Article published June 21, 2009
New Chrysler CEO must rebuild coffers of 2 automakers
BLOOMBERG
ALTHOUGH Sergio Marchionne has won his six-month battle to gain control of Chrysler LLC, Fiat SpA’s chief executive officer has yet to prove he can rebuild the U.S. car maker without losing sight of his original challenge: bolstering Fiat’s finances.
The 56-year-old Fiat CEO is assuming the same role at Chrysler after the Turin, Italy, car maker and its partners bought most of Chrysler’s assets, creating the world’s sixth-largest auto producer.
His first move was to reshuffle the U.S. company’s leadership around its Chrysler, Jeep, and Dodge brands, emulating a move he carried out at Fiat when he arrived in 2004.
Chrysler is losing as much as $100 million a day, global car demand is withering amid the biggest recession since World War II, and Mr. Marchionne needs to refinance about $6.3 billion of Fiat debt coming due this year.
“Sergio Marchionne is at the top dealing with it all and there’s a lot to do,” said John Buckland, automotive analyst at MF Global Securities in London who has a “sell” rating on Fiat shares. “Fiat has to deliver platforms and technology and organize things so it can sell Chrysler cars and Fiat cars.”
Mr. Marchionne, seeking to trim Fiat’s debt, has insisted the Italian automaker won’t inject cash into the newly formed Chrysler Group LLC.
Fiat is providing technology such as engines and vehicle designs and will own an initial 20 percent of Chrysler Group.
Fiat, which is controlled by Italy’s Agnelli family, will have management control as well as three of nine board seats.
Jim Press, who had been one of two presidents of Chrysler LLC, was named deputy CEO. He also will be a special adviser to Mr. Marchionne.
Fiat is taking on the Chrysler challenge even as its own business is being tested by falling demand for cars and trucks.
In April, Fiat maintained its main earnings target for 2009 after reporting a first-quarter loss, the first quarterly shortfall since 2004.
Fiat raised about $1.5 billion in financing this year from its banks, less than originally planned, after its bonds were cut to junk status by Standard & Poor’s in March.
Sales slumped 25 percent to $15.7 billion in the first three months of this year.
Sales in Fiat’s home market, its biggest, fell for a second month in May, dropping 8.6 percent and bringing the decline this year to 15 percent.
However, Fiat gained market share against rivals, including Renault SA and Bayerische Motoren Werke AG, helped by government incentives to trade in older cars and as consumers pinched by the economic crisis traded down to smaller, less-expensive models such as Fiat’s Panda and Punto.
Mr. Marchionne’s original game plan was to buy General Motors Corp.’s Opel and Vauxhall brands in Europe, and then merge those units with Chrysler holdings and its auto business into a new company that would be publicly traded.
He is pushing for consolidation to reach his goal of selling 6 million cars, the minimum he says is required to be profitable through the economic contraction.
To succeed in reviving Chrysler, the No. 3 U.S. car maker, Mr. Marchionne needs to produce top-selling models.
The Auburn Hills, Mich., automaker’s U.S. sales tumbled by almost half to 1.45 million cars and light trucks last year from 2.73 million in 2000.
Chrysler may begin selling the first Fiat vehicles in as little as 18 months, executives at both companies have said.
The combined company will build a new car in the United States based on the mechanical underpinnings of Fiat’s Alfa Romeo 149, which hasn’t gone on sale yet. Chrysler also is planning to sell the Fiat 500, a subcompact similar in size to Daimler AG’s Smart minicar.
“I’m very skeptical that an alliance such as this is going to work long term,” said Erich Merkle, an independent automotive analyst in Grand Rapids, Mich. “A lot of Chrysler products really aren’t selling very well.”
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