The idea that Fiat would buy 35% of Chrysler at least made a modest amount of sense. It would give Fiat an outlet to sell its small cars in the US. Chrysler could get capital to retool some of its factories to build more fuel-efficient vehicles.
A day after the two companies announced that they were in talks it became clear that its success would depend on more capital from the US government. Congress might ask Fiat to put up some of that money. It might look bad for America to finance an Italian firm’s US-based enterprise.
The rate at which the recession is spreading added another wrinkle to the Fiat/Chrysler deal. The acquirer now is low on money and may need a bailout from the Italian government.
According to the FT, "Fiat yesterday painted a grim outlook for the automotive industry this year as it announced that it would not pay a dividend for 2008 and the Italian government said it would discuss possible state aid for the sector."
While it may seem perverse, the combination of the two car companies may rely on bailout from two governments, but such transactions may become more commonplace. It is certainly not out of the question that GM (GM) might get capital from the Swedish government to keep Saab afloat. There are jobs at stake in the Scandinavian country. Canada has indicated that it will offer aid to the arms of US car companies that operate in that nation. The assembly plants that Detroit has in Canada employ too many people.
Bailouts may be heading in the direction that would have multinational companies in trouble getting capital from several countries at a time.
Douglas A. McIntyre