Friday, April 24, 2009


My friend Evan Newmark blogs for the Wall Street Journal. He has an interesting piece today, with some video, that sets forth that Fiat is taking advantage of the US taxpayer in a big way. His view is that Fiat is starting discussions with GM to purchase its European Opel Division as a negotiating tactic with Chrysler. The theory is, "hey Chrysler, if you can't give us a deal that works for us, we will just do a deal with Opel".

Evan believes that the US taxpayer will ultimately take it on the chin. I hope he is wrong. He does agree with me that the Treasury's proposal to Chrysler's banks makes little sense. Also, please note it is extremely dangerous for the Treasury to ignore the banks senior legal position vis a vis all the other creditors. Valid first liens on collateral is a bedrock concept in lending. The consequences of ignoring the validity of these liens will potentially have a more negative impact on lending than the failure of Lehman.

Back to Fiat, I am always struck by the irony of situations. In 2000, Fiat was functionally bankrupt and GM owned part of Fiat and had an option to purchase the rest of Fiat. Or should I say, that Fiat had a 'put' that could make GM buy the rest of Fiat. Subsequently, Fiat forced GM to pay Fiat $2 billion to buy out the 'put'. Now Fiat is coming to the rescue of Chrysler.

By the way, what exactly is the operating plan that makes this such a great deal for Chrysler? Fiat has rode the CinqueCento to viability. It makes the Smart car look big. I don't expect a lot of Smart cars to be sold in the US and less CinqueCentos.

These are interesting times to be an old, retired workout guy.

Cheers, Mike

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