German Press: Fiat to sign a deal with Opel, not Chrysler

I want to make clear the significance of the Treasury’s Chapter 11 bankruptcy plan for Chrysler if Fiat pulls out.  It will mean massive job losses and and a huge down-tick in consumer demand.  There will be no second half recovery. Geithner and Obama will look very much like greenhorns and lose a lot of credibility.

This is a very real possibility given the statements coming out of the German press.  While the U.S. Government is integrally involved in both the Opel-Fiat-GM and the Fiat-Chrysler love fests, it remains to be seen that they can strike a deal that is agreeable to all parties. These are very, very complicated negotiations, involving legal and employee issues in three different countries.

Handelsblatt, the most widely-read Finance paper in Germany said the following earlier today:

In searching for an investor to survive, first serious interested parties for struggling carmaker Opel have crystallized. Fiat Group and the Austrian-Canadian auto supplier Magna are the hot contenders for the Rüsselsheimer company. “Fiat and Magna are possible partners. But it should also be clear that there no decisions have been made,” said the Hessian Minister President Roland Koch (CDU). The Rhineland-Palatinate’s Minister for Economic Affairs Hendrik Hering (SPD) also confirmed that Fiat and Magna count as the main contenders for Opel.

An entry of Fiat would be problematic because of its high debt and the excess capacity of the Italians, Herring said through his spokesman Joachim Winkler. Opel employs about 3,400 workers in an engine and transmission factory in Rhineland-Palatinate.

As early as next week, we probably should have a memorandum of understanding between Fiat and Opel signed. Fiat and the management of Opel declined to comment. Opel works council chief Klaus Franz, however, confirmed that Fiat seek a majority takeover. In negotiating circles it is said that Fiat has already been talking with the Federal Government in the past week.

For the struggling General Motors subsidiary, a long-awaited new investor is in its grasp. But the looming entry of Fiat, ensures trouble, even before completion of negotiations: the employees’ side, announced opposition to the Italians. They feared massive job cuts if the majority Fiat took over. Works chief Franz yesterday intentionally brought the talks with Fiat into the public in order to torpedo the unwanted merger.

Amongst deal makers, it is said that GM management in Detroit and the federal government favor a quick solution with the Italians. Fiat managers met yesterday together with Jochen Homann, State Secretary for the Federal Ministry of Economic Affairs, in Washington to deal with the U.S. side over the Italians start at negotiations. The federal government has, in the case of an entry at Opel, made guarantees and is therefore very much involved in the search for investors. Even representatives of the Hessian state government are already in Washington. Opel’s headquarters are in Hesse.

Opel has already scheduled a Tuesday press conference. GM boss Fritz Henderson had said last Friday that the U.S. company is talking with more than six interested parties, for whom it has opened the books. Opel wants to largely decouple from GM and is looking for investors for an independent company in which GM has only a minority participation.

With a merger of Opel and Fiat, two companies would be back together, which split in dispute n 2005. At the time, GM paid 1.55 billion euros, in order not to have to take over the automotive business of Fiat. In 2000, GM and Fiat had started the joint development of engines and transmissions in Europe. At the same time, the U.S. group bought ten percent of Fiat’s shares. Again, this has been reversed. Opel and Fiat are direct competitors in many markets. Works chief Franz is, therefore, afraid of a “dramatic loss of jobs at Opel and plant closures in Germany.”

An Opel-Fiat merger will be resisted by the unions in Germany. But, just as with the Dresdner-Commerzbank merger, this can be overcome if there are no good alternatives.

GM has the best hand here as it is going to get rid of Opel come hell or high water. Fiat is next because they have a choice of Opel or Chrysler. Opel is next because it has multiple suitors lined up and the German government is probably willing to bail it out temporarily if a suitor can’t be immediately. Chrysler and the U.S. Government are in the worst situation because they need a deal desperately. Their best alternative to a negotiated agreement is bankruptcy.

Source
Fiat und Magna buhlen um Opel – Handelsblatt
Fiat in talks to buy Opel and Vauxhall – Guardian