George S. May Business Blog

Fiat and Chrysler to settle on deal

Rumors are, just a day before their government mandated deadline, Chrysler LLC may sign the necessary paperwork to partner them with Italian automaker Fiat Group SpA.

Allegedly, the deal would give Fiat a 20 percent stake in Chrysler LLC, in exchange for its small-car and engine technology. This would relieve Fiat from any initial capital investment as its technology is said to be worth between $8 billion and $10 billion.

To date, Chrysler has borrowed $4 billion from the government, but despite all the massive injections of cash is still facing Chapter 11 bankruptcy if they cannot convince some creditors to reduce their debt. Even though four major banks, holding 70 percent of Chrysler’s $6.9 billion in secured debt agreed to a deal that would erase the debt for $2 billion in cash, 46 hedge funds holding the remainder of the debt still refuse to go along.

President Barack Obama, speaking at a town-hall style event near St. Louis, said earlier Wednesday that he didn’t know if a deal to save Chrysler would be completed.

“We’re hoping that you can get a merger where the taxpayers will put in some money to sweeten the deal but, ultimately, the goal is we get out of the business of building cars, and Chrysler goes and starts creating the cars that consumers want,” he said.

UAW members are expected to approve the contract concessions, which include taking a 55 percent stake in Chrysler in exchange for about $6 billion of the $10.6 billion Chrysler must pay into a union-run trust that will take over retiree health care costs.

The fact that there aren’t union “issues” any longer eradicates a major potential roadblock for the automaker(s). With debt set to be resolved (whether it be ultimately in or out of court) and the union on board there should be no reason for Fiat to back out.

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