Cut labour costs or we walk, Fiat warns unions at Chrysler
April 16, 2009
By Gilles Castonguay
Fiat's chief executive, facing a two-week deadline to work out a partnership with Chrysler, warned the troubled US car maker's unions yesterday that he would ditch the idea unless they agreed to cut labour costs.
In a clear message to US and Canadian unions, Sergio Marchionne told Globe and Mail newspaper that a deal on the partnership had only a 50-50 chance of succeeding because of lack of progress in talks with union leaders.
"Absolutely we are prepared to walk. There is no doubt in my mind," Marchionne said.
The Chrysler unions had to agree to match the lower labour costs of plants run by Japanese and German car makers in the US and Canada, he said, adding that Canadian unions were especially resistant to the idea.
Nomura analyst Michael Tyndall said Marchionne was probably not bluffing in talking tough with the unions.
"He's playing hardball," Tyndall said, adding that the unions' position would make the deal too costly for Fiat.
Under the latest version of the proposed partnership, first announced in January, Fiat would take an initial 20 percent stake in Chrysler in exchange for the technology to make small cars and access to foreign markets.
The two car makers are under pressure to reach a deal on the proposal with Chrysler's unions and bondholders before an April 30 deadline set by the US government.
Chrysler has been warned by the White House that it would go into bankruptcy if it failed to complete the deal.
But its lenders have so far refused efforts to eliminate most - if not all - of the $7 billion (R63 billion) owed to them.
If a deal is reached, Chrysler would get at least $6 billion in extra government funding, after receiving $4 billion so far.
Fiat would get access to the US market and gain the scale it needed to survive the worst industry crisis in decades.
It would bring to North America its popular Cinquecento (500) car next year, while its premium Alfa Romeo brand would make cars in Canada or the US, Marchionne said.
Short of having Fiat inject cash into Chrysler, Marchionne vowed to do whatever it took to save the US car maker, including becoming chief executive.
"Fundamentally, that's possible, but the title isn't important," he said. "What's important is that they hear me."
He expected some of Chrysler's plants to close under the partnership.
The Globe and Mail newspaper said Marchionne would not offer odds on a bankruptcy, but said that a filing for bankruptcy protection was an option in the absence of a partnership agreement.
He did not rule out a liquidation filing, it said.
Fiat shares rose 2.41 percent to e7.01 (R84) in morning trade.
"The market liked it because he reiterated that Fiat would not take out any money," said one Milan dealer.
Many analysts still think the partnership will eventually cost Fiat money, even if the terms of the deal do not oblige it to put up any cash. - Reuters
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