Does Ron Burgundy Know That Chrysler’s Now an Italian Car Company?

  • Share
  • Read Later
Raymond Boyd / Michael Ochs Archives / Getty Images

2013 Dodge Dart

America just got itself a new Italian automobile company: Chrysler. Fiat agreed to buy the 41.46% of Chrysler shares held by a United Auto Workers (UAW) union’s health care trust for $3.65 billion in cash plus $700 million in future payments for a total of $4.365 billion. It gives Fiat 100% ownership of the U.S. auto company and completes Fiat CEO Sergio Marchionne’s grand strategy to combine the two companies into a more competitive global automaker. Benvenuto, Fiat-Chrysler.

The agreement ends a somewhat testy negotiation with the health care VEBA (as in voluntary employees’ beneficiary association), which took the Chrysler shares as part of the White House–negotiated deal to keep Chrysler afloat in the depths of the recession and allowed Chrysler to avoid billions of dollars in future retiree health care obligations. But now that Chrysler is the picture of health — the company earned $464 million on revenue of $17.6 billion in its last quarter ­— the VEBA wanted to cash out.

Although analysts valued the VEBA’s shares as high as $5 billion, Marchionne tried to play hardball, telling the trust that Fiat might pull back from its operating alliance with Chrysler, which called for the two companies to integrate their business plans this year. That seemed like more of a scare tactic, since the level of integration was already so deep at the management level that undoing it would have harmed both companies. The VEBA responded by forcing Chrysler to file for an IPO for the shares. That had risks for the trust, because the market might not have valued the company as highly as the VEBA did.

As happens in many negotiations, the VEBA took guaranteed if slightly less cash today rather than risk the vicissitudes of market, especially given the run-up in share prices in 2013. Chrysler will pony up $1.9 billion — it has that kind of money on hand — while Fiat will chip in $1.75 billion. The rest of the money is being paid as part of a revised labor agreement with the UAW that will provide future funding for the VEBA. Crowed Marchionne: “In the life of every major organization and its people, there are defining moments that go down in the history books. For Fiat and Chrysler, the agreement just reached with the VEBA is clearly one of those moments.”

The deal gives Marchionne the opportunity to make Fiat-Chrysler a fully integrated global automobile company with a full lineup of vehicles, from Fiat’s tiny 500 to Chrysler’s monster Ram pickups. More important, it allows Fiat to complete the implementation of its world-class manufacturing programs across Chrysler’s operations — something the union agreed to as part of the deal. UAW workers build the Dodge Dart, for instance, which is based on a Fiat-owned Alfa Romeo platform. The company wants to be able to benchmark cars like the Dart with similar products worldwide to continually improve quality and efficiency. For Marchionne, it means that Fiat-Chrysler finally has something it was sorely lacking: a global manufacturing base with enough volume to drive costs down. Fiat and Chrysler are already sharing some platforms and parts, but Marchionne wants nothing less than to make his company a global powerhouse on the order of Volkswagen or Toyota. It gives new meaning to Chrysler’s slogan, Imported from Detroit.