from 2 decades earlier. They had great products and were doing well during the suv boom of the late 90's early 2000s.
  
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- Genuineleather on Apr 24, 2013
  
  @Wheeljack The fact that Chrysler was a terrible investment is fact, not opinion, unless you consider a $40 billion purchase that was "flipped" for $7 billion a decade later a profitable venture. Fiat putting money into Chrysler products? So far we've recieved the Dart; gee, thanks. The Grand Cherokee, Durango, Charger, Challenger, and 300 still ride on Mercedes platforms.
  
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- Wheeljack on Apr 24, 2013
  
  @genuineleather Platform or not, the money I am referring to is all the money spent to re-do the dreary interiors that Daimler saddled the LX cars with. Furthermore, do you think the exterior refreshes cost nothing? All the outside body panels were totally new - stamping dies are expensive. Also, do some research - the LX platform is not just a "previous generation E-class" as so many internet experts would have you believe.
  
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- Danio3834 on Apr 24, 2013
  
  @genuineleather Yeah, Chrysler was such a terrible investment that they had investor(s) clamoring to leverage a takeover at their peak. In fact, one of the major reasons Chrysler "partnered" with Daimler was to help protect against leveraged buyouts from other investors. Face it, Daimler management sh1t the bed on their "merger" by plundering Chrysler, and that's why they lost money. Of course a crashing economy and vehicle sales after the merger didn't make it easy.
  
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Nickoo on Apr 23, 2013

I'm a huge fan of the "new" Chrysler and when looking at where they've come from, it is nothing short of amazing. The biggest challenges they have are not having enough money to get things done fast enough and hence having to keep some legacy platforms, great things are scheduled to keep coming down the pipe. A few things Chrysler must do to keep succeeding: Keep jeep "jeep", bring out a 3 row flagship jeep SUV that's one step up from the Cherokee. Redefine the Chrysler brand with a cohesive quality level spanning across all their vehicle range, a total near luxury competitor with: 100, 200, 300, town and country and a new full sized cross-over Continue to expand dodges image as the sporty fun and affordable brand. Sell Alpha to VAG while they still want it, there's no need for Fiat, Lancia, Alpha, Maserati, and Ferrari under one house, consolidate and put that savings towards better products and fuller product lines. Kill Lancia.

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- Danio3834 on Apr 24, 2013
  
  Sell them Alpha, but keep Alfa.
  
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- Asdf on Apr 24, 2013
  
  "Sell Alpha to VAG while they still want it, there’s no need for Fiat, Lancia, Alpha, Maserati, and Ferrari under one house" If the argument is that Alfa is redundant (which I cannot see why would be the case), it would be better to close it down than to sell it. But really, it is Lancia that is the redundant Fiat group brand these days, sad as it is.
  
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- European on Apr 24, 2013
  
  @Asdf i will explain why Fiat doesn't need Alfa anymore: by pushing Maserati down-market and expanding the product line with Ghibli (and probably the SUVlet), Fiat will make a strong Audi-contender, that will bring in greater margins/profits which Alfa failed to deliver. Fiat/Dodge will hold the low end while Ferrari will be the top & exotic cars. Jeep makes Jeeps and question mark on Chrysler/Lancia. They will stay probably for some years and then be phased out. and VW needs Alfa just to pump some flair & soul into the boring previous-generation Audis, i mean, SEATs. end.
  
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- Asdf on Apr 24, 2013
  
  @european Oh, come on, Maserati as an *Audi* contender?! With that as a starting point, no wonder your suggestions make no sense. Maserati shouldn't even be considered a contender of *proper* premium brands like BMW and Mercedes-Benz (even though it's admittedly *approaching* the territory of those brands with the Ghibli.) So *Alfa Romeo* should be the Audi contender (well, ideally Lancia should have been that, whereas Alfa Romeo should have been the BMW contender, but with Lancia practically dead that ain't gonna happen), and Maserati positioned *above* Alfa Romeo.
  
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- Nickoo on Apr 24, 2013
  
  @Asdf Maseratti *is* being pushed downmarket, as they should be. Fiat can take up the slack from alfa by taking on the lesser alfas while Maseratti takes on the higher end ones. There is no good business case in keeping 3 ultra low volume niche brands in today's automotive world and Marchionne knows it, that's why he has a goal to bringing massive sales numbers increases to Maseratti. Maseratti doesn't need to cut quality or image, they just need to be brought down in price to better compete against the other high end euro cars. I believe that there is a strong business case for this strategy and expect that Maseratti will make a strong worldwide resurgence with this plan, there are a lot of BMW/mercedes owners who are looking for something different and Maseratti can fill that role.
  
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Mini22 on Apr 25, 2013

I still do not see why VAG needs Alfa. They have so many model market niches that its almost a joke. In my opinion if VAG were to buy Alfa they would scuttle Seat and replace it with Alfa. So anotherwords FWD products with Ital Design bodywork. The engines will be from the Golf. While there is nothing wrong with VAG's engineering(the new Golf GTI Mark V11 is a testement to that), my concern is that it will not really be an Italian car anymore. O-The obvious argument is that lamborghini has been able to retain it's Italian identity with VAG engineering. However let me point out that Lamborghini is an very high end product with lots of expensive engineering and with huge profit margins buiilt in. Alfa would need to be a high volume lower cost sector. Therefore the cost to distinsh it as an Italian car would not necessarily be spent. Look out BMW and Mini. When the new Mini came out in 2002 it was a design in which refected an advance state of development by British Leyland by the time BMW took over the project. It clearly was a British car made reliabile by BMW quality control.The next generation clearly reflected BMW's influence. Unlike the first new genration, the second generation was made more cheaply and contained more BMW parts like turn signal indicator technology, a selectable sport and comfort mode, a shared engine with BMW, Peugeot, and Renault that was turboed instead of supercharged. The 3rd generation Mini is now going to share platforms with the BMW 1 series including engine. Again I have no issue with BMW technology. Theyare a great company. However Mini is no longer a "British Car". It will have all BMW parts including engine. It will have interior trappings more in line with BMW then what was a Mini trait.I'm not saying that I'm blaming BMW. Costs are costs.I just feel that VAG buying Alfa will ultimately destroy the marquee even if it is a better built car.Therefore it is my hope that Alfa can remain under Fiat's ownership.The latest news appars to be that Fiat can get the money from banks to own all of Chrysler. Fiat will not drain Chrysler dry. Fiat has invested a lot of money into Chrysler to improve interiors on all models, revise and improve the Chrysler/Mitsubishi designed 4 cylinder engine and to completely share technology between the 2 companies.Fiat has brought Chrysler up by nurishing it so it can be competative in the American market place. You all have to concede that it has accomplished this. Now Fiat needs to invest in product to keep Fiat going. It obviously cannot depend on the european market at this point. However it can greatly expand in North and South America with more products for Fiat and establishing Alfa again with higher end products.Factories in Italy and Poland will be primarily set up for export with a small percentage going to European countries.It will probably also try to continue to improve sales in Great Britain as well.(That market has not cntracted the way the rest of Europe has).I hope this is the course Fiat takes.

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