Thursday, January 22, 2009
Will Congress Stop The Chrysler Fiat Merger? Mixed reviews in Congress for Fiat-Chrysler deal
WASHINGTON – Fiat's proposed deal to take a 35 percent stake in Chrysler in exchange for access to a lineup of more fuel-efficient cars received mixed reviews in Congress on Wednesday, with one lawmaker suggesting it could raise questions among taxpayers.
Sen. Bob Corker, R-Tenn., said the proposed alliance involving Chrysler, whose majority owner is New York-based private equity firm Cerberus Capital Management LP, creates "an interesting dilemma for U.S. taxpayers" in which they would essentially finance a partnership between Chrysler and a foreign automaker.
The Bush administration gave Chrysler LLC a $4 billion loan earlier this month and the automaker's finance arm received a separate $1.5 billion infusion last week to expand its lending practices. Chrysler could receive another $3 billion in loans if the Obama administration approves a restructuring plan expected to be submitted in mid-February.
"Cerberus made a bad investment and in order for them to get that investment out of their portfolio of holdings, U.S. taxpayers have had to write an $8.5 billion check to Fiat," said Corker, who urged General Motors Corp. and Chrysler to seek concessions from unions and bondholders in exchange for government financing.
"For the U.S. taxpayer, they have to be scratching their head a little bit," he said.
Despite the concerns, Corker said the agreement could strengthen Chrysler's viability plan and be "the best thing that could happen with Chrysler."
Chrysler and Fiat Group SpA announced Tuesday a nonbinding agreement to establish a global strategic alliance that would help Chrysler bring badly needed small cars to its showrooms while helping the maker of Fiat, Lancia and Alfa Romeo vehicles re-enter the American market.
Analysts noted Fiat would not be required to provide cash in the deal, but its willingness to partner with Chrysler could provide assurances to Washington about the company's long-term prospects.
The agreement "will significantly improve the chances of Chrysler paying that money back," said Rebecca Lindland, an auto industry analyst with the consulting firm IHS Global Insight.
Lindland said the deal would could give Chrysler access to markets in Russia and Brazil and help the company develop smaller, fuel-efficient cars to compliment its truck lineup.
Sen. Tom Carper, D-Del., said the deal could raise concerns among lawmakers but he noted that Chrysler already shares technology with German automaker Daimler AG, which owns 19.9 percent of the company.
"The idea of a partnership, not an ownership situation, but a partnership which allows Chrysler to enjoy and receive some technology input in return for building small cars in this country .... that may be a good idea," Carper said.
Sen. Debbie Stabenow, D-Mich., said she had not received details from Chrysler, which employs thousands of workers in her home state. "The most important thing is how are they going to structure it and will we keep jobs in the United States?" she asked.
The alliance with Fiat would be included in a viability plan to the Treasury Department, which is due by Feb. 17, and could help the company convince the government to provide an additional $3 billion in loans.
"The nonbinding term sheet with Fiat is consistent with the U.S. Treasury's requirements," Chrysler said in statement late Wednesday. "Chrysler will seek U.S. Treasury approval for this transaction under its loan agreement, as well as customary regulatory approvals."
If Chrysler fails to achieve viability by March 31, the new Obama administration could call back the $4 billion in loans, essentially pushing the company into bankruptcy.
Fiat spokesman Gualberto Ranieri said the alliance was contingent upon regulatory approvals by the Treasury Department.
Chrysler product development chief Frank Klegon told reporters in Detroit at the Automotive News World Congress that he expected an additional $3 billion in government financing to be an important part of the process for the potential alliance.
AP Auto Writer Tom Krisher in Detroit and Associated Press Writer Ariel David in Rome contributed to this report.