Capital Markets

Obama Blesses Chrysler-Fiat Marriage

Without it, the company could not survive, says the Administration, which also is bearish on the viability of General Motors.
Stephen TaubMarch 30, 2009

The Obama Administration is promoting Chrysler’s wedding with Fiat, which it believes is Chrysler’s last chance to survive.

The White House Auto Task Force gave its blessings today to the controversial merger in a report that spooked the global financial markets. The report asserted that the viability plans General Motors and Chrysler submitted on February 17 did not establish a credible path to viability. “In their current form, [the plans] are not sufficient to justify a substantial new investment of taxpayer resources,” the report stated.

It said each company will have a set period of time and an adequate amount of working capital to establish a new strategy for long-term economic viability.

As for Chrysler, however, the Task Force said that “after extensive consultation with financial and industry experts,” the Administration has concluded that the embattled car company is not viable as a stand-alone company. The Dow Jones Industrial Average was down more than 300 points for the day in late-afternoon trading on the news.

It Task Force did explicitly state that the framework for a deal between Chrysler and Fiat, the Italian car company, could be the basis of a path to viability. It noted that Fiat is prepared to transfer valuable technology to Chrysler and, after extensive consultation with the Administration, has committed to building new fuel-efficient cars and engines in U.S. factories.

“At the same time, however, there are substantial hurdles to overcome before this deal can become a reality,” The Task Force warned. Therefore, the Obama Administration will provide Chrysler with working capital for 30 days to conclude a definitive agreement with Fiat and secure the support of necessary stakeholders. If this is successful, the government said it will consider investing up to an additional $6 billion.

However, if an agreement is not reached, the Administration will not invest any additional taxpayer funds in Chrysler, the Task Force noted.

“Chrysler has consistently said that the alliance with Fiat enhances its business model that expands its global competitiveness,” the company said in a joint statement with Fiat and Cerberus, Chrysler’s biggest investor. “We appreciate the willingness of the Task Force, along with industry and financial experts, to consult closely with us in order to achieve this significant step.”