Cerberus Capital Management and Chrysler are working against the clock to secure an alliance with Fiat SpA to complete a requirement allowing the at-risk automaker to receive an extra $6 billion in federal aid. A deal to join Fiat and Chrysler is far from reach, as Chrysler needs to get deeper concessions from the United Auto Workers union and negate $6.9 billion in loans from its creditors, which include JP Morgan, Citigroup, Goldman Sachs, and Morgan Stanley. Chrysler has yet to open negotiations with any of its debt holders.
Originally, Fiat was to take a 35% stake in Chrysler in exchange for sharing technology and its small-car platform. However, the revised terms call for Fiat to take a 20% stake, not to exceed 49% until Chrysler repays its U.S. Government loans. Cerberus is also likely to see its stake in Chrysler wiped out, although it will maintain control of Chrysler Financial. The firm acquired 80% of the automaker from Daimler in 2007 for $7.4 billion. Daimler still owns 19.9% of Chrysler. If Chrysler and GM were to go into bankruptcy, the effects would certainly be felt by private equity. Since 2004, PE firms have invested in almost 250 companies connected to the auto industry.