Fiat CEO: Concessions or no Chrysler deal

April 15, 2009 7:49:37 AM PDT
Automaker Fiat Group SpA will walk away from a deal to take a 20-percent stake in Chrysler LLC if the U.S. automaker's unions don't agree to major cost cuts, Fiat CEO Sergio Marchionne said in an interview published Wednesday. Fiat and Chrysler are up against an April 30 deadline for Fiat to take a stake in the failing U.S. automaker in exchange for small car technology, but Chrysler first needs concessions from creditors and unions to ink the Fiat deal. If the Fiat alliance isn't finalized by then, the U.S. government has threatened not to provide any more aid and let Chrysler be sold off in pieces.

"Absolutely we are prepared to walk. There is no doubt in my mind," he said. "We cannot commit to this organization unless we see light at the end of the tunnel," Fiat CEO Sergio Marchionne said in an interview published in the Toronto Globe and Mail.

A Fiat spokesman confirmed Marchionne's statements. Marchionne was attending a shareholders meeting of the Swiss bank UBS in Zurich on Wednesday.

Marchionne said there is a 50 percent chance the deal will fail because of lack of progress in labor negotiations in both the United States and Canada.

"The dialogue is out of sync," Marchionne said. "I think they need to see what state the industry is in. Canada and the U.S. are coming in as the lender of last resort. .... No one else would put a dollar in. This is the worst condemnation of the viability of this business.

Marchionne said no one wants to remove the U.S. and Canadian autoworkers' unions from the table. "But it will happen if a bankruptcy process drags on. The UAW and the CAW have a unique opportunity here to change the framework of the discussion."

Under terms of the nonbinding agreement between Fiat and Chrysler, Fiat is not committing to inject any cash into Chrysler nor would it take on any Chrysler debt. Industry experts have said that the absence of any cash beyond an additional $6 billion from the U.S. government if the Fiat deal goes through still leaves unanswered how Chrysler can survive until the partnership begins to bear fruit.

The Obama administration has supported the deal, praising the current Fiat management for its turnaround of the once-failing Italian automaker and saying that Chrysler is not viable as a standalone company.

Chrysler would benefit from small car technology that it lacks, and Marchionne said that Fiat could start selling its successful remake of the iconic Fiat 500, or Cinquecento in Italian, made in North America as soon as next year. Fiat, while gaining a stake in a company that it hopes one day will regain its value, also plans to relaunch the sporty Alfa Romeo brand in North America. The new Alfa 149, to be unveiled next year, would be built in North America as a successor to the larger Alfa 159, Marchionne said.

Chrysler would also launch its own small car based on the 500 platform, Marchionne said. "Chrysler needs its own Cinquecento, meaning a model that is the remaking of Chrysler," Mr. Marchionne said.

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