- The Washington Times - Tuesday, January 20, 2009

Italian automaker Fiat, a leader in fuel-efficient small cars with a global reach, acquired a 35 percent stake in severely troubled Chrysler, both companies announced Tuesday, in a nonbinding deal that could make the American car builder greener and help give it a new lease on life.

Fiat, based in Turin, Italy, will not have to make a cash investment in Chrysler or commit to fund the American firm in the future, the companies said in a joint statement.

Fiat “got a bargain,” Michelle Krebs, editor of Edmunds’ AutoObserver.com, told The Washington Times. The agreement means that Chrysler virtually gave away a third of its company for free, underscoring its plight in a worsening recession.

The pact would give Chrysler, headquartered in Auburn Hills, Mich., access to Fiat’s platforms, powertrains and components so it could produce more fuel-efficient compact and midsize cars in its own factories and would allow Fiat to re-enter the U.S. market for the first time since 1983, when it left because of Americans’ concerns about quality.

Fiat vehicles presumably would be distributed at Chrysler dealers.

The Italian auto giant, which has explored returning to the United States and is known for its diesel engine technology, produces Fiats, Lancias and Alfa Romeos. Chief among them is the world-renowned Fiat 500 compact car.

The Alfa Romeo left the U.S. market in 1994.

Chrysler received a $4 billion loan from the U.S. Treasury last month to prevent it from going bankrupt. Its lending arm, Chrysler Financial, got a federal infusion of $1.5 billion Friday.

“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 [sic] our current portfolio; a distribution network outside North America; and cost savings in design, engineering, manufacturing, purchasing and sales and marketing,” Bob Nardelli, chairman and CEO of Chrysler LLC, said in the statement.

“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,” Ron Gettelfinger, president of the United Auto Workers, said in the same statement.

The deal did not come as “a total surprise” because “it’s been very clear that Fiat wanted to be back in the U.S. market,” Ms. Krebs said. The first signs came during the summer, she said, when Fiat examined a Chrysler engine plant in Michigan.

“Is this going to save Chrysler”? Ms. Krebs said rhetorically. “I don’t know yet. Whoever has the most cash and can hold on until a turnaround [in the economy] will be here to stay. The big issue is to get the consumer buying again.”

“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,” Sergio Marchionne, the CEO of Fiat Group, said in the statement.

“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 recognized world leader while benefiting from additional cost synergies,” Mr. Marchionne said.

The deal emerged months after Chrysler’s merger talks with ailing General Motors Corp. fell apart. Chrysler also had an agreement with Nissan-Renault. Renault, the French car builder, is a major competitor with Fiat in Europe.

“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,” Mr. Nardelli said.

The agreement hinted that Fiat eventually could expand its stake in Chrysler.

“As a consideration of Fiat Group’s contribution to the alliance of strategic assets … Fiat would receive an initial 35 percent equity interest in Chrysler,” the joint statement said. “The alliance does not contemplate that Fiat would make a cash investment in Chrysler or commit to funding Chrysler in the future.”

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