Fiat closes Chrysler deal – with no money down

Paul Sakuma/AP
A Chrysler dealership in Redwood City, Calif., expected to lose its franchise, forecast the new deal with Fiat Tuesday.

One of the most significant corporate deals of the year is happening for a remarkable transaction price: zero.

In a partnership signed Wednesday, Fiat is becoming a major owner of the new Chrysler Group that's emerging from bankruptcy.

What the Italian carmaker is paying, to get a 20 percent stake in Detroit's No. 3 automaker, is technology know-how. The alliance thus promises to help Chrysler build smaller and more fuel-efficient cars. Fiat will get the opportunity to nab a chunk of the US market.

What remains to be seen is whether Fiat can accelerate from "zero" to 60 miles per hour anytime soon – whether it can help Chrysler rev up sales, product designs, and sheer excitement. Right now, the car industry is in a deep global recession. Chrysler's sales are down 46 percent in the first five months of this year, compared with the same months last year. That's an even bigger hit than General Motors and Ford have taken.

The new Chrysler will also be partly owned by the US government, which kicked in financial aid to keep the firm out of liquidation, and the Canadian government. A majority stake will go to a healthcare trust fund representing Chrysler's unionized retirees, which is essentially swapping debt for equity in the new firm. From a managerial point of view, Fiat's role is the largest – and the deal provides for its equity stake to rise as high as 35 percent. Fiat CEO Sergio Marchionne will now run both firms.

The US carmaker – with a history of innovation and of near-failure – is getting a new lease on life.
Through bankruptcy, it will shed a big debt burden. It has a deal in place to reduce union labor costs.

But foreign alliances have burned the company before. A merger with Daimler in the late 1990s left both sides disappointed. In the latest US-Europe alliance, much will hinge on Mr. Marchionne. Chrysler will be a test of turnaround skills he has honed at Fiat.

"We intend to build on Chrysler's culture of innovation and Fiat's complementary technology and expertise to expand Chrysler's product portfolio both in North America and overseas," Marchionne said in a statement.

The deal was signed after Chrysler's bankruptcy process cleared a final hurdle – an OK from the US Supreme Court Tuesday.

– Guest blogger Mark Trumbull is a Monitor staff writer.

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