Friday, April 17, 2009

Who Wants to Dance With Chrysler?

I'll give Jerry Flint credit for sounding the alarm bell on GM and Chyrsler, but I think he's off-base in suggesting that, to stay out of bankruptcy, Chrysler has any realistic alternative other than merging with Fiat.
This deal makes no sense to me. It would take two to three years for Chrysler and Fiat ( FIA - news - people ) to figure out how to make this work. In that time, Chrysler could design and build its own new cars as long as the government is providing the money. So why does it need Fiat?

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Chrysler's pickup, the Ram, is well thought of, as are are its minivans and Jeep. The big trouble is its cars; they don't sell, and the lineup is weak. But with government money, Chrysler could rehire engineers and design new ones.

A better possibility could be some kind of affiliation with someone other than Fiat, someone that builds cars here now. The perfect partner would be Nissan, because as Chrysler could use its cars, rebadged as Chryslers and Dodges, Nissan could use Chrysler's pickups and minivans, rebadged as Nissans.
But, as Flint notes, Nissan doesn't want to dance. It might be convinced to buy GM's truck division, possibly also its minivans, but that would make Chyrsler even less viable as a going concern.

Flint and others seem taken aback by how little Fiat has to bring to the table to get a significant stake in Chyrsler, replace its CEO, and redefine its management structure. Not only does Fiat pay no cash, it won't assume responsibility for any of Chrysler's debts. And it wants more labor concessions. The fact that Fiat's considered a possible suiter tells you a lot about Chyrsler's condition. The fact that it's the only suitor, perhaps, tells you even more.

Flint believes Chyrsler could presently hire engineers, have them design a next generation drivetrain, retool its plants, and have the new vehicles in production within two or three years? For real? Even assuming that the government hands it the billions necessary to stay in business while that happens, I think it's more realistic to expect it to take two or three years for the next generation of cars to be designed, and another two or three years for factory retooling. Even before you look at Chrysler's hit-or-miss track record, and its overall inability to design cars that people want to buy, you should have a sense that it's not going to happen.

Fiat appears to be willing to take on Chrysler as a gamble to get its cars back into the U.S. market, both as FIats and perhaps also rebranded as Chryslers. It may see value in some of Chrysler's brands, and its truck and minivan business. But despite Flint's concern about how long it might take for Fiat to get its cars into production while meeting U.S. safety and emissions standards, that can be done in half the time (perhaps less than half the time) that it would take for Chrysler to develop and produce next-generation vehicles. And assuming the synergy goes better than with Daimler-Chrysler, Chrysler vehicles may be able to integrate some of Fiat's technologies within the relative short-term.

Cerberus appears to be doing the absolute minimum that it can get away with doing, while continuing to pretend that Chrysler is a viable going concern. Waiting to see if another dance partner comes along, or hoping that the government will carry Chrysler indefinitely in the hope that Cerberus and Nardelli will suddenly become competent, caring custodians of Chyrsler1 is neither wise nor realistic. Each day the hole gets deeper, and it's only a matter of time before even Fiat walks away from the dance floor.

1. Alliteration worthy of Safire?

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