Fiat takes stake in Chrysler

Italian automotive giant Fiat and struggling US brand Chrysler LLC have announced a strategic alliance in a bid to keep each other afloat in these troubled economic times.

As part of the deal Fiat will take a 35 per cent stake in Chrysler LLC, but importantly, without any commitment to inject cash into the debt-addled company. Chrysler is reportedly US$7b in debt plus owes the US Government another US$4b in bailout loans.

It is understood Chrysler only just has enough cash to keep its business going and is still heavily dependant on support from the US Government. The company is due to present a plan to turn its fortunes around to the government on February 17. The tie-up with Fiat could play a major role in convincing the Feds to inject more cash into Chrysler.

If all goes to plan for the two companies the deal should have significant benefits for both. Fiat will gain access to Chrysler’s US dealer and distribution network having already achieved strength in the European and South American markets. Chrysler LLC and its brands -- Chrysler, Dodge and Jeep -- will be able to tap into Fiat’s range of fuel efficient small cars as the American auto industry continues to catch-up with the changing demands of the buying public.

"This initiative represents a key milestone in the rapidly changing landscape of the automotive sector and confirms Fiat and Chrysler commitment and determination to continue to play a significant role in this global process," says Sergio Marchionne, Fiat Group CEO (pictured).

"The agreement will offer both companies opportunities to gain access to most relevant automotive markets with innovative and environmentally friendly product offering, a field in which Fiat is a recognised world leader while benefitting from additional cost synergies. The deal follows a number of targeted alliances and partnerships signed by the Fiat Group with leading carmakers and automotive suppliers over the last five years aimed at supporting the growth and volume aspirations of the partners involved."

Those sentiments were echoed by Chrysler LLC Chairman and CEO, Bob Nardelli.

"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 complement our current portfolio; a distribution network outside North America; and cost savings in design, engineering, manufacturing, purchasing and sales and marketing," says Nardelli.

"This transaction will enable Chrysler to offer a broader competitive line-up of vehicles for our dealers and customers that meet emissions and fuel efficiency standards, while adhering to conditions of the Government Loan. The partnership would also provide a return on investment for the American taxpayer by securing the long-term viability of Chrysler brands in the marketplace, sustaining future product and technology development for our country and building renewed consumer confidence, while preserving American jobs."

But both companies will also need to be patient. The deal is yet to be officially sealed and even if it does it is expected to take several years to see benefits.

Fiat is eager to establish its mainstream brands -- Alfa Romeo and Fiat -- in the United States but will have to re-engineer its cars to comply with American safety and emissions standards. Any joint-venture models between the two companies would appear by 2011 at the earliest.