- The Washington Times - Tuesday, January 20, 2009

Fiat SpA, the Italian automaker that came back from near collapse earlier this decade, will take a 35 percent stake in Chrysler LLC, the desperate U.S. automaker that was temporarily rescued last month by a $4 billion loan from the U.S. Treasury.

The alliance, announced Tuesday, comes as the U.S. auto industry is suffering its worst downturn since at least 1992 and as the U.S. economy continues to reel from a credit crunch and deepening recession.

The partnership would “provide a return on investment to the American taxpayer by securing the long-term viability of Chrysler brands in the marketplace, sustaining future product and technology development in our country and building renewed consumer confidence, while preserving American jobs,” said Robert Nardelli, Chrysler’s chief executive.

The alliance “is a good idea,” said Aaron Bragman, an auto analyst at IHS Global Insight.

“It will combine two companies that don’t have a lot of overlap. Chrysler has a lot of excess capacity, and Fiat would like to produce its Alfa Romeo and Fiat cars in the United States.”

Chrysler, which sells 90 percent of its vehicles in North America, will also gain access to Fiat’s distribution network, which extends throughout Europe and into Russia and China. Unlike Chrysler, Fiat also has a stable of small, fuel-efficient vehicles.

Importing those cars would help Chrysler compete in that market before its U.S. production facilities can be retooled to exploit Fiat’s engine, transmission and emissions technology to produce fuel-efficient vehicles here, Mr. Bragman said.

The stake will not involve an infusion of cash. Thus, Chrysler will almost certainly require additional funding from the U.S. Treasury to remain in business, analysts said.

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 the company’s plight in a worsening recession, she said.

The agreement is not a done-deal yet, cautioned Mr. Bragman, who said the companies are still engaged in due diligence. The deal will require U.S. government approval.

Nevertheless, the arrangement with Fiat would help Chrysler’s case for long-term viability as it becomes part of a global alliance.

Last year, Chrysler sold 2 million vehicles and Fiat sold 2.5 million. Their combined total would represent about half the vehicles sold by Toyota and General Motors.

Chrysler’s December U.S. sales were a staggering 53 percent below year-earlier levels.

For all of 2008, its vehicle sales were down 30 percent, while Ford’s fell 21 percent and General Motor’s declined 23 percent.

The alliance “offers new opportunities to compete in the U.S. market and the global marketplace,” said Ron Gettelfinger, the president of the United Auto Workers.

In order for Chrysler to remain in compliance with the terms of its loan from Treasury, the UAW must reach an agreement with Chrysler by March 31 to reduce labor costs.

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 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.

“Is this going to save Chrysler?” Ms. Krebs asked 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.”

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