Fiat in technology for stock swap deal with Chrysler

21 January 2009

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.