Chrysler - Fiat small car deal reports spark speculation

20 January 2009

Italian car maker, Fiat SpA is reported to be in talks with Chrysler LLC about taking a stake in the cash-strapped US car maker that private equity firm Cerberus Capital acquired from Daimler in the second half of 2007 (See: DaimlerChrysler, Cerberus complete Chrysler deal)  
 
It is understood that the talks concern forging a partnership between the two that would allow Fiat to build and sell its small cars in the US. The deal would allow Chrysler access to Fiat's engine and transmission technology.

However, both Chrysler and Fiat have declined to comment on the matter, with Chrysler maintaining that it has no new announcements to make on any developments beyond what has already been announced by the company. 

Analysts point out that Chrysler's Detroit-based competitors General Motors and Ford Motor have vast European operations and small-car expertise. Unlike its rivals Chrysler does not have overseas subsidiaries making small cars. The smallest model it currently manufactures is a compact.

They believe that Chrysler is interested in a share of the small car market and has taken several steps in the direction. It tied up with Nissan Motor Co to obtain a subcompact based on the Nissan Versa that it will start selling in South America later this year; another model will go on sale in North America in 2010. Similar deals had been discussed with China's Chery Automobile, but the negotiations failed.

Fiat, they say, is a prime candidate for a tie-up as there is on overlap and a line that would complement Chrysler's current car models.

But some analysts disagree 
Fiat, they say, is not doing particularly well in the home market and it would be committing suicide buying a stake in Chrysler considering the US market that is expected to fall from 17 million vehicles in sales three years ago to 11 million this year. They point out that no car company is making money in the US market.