Fiat takes a 35 per cent stake in Chrysler
20 January 2009

Fiat and Chrysler have signed an agreement that could result in Chrysler using Fiat platforms and engines, while Fiat takes a 35 per cent stake in Chrysler.

Rumours of talks between the two companies have been building in the last 24 hours, and this morning Chrysler issued an official statement about the plans.

“The alliance, to be a key element of Chrysler’s viability plan, would provide Chrysler with access to competitive, fuel-efficient vehicle platforms, powertrain, and components to be produced at Chrysler manufacturing sites,” said the company.

Chrysler would also gain access to Fiat’s international distribution network, which would help it to get its products into new markets.

Fiat wants access to the US market so it can relaunch Alfa Romeo there, and the deal would give it a ready-made distribution network in the form of Chrysler’s 3372 North American dealers. It is also said to be keen to launch the Fiat 500 in the US.

Fiat would also help Chrysler with the restructuring plan required by the US Treasury as part of an agreement to use taxpayer’s money to keep it afloat, drawing on Fiat’s experience with its own successful restructuring.

Fiat would not have to risk huge sums on Chrysler, however. “The alliance does not contemplate that Fiat would make a cash investment in Chrysler or commit to funding Chrysler in the future,” said Chrysler’s statement.

Chrysler finds such ventures extremely attractive. It has already signed such an alliance with Nissan, which, among other things, is producing a small car for Chrysler’s Latin-American market. Chrysler will also build a replacement for the Nissan Titan pick-up. And the firm recently began assembling a version of the Grand Voyager for Volkswagen, badged Routan.

Such moves are “logical,” said a senior Michigan-based source. He added that a full-blown merger is by no means out of the question, but cautioned that, in the current environment, it is not something to be rushed into.

Both makers face financial challenges. And while Chrysler has received a $4 billion loan from the US government, it must still provide a solid plan, proving its viability, before the end of March.

It is unclear if the US government would require that money to be paid back, should Chrysler merge or be acquired by a foreign car maker. On the other hand, some government leaders would be pleased to see a merger, as that could help secure Chrysler’s future.

During a visit to last week’s Detroit motor show senator Bob Corker, a Tennessee Republican who voted against the bailout, said that Chrysler should either “merge or go away”.

Dan Stevens/ Paul Eisenstein

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