http://www.nytimes.com/2009/01/21/business/21chrysler.html


The Italian automaker, Fiat, agreed on Tuesday to take a 35 percent stake in the struggling American auto company Chrysler, which was forced last month to seek a federal bailout amid fears it might not survive.


The deal, announced by Fiat at its headquarters in Turin, Italy, and by Chrysler in Auburn Hills, Mich., means Chrysler will have significant foreign ownership again after only 18 months as an independent company. Cerberus Capital Management bought Chrysler in 2007, after it was put up for sale by Daimler of Germany. The two companies operated as DaimlerChrysler for nine years.

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.

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 United States Treasury Department and federal regulators.

“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 chief executive of Fiat, Sergio Marchionne, said in a statement.

“The agreement will offer both companies opportunities to gain access to most relevant automotive markets,” Mr. Marchionne said, “with innovative and environmentally friendly product offering, a field in which Fiat is a recognized world leader while benefiting from additional cost synergies.”

Chrysler’s agreement comes several months after merger talks with General Motors were abandoned as the market deteriorated. Last year, Chrysler reached a deal to build pickup trucks for Nissan-Renault, which would in turn build small cars for Chrysler. But the status of that arrangement is now unclear; Renault is a chief rival of Fiat in Europe.

Fiat, which stopped selling cars in the United States in 1983, does not plan to “make a cash investment in Chrysler or commit to funding Chrysler in the future,” the companies said in the joint statement.

The Chrysler-Fiat discussions, which had been under wraps during the debate over federal assistance, only surfaced in recent days. Negotiators discussed giving Fiat the option to eventually increase its stake in Chrysler to 55 percent, giving it majority control, a person with knowledge of the talks said Monday. That would return Chrysler to foreign ownership. But the condition was not disclosed by the two companies on Tuesday.

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, although it has strong global operations, including plants in China and South America.

“This transaction will enable Chrysler to offer a broader competitive line-up of vehicles for our dealers and customers that meet emissions and fuel efficiency standards, while adhering to conditions of the government loan,” Chrysler’s chairman, Robert L. Nardelli, said in the statement.

“The partnership would also 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.”

Chrysler said it would ask employees, dealers, suppliers and lenders, including Chrysler Financial, to make sacrifices in support of its restructuring. Chrysler and General Motors, which also received government loans, recently began negotiations with the United Automobile Workers union to find ways to make their labor costs more competitive with foreign-based rivals like Toyota and Honda

“This is great news for the U.A.W.-Chrysler team and we look forward to supporting and working with them to ensure Chrysler’s long term viability,” the U.A.W.’s president, Ron Gettelfinger, said in the companies’ statement.

A partnership with Fiat could help Chrysler convince its skeptics in Congress that the company is viable as it seeks more money. During recent hearings in Washington on aid for the Detroit automakers, Senator Bob Corker, Republican of Tennessee, expressed doubt that Chrysler would last much longer independently.

“They have not invested in technology and those kinds of things necessary to be a stand-alone,” Mr. Corker said last week during a tour of the Detroit auto show. “My hope is that they will in fact merge and again be a viable part of Michigan and our country.”

The two companies have courted in the past. In 1990, with Chrysler facing deep losses, then-chief executive Lee A. Iacocca held negotiations with Fiat’s then-chairman, Giovanni Agnelli, about a possible business arrangement. Although a deal was widely expected, nothing came out of those discussions.

Fiat left the American market in 1983, after its cars repeatedly ended at or near the bottom of quality surveys (one widely circulated joke within the industry was that the company’s name stood for Fix It Again, Tony.) 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.

Fiat had a tumultuous relationship with General Motors earlier this decade. In 2000, G.M. took a 20 percent stake in Fiat for $2.4 billion, in a deal that was supposed to involve technology sharing and other steps. It agreed to a five-year put option that would require it to pay Fiat if it did not take a greater stake in the company. In 2005, G.M. paid $2 billion to get out of the transaction.
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It appears that autocorrect has become my worst enema.
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