Workers file in Monday at the Chrysler Truck Assembly plant in Warren. The Obama administration concluded the automaker is not viable by itself. (Brandy Baker / The Detroit News)
Chrysler LLC, with a history of near-death experiences, faces yet another one with no guarantee the automaker will survive this time.
The Obama administration concluded that Chrysler cannot make it as a standalone company and rejected its bid for another $5 billion in immediate aid. The automaker's future hinges on whether it can conclude a partnership deal with Italy's SpA in the next 30 days, and eliminate its debt, to become eligible for $6 billion in federal loans.
In the half-empty halls in Auburn Hills, employees are stinging from the administration's analysis, but take comfort in knowing that a Fiat alliance is Chrysler's preferred course. "We are pleased that Chrysler, Fiat and Cerberus have reached agreement on a framework of a global alliance, supported by the U.S. Treasury," Chrysler said in a statement. "Chrysler has consistently said that the alliance with Fiat enhances its business model that expands its global competitiveness."
Fiat Chief Executive Sergio Marchionne on Monday reiterated Fiat's commitment to a deal.
"I would like to publicly thank President Obama for his encouragement to finalize a sound alliance between Chrysler and Fiat," Marchionne said in a statement.
Cerberus Capital Management LP has agreed to give up its 80.1 percent stake in Chrysler upon completion of a successful Fiat-Chrysler deal. The private equity firm would retain ownership of Chrysler Financial LLC, and previously pledged the first $2 billion in profits to repay a federal cash infusion, although that is an agreement in principal only, a person familiar with the matter said.
But hurdles remain to a Chrysler-Fiat partnership on both sides of the ocean. Some analysts see the next 30 days as prelude to a bankruptcy; others worry that this is the last of Chrysler's lives.
The only options for Chrysler are partnership or liquidation, said Sean McAlinden, chief economist for the Center for Automotive Research in Ann Arbor. "It's a death threat at the end of the month."
A month is not much time to combine everything from financing to product lines and cycle plans, said analyst Laurie Harbour-Felax, president of the Harbour-Felax Group in Berkley.
The task force also is demanding that Chrysler eliminate virtually all secured and unsecured debt, which analyst Aaron Bragman of IHS Global Insight in Troy pegs at $6 billion to $8 billion.
"I don't see how they can do it without bankruptcy," Bragman said. He thinks the government is preparing for the worst with programs to protect the receivables of suppliers and consumer warranties in the event of bankruptcy.
He thinks Fiat would willingly join Chrysler in filing for bankruptcy, knowing the end result would be an equity stake in a company that has shed debt.
In Italy, Marchionne must convince the Fiat board it is a good business plan to assume less than 35 percent equity in Chrysler and pay to retrofit its plants to build Fiats. And he must convince the Italian government that its investment in a restructured Fiat would not pose unnecessary risk.In the U.S., "it's ironic because people were worried that Chrysler wouldn't get any government money because of Fiat's involvement and now the government's coming back and saying you're not getting any money unless Fiat is involved," Bragman said.
Harbour-Felax is more optimistic. Chrysler's new plans to close two more assembly plants in North America and five engine/transmission/axle plants by 2014, along with the thousands more workers expected to take buyouts, might prove to be enough additional restructuring.
The Canadian government on Monday also concluded Chrysler's Canadian operations are not yet viable and do not qualify for the full $800 million (C$1 billion) in aid sought. Chrysler was given $200 million (C$250 million) and told to complete concession talks with the Canadian Auto Workers. Negotiations broke off Friday, but resumed late Monday.