Fiat Group and Chrysler Plan New Global Strategic Alliance; Fiat to Have 35% Stake in Chrysler
20 January 2009
Fiat S.p.A., Chrysler LLC (Chrysler) and Cerberus Capital Management L.P., the private investment majority owner of Chrysler LLC, have signed a non-binding term sheet to establish a global strategic alliance that will result in Fiat having a 35% stake in the Detroit-based automaker.
As a consideration for Fiat Group’s contribution to the alliance of strategic assets, to include: product and platform sharing, including city and compact segment vehicles, to expand Chrysler’s current product portfolio; technology sharing, including fuel-efficient and environmentally friendly powertrain technologies; and access to additional markets, including distribution for Chrysler vehicles in markets outside of North America, Fiat would receive an initial 35% equity interest in Chrysler. The alliance does not contemplate that Fiat would make a cash investment in Chrysler or commit to funding Chrysler in the future.
The alliance, to be a key element of Chrysler’s viability plan, would provide Chrysler with access to competitive, fuel-efficient vehicle platforms, powertrain, and components to be produced at Chrysler manufacturing sites. Fiat would also provide distribution capabilities in key growth markets, as well as substantial cost savings opportunities.
In addition, Fiat would provide management services supporting Chrysler’s submission of a viability plan to the US Treasury as required. Fiat has executed its own restructuring over the past several years. The new partners say that the alliance would also allow Fiat Group and Chrysler to take advantage of each other’s distribution networks and to optimize fully their respective manufacturing footprint and global supplier base.
The proposed alliance would be consistent with the terms and conditions of the US Treasury financing to Chrysler. Per the US Treasury loan agreement, each constituent will be asked to contribute to Chrysler’s restructuring effort including: lenders, employees, the UAW, dealers, suppliers and Chrysler Financial. Completion of the alliance is subject to due diligence and regulatory approvals, including the US Treasury.
This initiative represents a key milestone in the rapidly changing landscape of the automotive sector and confirms Fiat and Chrysler commitment and determination to continue to play a significant role in this global process. The agreement will offer both companies opportunities to gain access to most relevant automotive markets with innovative and environmentally friendly product offering, a field in which Fiat is a recognized world leader while benefitting from additional cost synergies.
—Sergio Marchionne, CEO of Fiat Group
Cerberus is the dog in Greek mythology who guards the entrance to the land of the dead. So how aptly named Cerberus Capital is, given their big money-losing involvement with companies like GMAC and Chrysler!
The Wall Street Journal is reporting Fiat plan to buy Chrysler. It means Fiat is still enough of a moneymaker in this economy that they're comfortable dumping spare cash into picking Chrysler up, while the big Three in Detroit are just flat broke and begging the government for cash. Wouldn't have believed it a few years ago!
Posted by: Jim Greene | 20 January 2009 at 08:42 AM
From what we're hearing, the deal involves no cash and Fiat will not be responsible for future bail-out of Chrysler if it still fails.
But meanwhile ... I'll take a Fiat 500 1.3 Multijet, please! I really like that car, and so do lots of Europeans.
Posted by: Brian P | 20 January 2009 at 10:26 AM
For FIAT to be able to enter the American market with its mass-market models (Ferrari and Maserati are already selling well over there) is a huge deal, no money throwing. USA won't stop buying cars from today on, the market for more efficient and even (dreadful) diesel cars is out there and its huge.
Posted by: Alessio | 20 January 2009 at 10:35 AM
Seems like a deal that could be very good for both companies if Chrysler can survive long enough.
Chrysler has terrible small cars and even their mid-size cars are not efficient. Much to gain from licensing Fiat tech. And the management of Fiat can provide good guidance on how to turn around a dog of a company. Giving up 35% of the company doesn't seem like a bad deal for Chrysler to have a shot a viability.
For Fiat, since they're not putting down any cash or assuming any liabilities, it seems also like a win if they want to gain a real presence in the North Amercian market. If Chrysler succeeds, they just increased their bottom-line without laying out any cash, and they get the dealer network.
I'm wondering if Fiat will use the dealer network to gain entrance with Fiat branded cars, or just use their 35% stake in Chrysler as their North American presence. Probably the latter.
Posted by: Justin VP | 20 January 2009 at 12:32 PM
1. Are any of Fiat's small cars able to pass US regulations? If not, it could take awhile before there's anything to sell.
2. Is there any Fiat technology that provides the missing ingredient for a really great Chrysler next generation car? Chrysler needs an exciting hit, not a slightly better also-ran. Daimler had some good tech, too, we thought.
Posted by: HealthyBreeze | 20 January 2009 at 01:18 PM
"Is there any Fiat technology that provides......"
Do you consider having a Management that doesn't have it's head up it's ass a technology?
Posted by: dursun | 20 January 2009 at 04:30 PM
The dealership and distribution network is probably the only asset Chrysler has. The rest looks defunct to me.
If this deal can get product from Fiat to those dealers and some technical help for Chrysler then it may work out.
Fiat wisely avoided supplying cash. Cash would have vanished like smoke.
Posted by: Ken | 20 January 2009 at 05:03 PM
I agree, Ken. I doubt Fiat has much need for Chrysler's models or infrastructure.
When Daimler first brought out PT Cruiser, I thought it was the start of bold design and identifiable models. It was pretty popular, I recall, but then Chrysler still bled money.
Perhaps I'm an unusual buyer, but all that restrained me from getting one was the gas mileage-- and the not great pickup. I think if they'd trimmed their models down to a handful of designs, and, like Apple did, given them each visual distinctiveness and instant recognizability (e.g., iMac, Powerbook, iPod, etc.), through fun design and clear, simple, loud branding, it would have helped. But even more useful IMHO would be to also make them small, affordable and fuel efficient. I think there might be a lot of overlap between those demographic segments that's gone unnoticed. For instance, I love Toyota but the Prius and the Camry, etc., are workhorses, not beauty pageant winners. I think you end up saving lots of design, manufacturing and testing overhead by aiming broader like that, with fewer models.
Posted by: Jim Greene | 20 January 2009 at 08:45 PM
So Fiat gets 35% of Chrysler, and Chrysler gets what?
Fiats in their showroom to draw buyers?
Oh; They get Fiat technology ? - you cannot be serious.
Technology from Daimler was of no value, but it is from Fiat ???
I suspect 35% of Chrysler is not worth much.
American manufacturing jobs have been going overseas for 10 years.
The auto companies in the last group to go, their management must be doing something right.
Posted by: ToppaTom | 20 January 2009 at 10:36 PM