Chrysler Agreements May Clear the Way for Fiat Takeover

Cooler heads seem to have prevailed in negotiations between Chrysler and its unions.

An agreement between Chrysler and the Canadian Auto Workers was announced on April 24. A tentative UAW deal was announced April 26. Those announcements seem to have cleared the way for a Chrysler agreement with bondholders that was widely reported April 28.

Chrysler also announced on April 28 that is reached an agreement with former partner Daimler, for Daimler to give up the 19.9-percent stake in Chrysler it held following its divorce from Chrysler. Cerberus bought 80.1 percent of Chrysler for about $7.2 billion in August 2007. That undid the DaimlerChrysler merger, which took place back in 1998.

Chrysler Chairman and CEO Bob Nardelli said in a message to employees today that Daimler will contribute $600 million toward Chrysler pensions over the next three years, and forgive other debts Chrysler owed it. Daimler had already written off its investment in Chrysler.

In turn, all those agreements – with the unions, with bondholders and with Daimler – were pre-conditions for Chrysler’s proposed merger with Fiat. By the way, if Chrysler’s last quote-unquote “merger of equals” with Daimler is any indication, go ahead and call it a Fiat takeover. Fiat will be in the driver’s seat, even though Fiat will own less than 50 percent of Chrysler. The U.S. Treasury has made it clear Chrysler is dead in the water, without Fiat.

Also in turn, the alliance with Fiat is the one thing Chrysler has that can persuade the U.S. Treasury Department to continue lending Chrysler money, instead of driving it into bankruptcy.

If that chain of events seems fragile, that’s exactly right.

Just last week, I wrote in this space that Chrysler and its unions seemed more interested in antagonizing each other than in making a deal and possibly avoiding bankruptcy. That was a natural conclusion, since the CAW had just staged a photo opportunity, to burn copies of Chrysler’s latest offer to the union.

At the time, I said I hoped that the public posturing between Chrysler and the unions was just that. It turns out, maybe that was the case. Chrysler, which is privately held, so far hasn’t disclosed the details of its agreements, either with or the unions or with its bondholders.

Judging by GM’s recent announcements, the Chrysler agreements will include cuts in jobs, wages and benefits for employees and retirees; a close “haircut” for bondholders, to put it mildly; plus the substitution of equity for debt or cash, to satisfy Chrysler’s obligations. The details will come to light, if only because of the U.S. Treasury investment in Chrysler’s well-being.