The Obama administration’s attempt to shepherd a shotgun marriage between Chrysler and Fiat appears to be in serious trouble. Fiat CEO Sergio Marchionne is demanding major concessions from labor unions before agreeing to any deal — and is offering next to nothing in return.


Eric Reguly and Greg Keenan report for Canada’s Globe and Mail.

Fiat is prepared to scrap the deal and look elsewhere for an international partner if the unions do not agree to match the lower labour costs of Japanese and German plants in the United States and Canada, Mr. Marchionne said in an exclusive interview with The Globe and Mail at the Italian auto maker’s headquarters in Turin. “Absolutely we are prepared to walk. There is no doubt in my mind,” he said. “We cannot commit to this organization unless we see light at the end of the tunnel.”

Mr. Marchionne, 56, said Chrysler workers on both sides of the border have to end their sense of entitlement if the wrecked auto maker is to have any chance of repairing itself. “The minute you talk to me about historical entitlement in an organization that is technically bankrupt, it’s a nonsensical discussion,” he said. “There is no wealth to be distributed.”

The prospects for such concessions appear very dim, with the Canadian Auto Workers especially recalcitrant.

“The dialogue is out of sync. I think they need to see what state the industry is in. Canada and the U.S. are coming in as the lender of last resort. “No one else would put a dollar in. This is the worst condemnation of the viability of this business. We are not anti organized labour. No one wants to remove the UAW or the CAW from the table. But it will happen if a bankruptcy process drags on. …The UAW and the CAW have a unique opportunity here to change the framework of the discussion.”

If a deal is struck, Fiat will invest no money in Chrysler; the only forecast injection of funds would be from the U.S. government. The Obama administration has demanded a deal with Fiat by the end of April as a precondition of said aid. What Marchionne offers is a reputation for shrewd management.

In the short term, some of Chrysler’s 30 plants would be closed – the Fiat boss would not say which ones would be targeted. Chrysler’s headquarters in Auburn Hills, Mich., would be thinned out. “Fiat has an incredibly flat management structure,” he said. “Chrysler needs a flat management structure.”

A deal with the UAW and the CAW would mean substantially lower labour costs. Chrysler as a brand might be downgraded so the stronger Dodge and Jeep brands could be developed.

Mr. Marchionne said the Fiat Cinquecento (Italian for 500), the hot-selling car launched in 2007 and credited with ensuring the revival of Fiat, would be introduced in North America as early as next year.
It would be built in North America, but would probably carry the Fiat badge because the company considers the Cinquecento a brand in its own right. Chrysler would launch its own small car based on the Cinquecento platform, as Ford has done in Europe with the new Ka. “Chrysler needs its own Cinquecento, meaning a model that is the remaking of Chrysler,” Mr. Marchionne said.

Forbes‘ Javier Espinoza has more on the proposed restructuring and Marchionne’s success in revamping Fiat, which was itself on the brink of bankrupcy not long ago.

[W]hat kind of impact would Marchionne have on Chrysler? A huge one, according to Massimo Vecchio, an analyst with Mediobanca.  “His experience in turning companies around is quite clear, but it’s not clear if he will be able to do the same [with Chrysler] as he did with Fiat,” Vecchio told Forbes. “He’s got a lot of American in his management style. The only thing that matters to him is results. If you don’t deliver, you are out. He is quite ruthless.”

Certainly, Chrysler is in need of a new management paradigm.  Of course, one that slashes jobs and drastically cuts the wages of the remaining employees is not exactly what a Democratic president trying to stimulate the economy and show his loyalty to the labor unions might wish for.

James Joyner is managing editor of the Atlantic Council.