Fiat’s offer for Chrysler is a nonstarter

There was a time when if you suggested that Fiat, the Italian carmaker whose name is often derided in the U.S. as an acronym for “Fix It Again, Tony,” would one day be in a position to buy one of Detroit’s Big Three, you would have been laughed out of the room. Now Fiat is proposing to merge with and possibly acquire a majority stake in Chrysler, but on one condition: that American taxpayers pony up $3 billion to seal the deal, on top of the $4-billion bailout Chrysler received in December. President Obama should laugh Fiat out of the room.

We had misgivings last month when President Bush agreed to provide $13.4 billion in loans to Chrysler and General Motors, though we endorsed the move because it averted a precipitous collapse that could have worsened the country’s economic turmoil. But the gravy train isn’t endless, and it needs to be derailed if the companies can’t make a strong case that they are restructuring in ways that will return them to profitability. The details that have emerged about the proposed Fiat-Chrysler deal don’t make that case.

A marriage between Chrysler and Fiat might improve matters for both companies, because each would get something it needs. Chrysler has little presence overseas and makes mostly large, gas-guzzling vehicles that are no longer popular even among Americans. Fiat, which also owns Alfa Romeo, Maserati and Ferrari, makes mostly small cars under its own brand; its models are a hit in Europe, but it has no presence in the U.S. There’s just one problem: Fiat wants a piece of Chrysler without putting any money into the company, while demanding as a condition of the deal that Washington hand over $3 billion in loans needed to keep Chrysler afloat in the short term. This would simply shift the risks of the transaction to U.S. taxpayers.

Fiat would reportedly get a 35% stake in Chrysler in exchange for letting the Detroit giant use its engine technology and build cars based on Fiat designs. Fiat also would have the option to buy an additional 20% of Chrysler after 12 months for the fire-sale price of $25 million. It would take at least a year for Chrysler to retool to build Fiat cars, and Fiat, which abandoned the U.S. market in 1983, hasn’t demonstrated the ability to make cars that Americans value.

Chrysler has until Feb. 17 to present the Obama administration with a plan on how it will return to fiscal health if it wants to qualify for the $3 billion demanded by Fiat. The proposed merger would do nothing to solve Chrysler’s immediate cash-flow problems, and the odds are thin that it could assure the company’s long-term survival. Taxpayers shouldn’t be asked to double down on their risky bet on Chrysler simply to give an Italian automaker a sweetheart deal. Unless Fiat can come up with a better offer, it should enter the U.S. market the old-fashioned way: by buying up pieces of Chrysler once it has been liquidated.