Usedcarsalesman thinks that the recent Fiat/Chrysler deal has several different, reasonably-possible futures. He also thinks it has an "interesting" (cough) originator in the form of Sergio Marchionne, Fiat's current CEO.
Marchionne was trained as a lawyer, MBA and chartered accountant (in Canada) and he's also both an Italian and Canadian citizen. When he took over Fiat in 2004 he was the 5th CEO the company had in 3 years. His experience in the automotive business to date amounts to 4-5 years total (all with Fiat) and he has no formal engineering background. Incidentally, in 2007, he crashed his Ferrari 599 GTB in to a Renault while driving in poor conditions in Switzerland in 2007 (Does this make him a driver [or CEO?] willing to pilot too much car [or company?] in too difficult an environment?)
Marchionne has, however, made a couple of nice deals for Fiat in the last few years:
The first was thanks to the legal language in a contract Fiat had with GM, a contract that began prior to Marchionne taking Fiat's helm. Essentially the contract specified that if GM did not want to buy Fiat outright after 5 years, it would have to pay Fiat 2 billion U.S. dollars (Which might have looked like decent terms to GM in 2000 when the contract began). However, GM looked at Fiat's then current operation and the business it was doing, didn't like it and forked over 2 billion to Fiat -- on the watch of the new CEO, Marchionne -- in 2005.
The second deal involved a 500 million U.S. dollar capital gain that occurred when Marchionne had Fiat buy back approximately 50% of a financing arm it had sold in prior years. The gain occurred when Marchionne's Fiat resold half of that "arm" to a French company for a 500 million U.S. profit just a short time later.
Marchionne also decided to essentially rent use of Fiat automotive technology to other auto manufacturers -- Instant "revenue stream" (in the modern vernacular). He also cut out a lot of fat out of Fiat's management ranks and apparently replaced some of these long-standing managers with younger folks who'd work faster and more simply (and probably for less) in exchange for more responsibility. And he also introduced several new well-regarded vehicle models that have apparently sold well so far in Europe (However, Brazil is where Fiat sales are apparently the strongest currently).
Marchionne's expressed master plan involves a future in which the world has 5-6 auto companies and Fiat is one of them.
Now its March 2009. A few weeks back Marchionne signed a deal with Cerberus Capital in NYC regarding Chrysler: 1/3 ownership of Chrysler in exchange for Fiat's various technologies for use in support of Chrysler's second 'renaissance,' etc. Apparently Marchionne agreed to pay no or very little cash in exchange for this 1/3 ownership stake in Chrysler. Also keep in mind that the U.S. has already bailed out Chrysler to the tune of 4 billion U.S. under Obama
Before the U.S. Treasury Department will sign off on this arrangement between Marchionne/Fiat and Cerberus, Marchionne has to get Treasury (and thereby the current Administration) convinced the arrangement is a good move for somebody somewhere in the U.S.
With all the aforementioned in mind, Usedcarsalesman knows you will ask: What's going to happen? Is Chrysler going to survive? Is Fiat going to sell cars in the States? Will Marchionne end up running one of the world's 5-6 surviving auto manufacturers some time after gaining an entre in to the U.S. market via Chrysler?
Usedcarsalesman says: Maybe, but maybe not.
For one, Usedcarsalesman is not entirely convinced Marchionne's reason-to-be is moving cars off lots world-wide. Yes Marchionne is apparently good at making large deals. He's also a seemingly courageous CEO ('Used' say courageous because Marchionne probably made hundreds of Beretta Shotgun-owning enemies in Italy when he cut loose most of Fiat's old time managers), and he seems to know a balance sheet. But Usedcarsalesman suspects he could probably do the same type of work for practically any large company, even if the company made plungers or greeting cards.
Marchione seems to like Chrysler because A) He can get 1/3 of it for no real cost to Fiat B) The U.S. has already recently floated the cash to keep Chrysler alive and Marchionne knows -- like everybody -- that this isn't the first time the U.S. has stepped in to help Chrysler C) Chrysler's dealership network and the access to the U.S. car-buying public it may provide Fiat (at least that's Marchionne's current refrain)
Usedcarsalesman says that if the current administration wants the 4 billion in bailout dollars back before signing off on the Fiat/Chrysler deal, then Marchionne will back out.
However, Obama may not see any benefit to allowing Chrysler to go under. And he indirectly may do something such as sign off on the Marchionne-led deal for 1/3 of Chrysler, but only if Marchionne/Fiat contract to terms that aid certain administration political platforms in support of greater fuel efficiency, alt-fuel use, plug-in cars/truck development and so on and so forth.
Based on Marchionne's successes on Fiat's behalf in the recent past, Marchionne may be looking at this 1/3 stake in Chrysler solely as a potential capital gain for Fiat to potentially realize in a sale to another auto manufacturer (Maybe even a rejuvenated Chrysler) in say the next .5, 1, 2, 3,5, 10 years or whenever the U.S. stock and credit markets stabilize.
And of course, theoretically, Marchionne could take this (stadium-sized) "Ram" "by-the- horns" and "write-the-book" on how to lead a red-ink European auto manufacturer to world-class status partially by buying a distressed foreign auto manufacturer coming off two bad buyouts, arranging the design of new cars in accordance with the "enviro"/efficiency demands of a new U.S. Presidential administration, tossing out old-school white collar management and with them any of Fiat's institutional memory (mistakes, problems potentially repeated), making more profitable use of existing corporate assets, and successfully introducing many popular models of new cars in extremely competitive markets world-wide (the U.S. is one of those competitive markets if not the most competitive).
Personally, Usedcarsalesman would have a lot more long-term confidence in Fiat's move on Chrysler if Marchionne already had a 20 year commitment to the auto manufacturing industry under his belt (not going on 4-5 years), if Fiat itself was already on a 20 year stretch of uninterrupted worldwide growth and profitability and if Fiat was currently perceived a bit more strongly by certain bond rating organizations - See this recent Reuters article
Then again some argue that an executive with little auto manufacturing experience -- like Marchionne -- may be just the "reboot" that a struggling manufacturer like Chrysler needs to help head it in the right direction.
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