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Published: Wednesday, 1/21/2009

Italian firm would take 35 percent Chrysler stake

BY LARRY P. VELLEQUETTE
BLADE BUSINESS WRITER

Chrysler LLC, which employs thousands in metropolitan Toledo, has entered a "strategic alliance" with fabled Italian automaker Fiat SpA that promises to strengthen the struggling U.S. automaker, its dealers, and its employees.

A formal agreement that would grant Fiat a 35 percent ownership share of Chrysler is expected to be finalized by April, company officials said.

No cash is to be exchanged under the terms of the deal, which gives Chrysler access to Fiat's small-vehicle expertise and technology.

The agreement will allow Chrysler to use Fiat's technology and vehicle platforms to build more fuel-efficient, small, and midsize cars at its factories and sell them in North America. Fiat will give Chrysler access to distribution networks in other parts of the world, particularly Europe. The companies said they expect "substantial cost savings opportunities" but did not specify an amount.

Aaron Bragman, an industry analyst with Global Insight's Automotive Group, said the impact on Chrysler's Toledo-area operations is yet to be determined.

"We know that Fiat is interested in using Chrysler's facilities to manufacture vehicles for the North American market," Mr. Bragman said. "What we don't know is whether those vehicles will be sold as Fiats or Chryslers. Chrysler hasn't told us that yet."

Although the automaker's announcement surprised many, Mr. Bragman said the collaboration is a good thing for those communities, like Toledo, that have Chrysler facilities.

"This arrangement is a good thing for Chrysler's manufacturing facilities and their employees, because it does guarantee that there's going to be more work for them to do," Mr. Bragman said.

Chrysler, which last month received a $4 billion loan from the federal government to help it avoid bankruptcy, said the partnership would be a key element of the viability plan that it must submit by March 31 and that Fiat would help develop the plan. Formation of the partnership would require approval of the U.S. Treasury Department and federal regulators.

The automaker based in Auburn Hills, Mich., automaker has six auto assembly complexes in the United States, each focusing on different portions of its vehicle lineup. Its Toledo Jeep Assembly complex builds Jeep Libertys and Wranglers, as well as the Dodge Nitro. Other assembly plants are in Belvidere, Ill., Sterling Heights, Warren, and Detroit, Mich., and St. Louis, Mo. Chrysler also has assembly plants in Saltillo, Mexico, and Windsor, Ont.

Fiat has no manufacturing facilities in North America, but has a strong presence across the globe. Chrysler's sales are concentrated in North America.

The automakers did not disclose how Chrysler might change its product line or its manufacturing plants to accommodate the additional work from Fiat. However, Chrysler's plants in Toledo are its newest, most flexible, and most-efficient assembly operations.

"We're being optimistic and hopeful. We hope this will help the company and help our plant, and help get our people back to work," said Dan Henneman, Jeep unit chairman for United Auto Workers Local 12.

Workers at the Toledo plant which assembles Jeep Liberty and Dodge Nitro SUVs are to return to work on Monday, but Mr. Henneman said that so far he's not sure what changes Chrysler might be considering for its Toledo-area operations. "Who knows what this means for our plant."

The speed and terms of the Chrysler-Fiat talks illustrated the emergency facing Chrysler, which was willing to give away more than a third of the company essentially for free. Yet, the deal offers assurance to the Treasury Department and to the auto industry that Chrysler is attractive enough to find a partner.

For Fiat, the deal could mark a return to the only global market where it does not compete. Once the largest automobile company in Europe, Fiat has faces a series of challenges there over the past two decades from stronger rivals like Volkswagen AG, although it has strong global operations, including plants in China and South America.

UAW President Ron Gettelfinger, whose membership is being asked to amend its contracts substantially to save Chrysler money, hailed the agreement and agreed to support its approval by regulators.

"This is great news for the UAW Chrysler team and we look forward to supporting and working with them to ensure Chrysler's long term viability," he said in a statement.

For Jeep workers, an ownership structure dominated by Europeans is nothing new, said Lloyd Mahaffey, the Ohio regional director of the UAW.

"We've had joint ownership with European automakers before, with Renault [French] and Daimler [German], so we'll have to see," he said.

Fiat left the American market in 1983, after its cars repeatedly ended at or near the bottom of quality surveys.

Its sports car brand, Alfa Romeo, left the American market in 1994. Fiat had been planning to bring Alfa back to the United States this year, but delayed the decision last fall, after the economic crisis that hit the industry.

This report includes information from The Blade's news services.

Contact Larry P. Vellequette at:

lvellequette@theblade.com

or 419-724-6091.



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