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Chrysler May Not Survive, Even With Fiat Deal

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Chrysler May Not Survive, Even With Fiat Deal

Economy

Chrysler May Not Survive, Even With Fiat Deal

Chrysler May Not Survive, Even With Fiat Deal

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President Obama is pressing Chrysler to make an alliance with the Italian company Fiat by April 30. If the deal goes through, Chrysler will stay in business for now and could get another $6 billion in government loans. But that does not guarantee Chrysler's future.

Fiat isn't well known in the United States — it hasn't sold cars here in more than 20 years. But the Italian automaker hopes to use Chrysler plants to make Fiats for sale in the U.S.

"It's a good deal because it's the only deal" for Chrysler in its bid to survive, says Jean Jennings, the editor of Automobile magazine.

Without Fiat, she says, Chrysler is gone. But with Fiat, Jennings says, she sees some real opportunity.

"I like the cars — they have technology, and it's a great symbiotic relationship," she says.

The alliance would not be a merger — at least not initially. Fiat and Chrysler would simply agree to share certain assets. Fiat would get access to Chrysler's plants and dealerships. Chrysler would get Fiat's expertise in small, fuel-efficient cars.

But Fiat wouldn't pay Chrysler any money, nor would it take responsibility for any of Chrysler's debts.

If the two companies are going to make a deal, they have to do it fast.

Aaron Bragman, an auto industry analyst with the firm IHS Global Insight, says the deal can get done before the Obama deadline.

If the deal doesn't happen, and Chrysler has to file for bankruptcy, the company would likely be broken up and sold in pieces.

So, if you're Fiat, what do you do?

"You stand on the sidelines, wait for them to file, and then purchase the assets that you feel will enhance your ability to perform in the global marketplace," says Sheldon Stone, a turnaround expert with Amherst Partners. Stone says Fiat could be better off if it lets Chrysler slip into bankruptcy and buys up the pieces at a discount.

Even with a Fiat deal, Stone thinks Chrysler will still go into bankruptcy because Fiat isn't giving Chrysler any money or taking over its debts.

In Stone's mind, Chrysler is practically gone already.

"It becomes a matter of timing now when they're going to implement the filing, when they're actually going to file," he says.

There is a risk for Fiat with that strategy. Typically when a company is broken up by the bankruptcy courts, there's an auction for all the pieces. So Fiat could face some competition getting the U.S. plants that it wants.

Bragman says there is no good reason for Fiat not to do a deal.

"If they come through now, sign a deal, don't put any money in and then Chrysler does have to file for bankruptcy, there's really no risk to Fiat or any loss," he says.

So regardless of a deal, analysts say a Chrysler bankruptcy is more and more likely.

That might mean the end for Chrysler. It could also mean a new beginning for Fiat in the U.S.

Dustin Dwyer reports for Michigan Radio.