Posted by: David Kiley on March 30, 2009
White House officials will make it plain today that the only chance Chrysler LLCC has of remaining an independent company is if it knits together a formal alliance with Italian automaker Fiat S.p.a. in the next 30 days that meets with Obama Administration conditions for receiving an additional $6 billion in loans.
“The Chrysler plan is not likely to lead to viability on a stand-alone basis, and Chrysler must seek a partner to achieve the scale and other important attributes it needs to be successful in the global automotive industry.”
Even so, the White House is prepared to extend to Chrysler and Fiat the additional loans on top of the $4 billion it received in December and whatever money it pumps into the automaker over the next 30 days to keep it afloat if it can reach an agreement with Fiat that guarantees, among other things, that the two companies will commit to building a certain number of engines and vehicles in the U.S.
The task force was harsh in its assessment of Chrysler, singling out “the inferior quality of its existing portfolio and its heavy truck mix.” A senior administration official noted specifically that Chrysler failed to get even one of its products recommended this year by the influential Consumer Reports magazine. The task force also cited Chrysler’s limited scale; that it is chiefly a North American company and severely challenged to compete against rivals with far more viable global operations.
The company, said the task force, is also woefully behind its rivals, including GM and Ford, in planning multiple vehicles on common engineering architecture, and building vehicles in flexible factories that can turn out many different models. The task force also cited the company’s difficulty in meeting toughening federal fuel economy standards with a product portfolio so heavily tipped toward trucks and SUVs. The company has just four all-new products, apart from those contemplated with Fiat, planned between 2009 and 2014, the task force noted.
Chrysler officials on Saturday said they had failed to reach a new labor agreement with the Canadian Auto Workers, but did not respond to calls and e-mails Sunday night about the task force findings.
As part of the government’s deal with Chrysler, the automaker agreed to strike a debt refinancing agreement with the banks holding its paper. Banks mostly hold $6.8 billion of secured first-lien debt of the automaker, which is owned by private equity firm Cerberus Capital Management LLC. “That is entirely too much debt for a company the size of Chrysler and the banks holding it have been immovable in negotiating it down,” said a senior White House official.
Chrysler has also failed to strike a refinancing deal for the billions it owes the United Auto Workers Union and the union’s Voluntary Employee Benefit Association, which is a trust fund that pays worker health care costs.
“Chrysler has just been eeking along with no real viable plan to generate positive cashflow,” said the official, who described the automaker as “hollowed out.”
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