Thursday, February 19, 2009

GM Chrysler Merger part of Chrysler Viability Plan!

Article from The Detroit Free Press-GM Chrysler Merger part of Chrysler Viability Plan!

Chrysler LLC, which is pushing forward on an alliance with Italian automaker Fiat SpA, said it believes a partnership with General Motors Corp. is still the "best option for the U.S. auto industry."

The comments came in Chrysler's restructuring plan filed late Tuesday with the Obama administration.

In the plan, Chrysler, which has already received $4 billion in federal loans, details its restructuring efforts, which include the elimination of 3,000 jobs and three vehicle models, as well as its request for $5 billion more in federal loans.

But Chrysler's plan also points to consolidation among U.S. automakers as a way to sustain the industry.

GM., which received $13.4 billion in federal loans, did not express that sentiment in its restructuring plan filed Tuesday.

Sen. Bob Corker, R-Tenn., who has been a critic of the domestic auto industry, said it's clear that Chrysler's best option is to partner with another automaker.

"Whether it's with Fiat, or whether it makes sense to talk about GM, a merger is their best chance for survival," he said in an interview with the Free Press.

Chrysler hints at a "strong need for industry consolidation, as it notes a merger with GM would create more value than a standalone Chrysler or Fiat alliance," Barclays Capital analyst Brian Johnson said in a note to investors Wednesday.

The Auburn Hills automaker is clear that the savings from a GM-Chrysler partnership would be at least five times more than what a deal with Fiat would offer.

Chrysler has said that discussions about such a partnership, which gained steam last fall before the two automakers approached Congress for aid, were taken off the table by GM.

But as GM and Chrysler approach the government for more money, decisions about the future might not be in their hands alone. Johnson said he expects government aid will continue, "with perhaps the condition of a merger of Chrysler into GM."

However, Corker said it wasn't clear whether a GM-Chrysler pairing would make sense, given the need for GM to cut jobs, plants and brands.

"If you look at what GM is trying to do, which is simplify, does it make sense to add to it?" Corker said. "It's a question that needs to be asked in light of the changes that have occurred."

A merger between GM and Chrysler would generate at least $36 billion in cash and boost operating earnings by $40 billion, Chrysler said.

Savings would come from combining purchasing power, as well as operations for manufacturing, sales and marketing research and development and corporate staffs.

The prospect of a GM-Chrysler merger met criticism across the Midwest, where one study said the combination would cost 35,000 jobs, including as many as 25,000 jobs in Michigan alone.

Promoting a plan that would lead to thousands of job cuts could be a political landmine.

In its plans to the government Tuesday, GM said it plans to cut 47,000 jobs worldwide this year while Chrysler plans 3,000.

And the tally could rise if either automaker is forced to file for Chapter 11 protection.

"The prospect of losing 25,000 jobs in a consolidation between General Motors and Chrysler seemed outrageous in October. Right now, it seems like the best-case scenario," said Patrick Anderson, principal at the East Lansing-based Anderson Economic Group, which studied the potential merger. But Anderson said amid weak vehicle sales, it would be harder to realize all of the cost savings a merger would ordinarily deliver.

David Cole, chairman of the Center for Automotive Research in Ann Arbor, said a Chrysler-GM combination is unlikely. But as the market improves, the two companies could team up to reap at least a portion of the cost-savings a merger would have delivered.

"I'm not convinced that that's off the table forever," Cole said.

Contact JEWEL GOPWANI at 313-223-4550 or Free Press Business Writer Justin Hyde contributed.

Tuesday, February 17, 2009

Creative thinker joins Obama's auto task force

WASHINGTON — Ron Bloom, a key adviser to President Barack Obama’s new auto industry task force, brings a combination of Wall Street savvy, ties to labor unions, and a penchant for out-of-the box solutions to the government-led restructuring of General Motors and Chrysler.

Bloom, 53, a former investment banker who has worked with the United Steelworkers union since 1996, will serve as a top adviser to Treasury Secretary Timothy Geithner as the Obama administration attempts to revamp two corporate giants living off billions in government loans.

General Motors and Chrysler are scheduled to submit road maps to viability today that show how they will repay $17.4 billion in promised government loans. The companies face a March 31 deadline to complete their plans, or else the government can pull the loans, essentially forcing bankruptcy.

Described as cerebral and blunt-talking, Bloom has been credited for taking creative approaches to managing the downsizing of the steel industry and creating a leaner operating structure. He also advised airline pilots in 1994 in the $4.9 billion employee buyout of UAL Corp., the parent company of United Airlines, and he worked with auto parts supplier Dana Holding Corp. to develop a health care trust fund.

“He’s not someone who brings just a conventional cookie-cutter approach. He’s going to force people to think about new ideas,” said Andy Kramer, a Washington attorney who has sat on the opposite side of the bargaining table from Bloom.

Forgoing a single “car czar,” the Obama administration chose to create a multi-agency panel led by Geithner and White House economic aide Lawrence Summers. Advising Geithner, Bloom will have the day-to-day task of working with automakers, their bondholders and labor unions to force concessions, reprising a similar role he played during the consolidation of the steel industry in the last decade.

A Harvard Business School graduate, Bloom served as a vice president with the Wall Street firm Lazard Ltd., focusing on the steel and airline industries. As a top aide to the steelworkers union’s president, he helped resolve a 10-month strike against the Wheeling-Pittsburgh Corp. in 1997, broker an agreement with Goodyear Tire in 2003, and facilitate Esmark’s successful tie-up with Wheeling-Pittsburgh in 2006.

Sunday, February 15, 2009

Chrysler official: No Fiat deal closing by Tuesday

DETROIT (AP) — The deal for Italian automaker Fiat SpA to take a 35 percent stake in Chrysler LLC will not be finished until after Chrysler submits a restructuring plan to the federal government, a Chrysler official said Friday.

But the official, who did not want to be identified because the automaker is still working on the plan it must provide to the Treasury Department by Tuesday, said Chrysler will show how it can be viable as an independent company as well as with Fiat taking a stake.

Chrysler is living on $4 billion in government loans. The restructuring plan must show how the automaker will repay the money and become viable. If the government approves the plan, Chrysler will get another $3 billion in loans. The Fiat deal is contingent upon that happening, the official said.

The automakers said last month that they have a nonbinding preliminary deal for Fiat to give its small-car technology to Chrysler in exchange for a 35 percent stake in the struggling automaker. Chrysler's current small and midsize vehicle lineup has not sold well, and it lacks a subcompact model that Fiat could provide.

Chrysler has said that Fiat's vehicle architecture and engine technology are worth billions and would allow Chrysler to get small cars to market five or six years faster than Chrysler could on its own. Fiat also would get access to Chrysler's U.S. distribution network and its emissions control and large-vehicle technology.

The official said Chrysler is still negotiating concessions from debtholders and the United Auto Workers union, even with the deadline to file the viability plan with the government only four days away. Negotiations are to continue into the weekend.

General Motors Corp., which also has received government loans to hold off a bankruptcy filing, is working on its own plan under the same deadline. GM has received $9.4 billion in loans and hopes to get another $4 billion when its plan is approved.

Under the terms of Chrysler's loans, the government set a target for the company to swap much of its debt for equity, which will severely dilute the ownership stake of its current owners, Cerberus Capital Management LP and Daimler AG.

Chrysler will negotiate into the weekend with banks that hold its secured debt to swap part of it for equity. The government also wants Chrysler to convert to equity billions in cash payments it must make to a trust that will start paying retiree health care costs next year. The government also will get equity for its loans.

Those moves, coupled with Fiat's potential 35 percent stake, could leave Cerberus and Daimler with combined ownership of less than 10 percent, according to independent auto industry analyst Erich Merkle.

"My understanding is it would be the banks and the UAW that would own the company when they're done. They would be the larger stakeholders," Merkle said.

Currently, Cerberus, a New York private equity firm, owns 80.1 percent of the struggling Auburn Hills automaker, while Daimler, Chrysler's former owner, holds 19.9 percent. Cerberus is negotiating to take the Daimler stake.

Since Chrysler is a privately held company, it's unclear just how much debt the automaker has, but officials have said it is secured debt held by banks. Chrysler is obligated to pay about $9.9 billion into the union trust under the terms of a national contract deal reached with the UAW in 2007. That payment relieves the company of a $16 billion long-term liability for retiree health care.

The union gained federal court approval for the trust and plans to invest the money so it can pay health care costs for current and future retirees. General Motors Corp. and Ford Motor Co. also agreed to similar trusts in their union contracts.

Chrysler spokeswoman Shawn Morgan would not comment other than to say that the company continues to work with its stakeholders.

Both Chrysler and GM must prove they will be able to repay government loans and achieve "positive net present value." That means that the present value of a company's expected net cash flows exceeds the initial investment that must be made in the company.

Ford has borrowed enough cash privately and says it can avoid government loans. Nearly all automakers are reporting dismal sales in what has turned out to be the worst auto sales climate in 26 years.

Chrysler Vice Chairman Jim Press said Thursday that negotiations with the UAW and banks will continue into the weekend. He said full settlements with the stakeholders don't have to be reached until March 31.

Although a Fiat deal would mean Italian company owns 35 percent of the company, it would still create American jobs, justifying the loans, Press said.

With the Fiat deal gaining momentum, Nissan Motor Co. of Japan said Friday it has suspended plans for Chrysler to produce a Nissan pickup truck and Nissan to produce a small car for Chrysler.

Thursday, February 5, 2009

Chrysler Fiat Merger: Fiat races to review Chrysler operations

February 3, 2009 11:00 CET
(Reuters) -- Italian carmaker Fiat is racing to review the operations of Chrysler LLC before Chrysler must meet a U.S. government deadline in two weeks, Fiat CEO Sergio Marchionne told the Wall Street Journal.

Under the terms of the $4 billion in federal loans Chrysler has received, it must present a plan by Feb. 17 showing how it intends to be viable.

Fiat plans to take a 35 percent stake in Chrysler in a deal that will give the Italian carmaker the scale it needs to survive, while Chrysler can expand its product portfolio to include small, less-polluting cars.

Marchionne said Fiat is still analyzing Chrysler's vehicle production operations and then will turn to studying its finances, the newspaper said.

Marchionne reiterated that Fiat will not put any cash into Chrysler but will provide small cars and fuel-efficient engines that would cost Chrysler $3 billion or more to develop.