Chrysler and Fiat become friends
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Struggling Chrysler join Fiat in a non-binding strategic alliance plan.
An agreement has been reached between Chrysler and Fiat this month to form a strategic alliance between the two car giants.
Fiat will receive a 35 per cent stake in ailing Chrysler, although no cash will be involved in the transaction.
Chrysler is in desperate need of salvation from its current financial position, and struggling to sell its less fuel efficient ‘gas guzzlers’.
The deal with Fiat grants the company access to a wider market, including the popular small car segment, as well as eco-friendly technologies.
On the other hand, Fiat’s owner SpA, which owns Alfa Romeo and Lancia, gets a foothold in the immense American market.
A joint statement by the two companies explained that Fiat is to take an “initial 35 per cent stake” in the American company, but that no cash would be invested; this in exchange for sharing fuel-efficient engines and small-car platforms.
Fiat could in future gain full control of Chrysler, as indicated by Fiat vice president, John Elkann, who hinted that Fiat’s stake “could increase”.
Brian Studioso, an analyst at CreditSights believes that Fiat is in no position to part with its money. Mr Studioso said that Fiat is facing its own battles in 2009, with continued drops in truck and motorcar production.
A note to investors from Studioso read: “For Fiat, the non-cash transaction would limit downside exposure while giving the company a foothold in the North American market.”
Chairman and CEO of Chrysler LLC, Bob Nardelli said: “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 complement our current portfolio (and) a distribution network outside North America.”
With the agreement, Chrysler can manufacture and market new models based on Fiat platforms in the United States. Chrysler can also manufacture and market Fiat’s own range of vehicles.
The deal between the two companies caused Fiat stocks to rise with more than four per cent on the Milan stock exchange, and Giulio Tremonti, Italy’s Minister of Economy, said the deal is a “sign of vitality.”
Chrysler was hit hard by a drop in auto sales in North America last year. Sales plummeted a whopping 53 per cent in December, and an overall drop of 30 per cent was recorded for 2008.
