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January 21, 2009

Fiat Deal Values Chrysler at Less Than Zero

Fiat won't accept a 35% stake in Chrysler unless the US adds another $3 billion to the $4 billion we've already "lent" to the "US" automaker, according to a story in the Wall Street Journal. Fiat isn't going to put any money of its own in, of course; no one in their right mind would. Cerberus Capital Management, currently owner of 80.1% of Chrysler isn't putting money in; Daimler, owns the rest but values it at zero.

So, without our putting additional money in, the owners can't even give away shares in the company; that means its current value must be somewhere south of zero. Since that's the case, please remind me why we're planning to put more money in?

We are in the process of treating Chrysler Financial, also owned by Cerberus, like a bank so we can shovel money in there so that people can buy Chryslers. If there were no Chrysler, we wouldn't have to worry about Chrysler Financial. We've also bailed out GM. We have a better hope of getting a return on that investment if Chrysler isn't taking sales from them. And we've bailed out GMAC "to help GM". We've even added money to the GM bailout so it can put more into GMAC. GMAC's majority owner is Cerberus – must be a coincidence.

Ford has so far avoided bailouts. They won't be able to do that forever if we keep bailing out their competitors.

The New York Times says the Fiat deal (they didn't report that it's contingent on more bailout money) "will bring Chrysler what it needs to be a viable player in the evolving United States market, with its fuel-efficient engine technology and the engineering that goes into its small cars." The deal allows Chrysler to make Fiat models in its US plants. The Times goes on to say "The Fiat brand suffered from a reputation for poor quality among American consumers. Fiat models still score below average in J. D. Power customer-satisfaction surveys in some European markets."

The real value of the Fiat deal is that it gives us a way to see what Chrysler is worth today AFTER we have already put $4 billion in: less than nothing. The best result of this announcement is if we act on the valuation, swallow our losses, move on, and let Chrysler fade away.

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