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Fiat to take 35% stake in Chrysler

Bloomberg  |  Michigan/Milan 

Fiat SpA, Italy’s largest carmaker, agreed to take a 35 per cent stake in Chrysler LLC to expand in the world’s biggest auto market and give the US company access to its small-car technology.

Turin-based Fiat and Cerberus Capital Management LP, the controlling shareholder in Auburn Hills, Michigan-based Chrysler, the third-largest US automaker, signed a non-binding agreement on an alliance, they said in a statement on Tuesday.

Chrysler still needs $4 billion in federal loans intended to save it from bankruptcy and the US Treasury will need to approve the deal. Fiat, which said it won’t make a cash payment and isn’t committing to future funding, will provide platforms to produce fuel-efficient and small cars to be produced by Chrysler. The would also share distribution networks, allowing Fiat to return to the US with its main brands.

“We’ll have to see how much Fiat will need to invest, but this would allow them to enter the US market as a protagonist in a forthcoming recovery with its expertise in small cars, and that’s a great opportunity.” said Davide Manenti, head of research at Nuovi Investimenti Sim SpA in Biella, Italy.

Fiat was suspended from trading in Milan. The stock has declined 2.4 per cent this year, valuing the company at ?5.38 billion. Ifil SpA, the Agnelli-family holding company that controls Fiat, rose 16 cents, or 7.8 per cent, to ?2.18 and was priced at ?2.11 as of 1:15 pm local time.

The planned partnership is consistent with the terms and conditions of the US Treasury’s bailout of Chrysler and restructuring efforts agreed as part of the refinancing must still take place, the statement said.

The partnership with Fiat should be complete by April and will help Chrysler meet its goal of becoming viable, Chief Executive Officer Robert Nardelli said in a letter to workers. The Italian company’s vice chairman, John Elkann, told reporters in Milan that it might raise the stake in Chrysler at a later date and could still make deals with other carmakers.

Fiat Chief Executive Officer Sergio Marchionne ended four years of losses in 2005 after adding models and scaling back spending by sharing components among cars and through partnerships with competitors. The biggest slump in Italy’s car market since 1993 is forcing him to consider cutting financial goals for the first time since returning the company to profit.

Marchionne said on December 6 that Fiat’s auto business is too small to survive without a partner, predicting a wave of mergers in the industry. Fiat is already exploring joint platforms with Bayerische Motoren Werke AG, the biggest maker of luxury cars, and Chrysler President Tom LaSorda said in August he’d been approached by Fiat about building vehicles in North America.

Chrysler, the US automaker most dependent on domestic sales, suffered a 30 per cent plunge in deliveries in its home market last year and has said it burned through at least $6.5 billion in the second half.

First Published: Wed, January 21 2009. 00:00 IST
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