The economic downturn has been hitting Fiat hard. In Italy, where the majority of Fiat’s sales occur, sales are down 13% for the first quarter and Fiat has burned through 17% of its cash reserves since the start of the year. With the outlook in Europe remaining poor Fiat would like access to it’s profitable Chrysler division’s cash reserves, however, because of Chrysler’s existing loan agreements, Fiat cannot access Chrysler’s money.
Sergio Marchionne (head of Fiat) is looking to secure 4B in debt, which will likely be used to buy some portion or perhaps all of the 41.5% Chrysler shares owned by the United Auto Workers retirement healthcare trust (the VEBA).Unless the European economic climate improves, Marchionne may have no choice other than to secure those shares of Chrysler or to refinance Chrysler’s loans to gain access to the cash. The VEBA is unlikely to give Fiat a good deal on the shares, because it wouldn’t want to jeopardize retired autoworkers medical coverage.
A merger between the two auto companies would help cut costs in various ways including restructuring matching elements of bureaucracy in each company into a single entity.
Snavely, Brent. “In Reversal of Fortune, Fiat Needs Chrysler to Survive European Crisis.” Detroit Free Press [Detroit] 29 Apr. 2013: Web
Interesting: the merger makes them one company, and can boost Fiat’s credit rating! What a reversal of fortunes!
Actually, from what I remember of the article and the sources I’d seen at the time, a merger would have lowered Fiat’s rating. For reasons of exposure to market volatility and Chrysler’s debt.