Chrysler BK May Signal New Era for US Manufacturers0
Imagine this: You own a business. One day, you receive a telephone call from the owner of a competitor of yours. After many discussions, you’re essentially offered the opportunity to create a new company overseas; one that will then purchase the assets of the competitor at a highly reduced (but court approved) price, including parts, trained staff, union agreements, and, if you like, part or all of a fully established dealer network. And, your deal will have solid backing from a variety of sources, including the government. If you own Fiat, then that is essentially what you’re doing right now with Chrysler Corporation.
The union between Fiat and Chrysler makes sense on a number of levels. Walter Chrysler wanted to create a car company that built executive-level cars at “blue collar” prices. Fiat, a company that has almost literally remade itself during the past decade, offers a wealth of small, efficient vehicles, and also owns Ferrari.
Chrysler tried dating internationally before, with its now failed marriage to Daimler-Benz. Mercedes suspensions, engines, and other components were migrated into several Chrysler vehicles, but the Detroit automaker failed to learn the key lesson about design, both inside and out, and as a result, not only did they lose new customers, they previously loyal existing customer base began buying elsewhere. CNN documented a series of vehicles it says helped sink the US Automaker.
But that hasn’t been the only culprit, especially recently. While union concessions and other allowances had been made to help Chrysler restructure itself following President Obama’s short timetable for “sink or swim,” some debt-holders refused to compromise, resulting in the President saying, “a group of investment firms and hedge funds decided to hold out for the prospect of an unjustified taxpayer-funded bailout.” He made those comments when announcing the company’s decision to file for Chapter 11 Bankruptcy, which is essentially an opportunity to restructure a company, dumping old debt so new investment can help generate new opportunity and profit.
Responding to the Chapter 11 filing, 20 of Chrysler’s creditors told the court in a document that they collectively refused to go along with the deal because, although they were willing to reduce debt by up to 40%, they were not getting preferred status, and unsecured creditors were getting a better deal. Many people believe that the upcoming “cramdown” will therefore be well deserved, as the objective was to help create new opportunity and resulting revenue and profit, not to suck what blood was left from the stone.
There will be several winners out of this deal, specifically Fiat, which will get almost instant access to the entire US automotive distribution and sales network. GM may also be a winner, because if Chrysler can prove that filing bankruptcy doesn’t automatically mean a collapse of any remaining sales prospects, the General may determine a similar BK filing could further reduce its debt load, while enabling it to develop a new array of products.
The American public may also be a winner in this deal. Fiat has some well-built, fuel efficient cars. I had the chance to spend some time in a Fiat 500 last year and it was a very neat, but small car. The interior was fun, not unlike a Mini Cooper, and it utilized third party technology (such as the NAV system), making it more “user friendly” and giving the owner options relative to how he/she designed their specific vehicle. Most importantly, fit, finish, and materials were appropriate to the vehicle, something Chrysler desperately needs if it intends to attract buyers to any of the vehicles it has in the pipeline. So, after failing on its own, failing with Mercedes, and then failing one more time as an independent, Chrysler is asking Fiat to “Fix it again, Tony!” Time will tell.