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Chrysler cash off limits

As Chrysler has built up an enviable record of month-over-month sales increases and steadily growing profits, it has also been building up its cash. At the moment, its cash, cash equivalents, and available credit lines amount to about $13 billion; money for expanding production, developing new products and hiring new workers.

In the first half of 2012, Chrysler spent an estimated $1.9 billion on product development and upgrading facilities, 58% more than it did in the first six months of last year.

Contrast that with Fiat: caught in the downward spiral of the European market, Fiat desperately needs new product, which means plant upgrades and money for engineering, tooling and training. On the other hand, Fiat has to conserve cash.

While Fiat Group reported $440 million in profits yesterday, it was all Chrysler. Without the contribution from Auburn Hills, the Italian side of the house lost $302 million.

Fiat has reduced its cash burn by idling plants and postponing fresh vehicles like the new Punto. It also was able to save a significant amount of money last year by closing the Termini Imerese plant on the island of Sicily.

Fiat is not hurting for money at the moment. Its holdings in cash and credit are higher than Chrysler’s: nearly $15 billion. But it can’t operate in the red long term and it can’t touch Chrysler’s money.

Unlike what happened in when Juergen Schrempp created the “merger of equals” and absorbed Chrysler Corporation’s multi-billion-dollar nest egg, Fiat is legally barred from using Chrysler cash for its own operations.

When the deal was struck for Fiat to assume control of Chrysler in 2009, the U.S. and Canadian governments added a condition that sequestered the American automaker’s cash. When Sergio Marchionne put together the financing deal that allowed Fiat to repay its government loans, a similar condition was included in the package.

Until the loans are repaid or renegotiated, “firewalls are up,” as Marchionne said during yesterday’s conference call with analysts.

While the situation possibly makes for perilous times for Fiat, it also means Chrysler gets to build up and retain the resources necessary to ensure its own future.



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