Chrysler's would-be rescuer, Italian automaker Fiat, Thursday reported a 44% collapse in fourth-quarter automotive earnings and was hit with a negative credit-watch notice.
Rater Standard & Poor's cited Fiat's debt and shrinking liquidity, down 43.5% in 2008 to the equivalent of about $5.1 billion on Dec. 31.
Along with earnings, Fiat announced it would not pay dividends for 2008 on ordinary shares and would halt a stock buyback.
Even as Fiat, the biggest car company in Italy, began to stagger financially, its plan to acquire 35% of Chrysler for no cash began to stick in congressional craws. The government has lent the automaker $4 billion and is expected to lend an additional $3 billion soon, on top of $1.5 billion to Chrysler Financial.
"U.S. taxpayers will have loaned $8.5 billion to Chrysler, and (the company) is ending up in the hands of Fiat. It's just a way to entice Fiat to take them," Sen. Bob Corker, R-Tenn., said in an interview. "It leaves me and some people in this country scratching their heads."
Corker, a member of the Senate Banking Committee, lashed Detroit auto executives with tough questions about their survival plans when they asked for financial help late last year.
Still, he wonders about the alternative: "I think there's no chance that Chrysler can pay the money back to taxpayers as a stand-alone. None. I want taxpayers to get their money back. The stronger the company is, the better the chance."
The agreement between Fiat and Chrysler would give the Detroit automaker access to Fiat's small-car designs and expertise as well as foreign distribution. Fiat would get access to Chrysler's U.S. dealers who could sell small Fiats, perhaps badged as Chryslers, as well as Fiat's Alfa Romeo brand.
The deal gives Fiat the option to buy another 20% of Chrysler for a majority stake of 55%. Currently, private investment company Cerberus Capital Management owns 80.1% of Chrysler, and Germany's Daimler owns 19.9%.
Sen. Robert Menendez, D- N.J., also on the banking panel, said in a letter to President Obama that if Fiat takes control of Chrysler, Obama should require Chrysler to repay the loans immediately.