The Amazing Decline of Chrysler

A blog about business and economics.
Jan. 2 2014 10:50 AM

The Amazing Decline of Chrysler

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You're Italian now!

Photo by Scott Olson/Getty Images

Italian automaker Fiat, which owns a 58.5 percent stake in Chrysler, reached an agreement over the holidays to purchase the 41.5 percent of the company that's owned by the United Auto Workers through a health care benefits fund. UAW will get $4.35 billion for its trouble, coming in the form of a $1.75 billion payment from Fiat, a $1.9 billion payment from Chrysler, and four subsequent annual $700 million payouts from Chrysler.

Relative to where Chrysler was four years ago on the brink of liquidation, this is a great happy ending for the brand and especially for the people who work there. But it's really striking what a collapse in the value of the enterprise this is relative to where things were in 1998 when Daimler-Benz bought Chrysler for $36 billion. That'd be just more than $51 billion in 2013 dollars. Cerberus Capital Management paid $7.4 billion for 80 percent of Chrysler back in 2007. And even though the UAW is getting a $4.35 billion payout, Fiat will only have put a total of $3.7 billion in cash into the two-phase acquisition since a lot of the money coming the UAW's way is cash flushed out of the enterprise. There are a few different ways you could look at the company's current valuation, but however you slice it, the decline over the past 15 years has been staggering in scale.

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Moving forward, by becoming sole owner of Chrysler the Italian automaker will have the chance to build a real integrated company. In the short-term, that's going to mean Chrysler's profitable North American operation will subsidize Fiat's losses in Europe. The business case is that this cross-subsidy era will be temporary as the eurozone returns to growth and that integrated technology and dealership networks across the two companies will create long-term efficiencies. But for the immediate future it creates a situation in which the Fiat Group becomes even more indebted and Chrysler's cash will be managed with a view to a global enterprise rather than an American one.

Matthew Yglesias is the executive editor of Vox and author of The Rent Is Too Damn High.

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