Is this the new Lee Iacocca? (Carlos Osorio, AP)
Chrysler LLC will announce an agreement with the U.S. government to buy the government's last remaining stake in the automaker stemming from the 2009 bailout, for about $500 million. After paying back loans and buying the government's stake, the cost to the taxpayers of preserving Chrysler will be about $1.3 billion.

President Obama today will meet with Chrysler executives and employees at the company's Toledo, Ohio Jeep plant to announce the deal. "As Treasury exits its investment in Chrysler, it's clear that President Obama's decision to stand behind and restructure this company was the right one," the Treasury secretary, Timothy F. Geithner, said in a statement. "Today, America's automakers are mounting one of the most improbable turnarounds in recent history - creating new jobs and making new investments in communities across our country."

Chrysler last month announced it would re-pay $7.5 billion in loans from the U.S. and Canadian governments years ahead of schedule by refinancing the loans with private banks and bond sales. In 2009, those sources of funding were not available because of the meltdown of the financial markets and the precarious financial condition of the banks. Many of the major banks, too, needed bailing out by government loans.

Chrysler, along with General Motors, went through bankruptcy re-organization in which it got relief from debt, and renegotiated its obligations to the United Auto Workers. At that time, private equity firm Cerberus Capital Management owned Chrysler. The White House deemed the automaker worth bailing out to save manufacturing jobs in the industrial heartland if a viable company stepped up to take control of the management. The only automaker that met the criteria was Italian automaker Fiat.

The White House says that the bailouts of GM and Chrysler will cost taxpayers about $14 billion after loans have been paid back and the U.S. Treasury sells its equity stakes in the two companies. The White House also says the move saved at least one million jobs in what were already economically distressed states.

A New Iacocca?

Fiat Auto CEO Sergio Marchionne, who also serves as Chrysler CEO, has led what many analysts have described as a remarkable turnaround for a company few thought would still be around today.

Marchionne, a Canadian-born lawyer and finance expert, has relentlessly attacked costs at Chrysler while knitting together the engineering and design functions between Fiat and Chrysler to reduce costs of developing new models in the future. He also focused the company on a breakneck pace of improving the vehicles he inherited from Cerberus two years ago.

"I have full confidence in what we are doing in terms of styling and engineering, but I am smart enough to know that we will only gain trust of car buyers if we also impress the third party firms that rank our quality," Marchionne told AOL Autos earlier this year. "We have the whole company focused on this, and I believe we will over-achieve expectations." Indeed, many of Chrysler's vehicles have ranked below industry average for quality with both J.D. Power and Associates and Consumer Reports.

Chrysler sells Chrysler, Dodge and Jeep brand vehicles around the world. Fiat this year is using its new U.S. base of operations to launch its own brand. The Fiat 500, a small four-seater, has begun selling in new Fiat retail locations around the U.S.

Paying back the loans and getting out from under government ownership years ahead of schedule is something of a reprise of Lee Iacocca's feat in the early 1980s. Chrysler had avoided bankruptcy by getting bank loans guaranteed by the U.S. government. By quickly rebuilding the company's reputation, and starring in ads that captured the car buying public's imagination and attention, Iacocca was able to refinance the bank loans and shed the government guarantees. Over-achieving expectations cemented Iacocca's reputation and place in history, and made him a larger than life character in American culture who was courted to run for President in 1988 and 1992.

Marchionne has no intention of appearing in ads, and his Canadian citizenship will keep him away from the Iowa and New Hampshire caucuses. But if the vehicles that the company has been developing from scratch are as successful as Chrysler's K-cars from the mid 1980s, Marchionne will be treated as a corporate rock-star.

The deal with the U.S. government dampens the prospects that Chrysler will have an initial public offering of stock next year as had been previously expected. Fiat will be able to take majority control of Chrysler, leaving just the UAW's Voluntary Employee Beneficiary Association (the union healthcare trust) as the only major shareholder. The Canadian government also owns a small stake in Chrysler, and has not yet signaled that it will sell it in the near future.

Fiat's stake in Chrysler is likely to rise to 57% before the end of the year when Chrysler meets another milestone set by the government: producing a 40 mpg small car in the US. All told, Fiat has the right to purchase more than 70% of Chrysler.

The Fiat-Chrysler alliance could eventually go to the public markets and raise cash through a share offering, but now there is no pressure to do it and CEO Marchionne can choose the most advantageous time in the future to sell shares. General Motors issued shares last November, and the value of those shares has slid backward by 10%.

Credit rating agency Standard & Poor's views Fiat's move to take early majority control of Chrysler as a positive move for the U.S. automaker, but the jury is still out on whether the company is on a clear path. "We view this strategy as a work in progress, albeit with some early signs of success," the rating agency said in a report in which it set Chrysler's debt rating at "B+/stable."

S&P also said that Chrysler is still more vulnerable than other automakers if the recovery of auto sales reverses course.

I'm reporting this comment as:

Reported comments and users are reviewed by Autoblog staff 24 hours a day, seven days a week to determine whether they violate Community Guideline. Accounts are penalized for Community Guidelines violations and serious or repeated violations can lead to account termination.


    • 1 Second Ago
  • From Our Partners

    You May Like
    Links by Zergnet
    Share This Photo X