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Fiat-Chrysler deal: Fiat gets a piece of Chrysler, Chrysler gets to see another day

Uh, sure, says Fiat, we’ll take 35 percent of Chrysler, but don’t expect any cash.

 

And so Fiat, struggling in the earlier part of the decade and which in 2000 had sold $2.4 billion of itself to General Motors for joint operations and technical cooperation…and then accepted $2 billion from General Motors to get out of the deal in 2005 has now acquired 35 percent equity in Chrysler LLC.

 

Or in other words, Fiat now owns more than a third of the littlest of the U.S.’s Big Three.

 

In exchange, Chrysler gets, according to a statement issued by the company, “product and platform sharing, including city and compact segment vehicles, to expand Chrysler’s current product portfolio; technology sharing, including fuel efficient and environmentally friendly powertrain technologies; and access to additional markets, including distribution for Chrysler vehicles in markets outside of North America.”

 

Or in other words, Chrysler gets small cars and help selling its products elsewhere in the world, particularly in Europe, where Fiat is strongest.

 

Fiat has proven that companies can make a turnaround, itself losing $1 billion in 2004, going from $332 million in losses in 2005 to a profit of $384 million last year. Fiat not only builds cars under its own name but alsomanufactures construction and farm equipement, and owns exotic carmakers Ferrari and Maserati plus Lancia and Alfa Romeo. Fiat hopes to return Alfa to the U.S. market (having left in 2004) in the near future, pending recovery of current world financial downturn. Fiat also recently bought the remains of Yugo.

 

Fiat would also like to sell its small cars, particularly the Fiat 500 minicar, in the U.S. Fiat left the North American market in 1983 with a dismal reputation of unreliability and corrosion problems so severe that the company had to buy back its dangerously rusted cars.

 

Now, however, Sergio Marchionne, CEO of Fiat Group, said the pending Fiat-Chrysler relationship will benefit both companies:

“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. 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 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.”

 

According to Bob Nardelli, Chairman and CEO of Chrysler LLC, the pairing would make both companies stronger by sharing their respective assets:

 

“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.”

 

Nardelli also indicated that there would be new cars in Chrysler and Dodge dealerships, saying “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.”

 

The deal immediately pulls Chrysler back from the precipice. Nardelli noted:

 

“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."

 

The United Auto Workers are on board with the arrangement as well, as saving Chrysler means saving UAW jobs. Said Ron Gettelfinger, “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.”

 

Joint ventures are nothing new in business, particularly in auto industry. Most recently General Motors built pickup trucks badges as Isuzu and the Mitsubishi Raider was a Dodge Dakota pickup with different fenders. The Mercury Villager minivan was built by Nissan and Chrysler agreed recently to build a Nissan-badged version of the Ram pickup to replace the poor-selling Nissan Tundra. Chrysler, of course, was recently liberated from a ill-fated “merger of equals” with Daimler-Benz. However, Chrsyler sells the Chrysler Grand Voyager minivan in Europe and other markets; it's assembled in Graz, Austria, by Magna Steyr.

 

Immediate plans for the Chrysler-Fiat link-up were not announced but in the short term it means that Chrysler takes one step back from the abyss while Fiat gets a chance to restore its name in the U.S.