In a move designed to create viable car making options, Italy's Fiat SpA has picked up a 35- per cent stake in American auto major Chrysler. Fiat, with its much stronger balance sheet, will not pump cash into the ailing Chrysler LLC, but will help retool its plants and improve manufacturing technology.
According to reports in the European media, the partnership will focus on Fiats popular Mini and upper-medium product platforms, and on helping Chrysler access more fuel-efficient and smaller engines and transmissions.
In return, Fiat will get access to the American market for its small cars. Chrysler, the third-largest US automaker, would get access to Fiat's car line-up and global sales network to reduce its dependence on trucks and the North American market, while Fiat would expand its US foothold, which is now limited to its luxury brands. (See: Chrysler - Fiat small car deal reports spark speculation)
Industry analysts believe that the Chrysler Fiat tie-up seems to be a win-win affair with minimal downside risk for either party particularly in view of prospects of more US bailout dollars to Chrysler down the line.
Most automakers are struggling because of worldwide recession and the huge drops in auto sales that has brought. Chrysler is surviving on a $4 billion federal loan and will ask for more next quarter. They add that if the government refuses more loans, Fiat could stand to gain by allowing Chrysler to file for bankruptcy and then acquire its assets like the Jeep selectively without having to take over Chrysler's dealer network.
If the alliance survives, it could deliver a Chrysler built version of the Fiat 500 mini-car for the US market, say analysts. Other models on US roads would be Fiat's Alfa Romeo brand: Alf 159 and 169 sedans, sports cars in hardtop and convertible versions and a small crossover sport-utility vehicle.
Chrysler relies heavily on sales of trucks and sport-utility vehicles, a particularly badly hit segment of the market. Analysts point out that it may not survive the year as an independent company despite receiving the $4 billion government loan.
Chrysler LLC was rescued last month with $4 billion in federal loans. Hammered by slumping demand in the worst US auto market since 1992, Chrysler had said it would be out of operating funds by mid-month without the federal aid.
The treasury can call the loans unless Chrysler meets a 31 March deadline to show it can slash debt by two-thirds and revamp operations. Chrysler, which owns the Jeep, Dodge and Chrysler brands, is 80.1 per cent owned by Cerberus, which paid $7.4 billion for its stake in 2007.
The rest is held by Germany's Daimler, its former parent. Daimler has virtually written off its remaining 19.9-per cent stake.
What the Fiat-Chrysler deal means for Tata Motors
The Fiat - Chrysler deal may also have an unanticipated benefit for Tata Motors, Fiat's Indian partner, retailing Chrysler brands like the Jeep Cherokee in India.
Fiat's global spokesman Gualberto Ranieri told The Economic Times: ''The Fiat-Tata relationship is blossoming, so who knows... It can happen, but right now, it is too early to elaborate.''
Tata Motors has a technology and marketing arrangement with Fiat and the two companies are believed to have discussed the possibility of building a low-cost car jointly. Fiat CEO Sergio Marchionne told rerporters at the Delhi Auto Show in January 2008, that Tata Motors was a perfect partner for Fiat to develop such a car.
Again at a meeting of the Society of Indian Automobile Manufacturers, in September Marchionne was reported as saying that the Tata-Fiat alliance was not product or market-specific. ''We have said we want to be partners with Tata Motors in whatever fashion possible, and that is by no means, restricted to a single product or market,'' Marchionne had said.
Apart from sharing the production of its 1.3-litre multijet diesel engine and the FIRE range of petrol engines at Ranjangaon with the Tatas, Fiat is also open to technology sharing on newer platforms.
Fiat and Tata had announced a partnership late in 2006 to develop common platforms for cars, which would lead to the launch of the Grande Punto and on Indian roads.
Also Fiat is reported to be in discussions with Tata Motors to sell the Rs 1-lakh Nano in select export markets.