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Chrysler, Fiat join forces

Italian American: How the Fiat Ritmo might look in the US under the Chrysler alliance.

Fiat gets 35% of Chrysler in exchange for small cars and management help

Chrysler logo21 Jan 2009

FIAT and Chrysler have announced a powerful new global alliance, with Fiat SpA acquiring 35 per cent of Chrysler LLC in return for access to Fiat’s range of fuel-efficient small cars.

No money changed hands in the deal, which provides Fiat with no-risk access to the US market through Chrysler’s factories and dealer network.

Chrysler Australia manager public relations Jerry Stamoulis said it was too early to know what effect the alliance would have on the operations of Chrysler and Fiat in Australia.

“We see it as a positive move, but how it will affect us in Australia is unclear,” he said. “It is early days.” The surprise joint venture – between Fiat, Chrysler and Chrysler owner Cerberus Capital Management – is seen by all parties as essential for their long-term viability.

Fiat, which itself has fought back from the brink of financial disaster in recent years, will provide management services supporting Chrysler’s submission of a viability plan to the US Treasury.

The Fiat stake in Chrysler might be extended to 55 per cent under the terms of the non-binding deal, which is subject to due diligence and regulatory approval.

However, Chrysler said the proposed alliance would be consistent with the terms and conditions of the US Treasury financing to Chrysler.

Under the US Treasury loan agreement, each constituent will be asked to contribute to Chrysler’s restructuring effort: lenders, employees, the United Auto Workers (UAW), dealers, suppliers and Chrysler Financial.

The deal fills significant gaps in both organisations’ global businesses, providing Chrysler with added volume at its American factories, the products it needs to meet tough new fuel consumption rules and greater access to global markets where Fiat has strong distribution operations.

Automotive News reported that the 35 per cent equity stake had come from Cerberus, not Daimler AG, which is still trying to sell its remaining 19.9 per cent stake in Chrysler.

In its statement released today, Chrysler said Fiat Group’s contribution to the alliance of strategic assets would include product and platform sharing, including city and compact segment vehicles, technology sharing, including fuel efficient and environmentally friendly powertrain technologies, and access to additional markets, including distribution for Chrysler vehicles in markets outside North America.

Chairman and CEO of Chrysler Bob Nardelli said: “A Chrysler/Fiat partnership is a great fit as it creates the potential for a powerful, new global competitor, offering Chrysler a number of strategic benefits, including access to products that compliment our current portfolio, a distribution network outside North America, and cost savings in design, engineering, manufacturing, purchasing and sales and marketing.”

The deal would give Fiat Auto, which sells virtually no vehicles in the United States, manufacturing capacity and a US sales network. It also would give Fiat Auto the global automotive volume that Fiat Group CEO Sergio Marchionne says the company needs to survive.

UAW president Ron Gettelfinger said: "This is great news for the UAW Chrysler team and we look forward to supporting and working with them to ensure Chrysler's long term viability.”

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