Blog: Dave LeggettChrysler's not quite out of the woods...

Dave Leggett | 26 January 2009

I guess the big news last week was the tentative agreement between Fiat and Chrysler to have an alliance. The suggestion is that Fiat takes a cash-free 35% stake in Chrysler in exchange for helping the ailing company out with much-needed small cars and powertrains. They can also help each other out with distribution and look at scale economies in purchasing, too. So far, so good.

Of even greater significance for Chrysler is the fact that this is apparently a vote of confidence from Sergio Marchionne, the man with the Midas touch who turned Fiat around from near death in the space of a couple of years.

Maybe Chrysler is looking like a much better bet for a long-term future now and maybe it stands a better chance of getting further federal loans. Fiat is even happy to help Chrysler draw up the viability plan that needs to be submitted to the US government by February 17.

That all sounds good, but before anyone breaks out into a celebratory jig, there is a slight problem. Even if the memorandum of understanding between the two companies is turned into a real deal today, these benefits will still take a couple of years to start flowing through. And no deal will be signed until Chrysler secures more federal cash that it says it needs to survive.

Chrysler's main problems - tanking sales and lack of liquidity - are immediate and its short-term future remains highly uncertain. Sergio Marchionne's cavalry will have arrived too late if those who sit in judgement on Chrysler's viability plan conclude that it simply cannot continue in its current state with a US light vehicle market that this year could sink as low as 10.5m units.

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