Fiat and Chrysler enter into strategic alliance

The deal will allow the struggling Chrysler to manufacture more fuel-efficient cars using Fiat's technology

By , Staff writer of The Christian Science Monitor

Chrysler has reached across the Atlantic Ocean for help in a move that could foreshadow more consolidation in the automotive industry this year.

The smallest and most endangered of Detroit's three major carmakers, Chrysler forged a major alliance Tuesday with Fiat, in which Chrysler grants the Italian automaker a 35 percent ownership stake.

The partnership promises to help the storied Chrysler brand name survive – something some analysts saw as doubtful without an alliance or merger. The deal will help Chrysler bring more fuel-efficient cars to market, plugging a big gap in its product line. And it will help the most domestic of America's Big Three to become more global.

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But both Chrysler and its industry still face substantial troubles ahead. Some signs of the times: Fiat took its part-owner position without committing money to Chrysler now or promising to do so in the future, and Chrysler says it will still need loans from the US Treasury.

In the current environment of a deep auto industry recession, Chrysler chief executive Bob Nardelli said the deal with Fiat is a vital step toward the "viability" and future profitability that the Treasury is requiring as a condition of federal loans.

"This transaction will enable Chrysler to offer a broader competitive lineup of vehicles … that meet emissions and fuel efficiency standards," Mr. Nardelli said in a statement Tuesday. "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 … while preserving American jobs."

The United Auto Workers union voiced support for the deal, echoing the theme of job preservation.

Chrysler makes some of the best-known brands in the car business: Jeep and Dodge as well as Chrysler. It merged with Germany's Daimler in 1998, before being bought in 2007 by the private equity firm Cerberus.

Fiat, a specialist in small cars, gives Chrysler the chance to piggyback design and production efforts with its new partner and shift its product lineup in an era when consumer preferences and government policies may push carmakers toward fuel-efficient vehicles.

The Treasury is lending Chrysler $4 billion in emergency funds – contingent on a plan for viability by March 31. A newer US loan provides $1.5 billion in funds for Chrysler's consumer-loan unit.

To return to profitability, Chrysler will extract new concessions from workers, suppliers, and lenders.

With auto sales down sharply in the past year, other companies worldwide are seeking to do the same. Further mergers or alliances are also likely, some analysts say.

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