Investors worry that Fiat’s plan to take a stake in troubled Chrysler may be a bridge too far for a company facing serious concerns of its own.
Fiat Auto’s sales in Europe, and particularly in Germany, have been inflated by so-called scrappage schemes, and any benefits from a possible deal with Chrysler are years away, said Nomura International analyst Jeremie Papin.
“We believe investors will decide to place little or no value initially on this (Chrysler) deal as the future returns are meant to be very uncertain – even more so than in any other project given the history and situation of the partner – and years not months away,” Papin said.
“Investors will also raise doubts over the risk of management’s “distraction” at a time when the results of Fiat look to be below expectations; they will seek reassurance over Chrysler’s ability to fund the necessary investments to produce Fiat technology based cars in the U.S. and finally they may question the U.S. customer willingness to buy such (tiny) cars when Ford’s 1-150 pick up truck is still the best selling model,” Papin said.
The Wall Street Journal’s Heard on the Street column also raised doubts about the deal, pointing out that Fiat’s balance sheet is under pressure, given that it has liquidity of €4.9 billion but near-term debt maturities of almost twice that.
Heard on the Street’s Sean Walters acknowledges that Fiat’s cooperation or merger options are limited. Any deal with Peugeot or Renault would mean impossible capacity elimination problems. Walters says if the Chrysler deal went through it would mean taking on a money-loser in the middle of a recession.
“The question is whether now is the time for Fiat to be taking the plunge into America in the first place,” he said.
Neil Winton – April 15, 2009
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