TURIN, Italy -- Both Fiat S.p.A. and Chrysler LLC would fill significant gaps in their global businesses with the proposed alliance announced today.
The deal would give Fiat Auto, which sells virtually no vehicles in the United States, manufacturing capacity and a U.S. sales network. It also would give Fiat Auto the global automotive volume that Fiat Group CEO Sergio Marchionne says the company needs to survive.
Chrysler, meanwhile, could expand its product portfolio to include Fiats small, less-polluting cars and gain distribution in Europe and Latin America. Chrysler could add volume to its U.S. plants by building Fiat vehicles for sale here.
One thing Chrysler doesnt get is money. The deal, which would give Fiat an initial 35 percent stake in Chrysler, involves no cash investment.
A joint statement by Chrysler, Fiat and Chryslers majority owner, Cerberus Capital Management LP, said the alliance does not contemplate that Fiat would make a cash investment in Chrysler or commit to funding Chrysler in the future.
The nonbinding agreement is subject to due diligence and regulatory approval.
It appears that Fiats stake would come entirely from Chryslers majority owner, Cerberus, and not from Daimler AG, which has been trying to sell its remaining 19.9 percent stake in Chrysler.
The UAW supports the deal.
Automotive News Europe first reported the pending transaction on Monday.
Fiat Vice Chairman John Elkann told reporters today that the Italian group could increase its Chrysler stake from the initial 35 percent. According to press reports, Fiat will have an option to take as much as 55 percent.
We can raise that initial share, Elkann said, without being specific. It's a good deal. ... We have already said that its important to have consolidation in the auto sector.
The pact would provide Chrysler with access to competitive, fuel-efficient vehicle platforms, powertrains and components to be produced at Chrysler manufacturing sites, the companies said.
Under the terms of the deal, Fiat would make available its distribution network in key growth markets. Substantial cost savings opportunities would be available to the alliance, the companies said.
Optimize global supplier base
The carmakers said a tie-up would allow them to take advantage of each other's distribution networks. They also said there would be opportunities "to optimize fully their respective manufacturing footprint and global supplier base.
Fiat Group CEO Sergio Marchionne said the alliance confirms Fiat and Chrysler commitment and determination to continue to play a significant role in the global auto industry.
That is consistent with Marchionnes view that the current economic crisis will reduce the number of global automakers.
In an interview published last month in Automotive News Europe, Marchionne said that within two years there could be only six global automakers.
The only way for companies to survive is if they make more than 5.5 million cars per year, Marchionne told the publication, an affiliate of Automotive News.
In 2007, the most recent year for which global data are available, the two companies produced a combined 5,386,073 vehicles worldwide, which would have ranked them fifth globally. Fiat Auto produced 2,813,870 vehicles, and Chrysler produced 2,572,203.
Chrysler CEO Bob Nardelli says the alliance creates the potential for a powerful, new global competitor. He said in a statement that Chrysler will benefit from access to products that complement our current portfolio; a distribution network outside North America; and cost savings in design, engineering, manufacturing, purchasing and sales and marketing.
Although Chrysler has expanded global sales in recent years, its limited presence outside the U.S. has been a longstanding weakness -- one that the acquisition by DaimlerChrysler, which unraveled in 2007, was meant to solve.
Nardelli also said the partnership would help solidify the future of Chrysler, which has received a $4 billion federal bailout loan, as well as a $1.5 billion federal loan to Chrysler Financial.
The Fiat alliance would provide a return on investment for the American taxpayer by securing the long-term viability of Chrysler brands in the marketplace, sustaining future product and technology development for our country and building renewed consumer confidence, while preserving American jobs, Nardelli said.
Ron Gettelfinger, president of the UAW, said: This is great news for the UAW Chrysler team, and we look forward to supporting and working with them to ensure Chryslers long-term viability.
A Daimler spokesman declined to comment on prospects for a combination of Fiat and Chrysler other than to say: We welcome any initiative that serves to stabilize the situation at Chrysler and preserve jobs at the company.
Reuters contributed to this report