Fiat seals deal with Chrysler

Publication date: 11 June 2009

Fiat and Chrysler said on Wednesday that they had finalised a global strategic partnership that “will begin operations immediately.”

The alliance is to be formed around a “new Chrysler” comprising most of the bankrupt Detroit carmaker’s assets, and Sergio Marchionne, Fiat’s chief executive, will become Chrysler’s new chief executive, the two companies said in a statement.

The partnership, first announced in January, will see Fiat contribute technology, manufacturing platforms, and engines for smaller cars to Chrysler, which will also benefit from Fiat’s international distribution network “with particular focus on Latin America and Russia,” the two companies said.

The two carmakers said that a Fiat subsidiary had taken a 20 per cent equity interest in the new company, which will increase in increments to 35 per cent as milestones on technology and vehicles mandated by the partnership agreement are passed.

Fiat, which paid no cash for the stake, will not be allowed to take a majority stake in Chrysler until all taxpayer funds are repaid.

A healthcare trust owned by the United Auto Workers union will take 55 per cent of the new company, and the US Treasury and Canadian government will take 8 per cent and 2 per cent stakes respectively.

Chrysler’s operations that were idled during the bankruptcy process “have or will soon be up and running,” Mr Marchionne said.

Fiat is to appoint three, the U.S. government four, Canada’s government one, and the UAW, one member of Chrysler’s new nine-member board.

In court testimony last month Alfredo Altavilla, Fiat’s head of business development, said the Italian carmaker planned to name Mr Marchionne, himself, and Lucio Noto, former vice-chairman of ExxonMobil, to Chrysler’s board.

Robert Kidder, a former chairman of Borden Chemical and Duracell International, is to be named Chrysler’s new chairman.

The partnership will mark the end of a humbling if swift trip through bankruptcy court for Chrysler, the smallest of Detroit’s three carmakers, and mark the first major tie-up between automakers since the industry fell into crisis last year.

“While it does not solve every issue faced by the automotive industry today, this alliance… is a very significant step toward positioning Fiat and Chrysler to be leaders among the next breed of global automakers,” Mr Marchionne said.

The partnership faced a last-minute delay on Monday, when the US Supreme Court temporarily halted it after objections to terms of Chrysler’s restructuring lodged by three Indiana pension funds holding $42m of its debt. On Tuesday it rejected the appeal.

Fiat’s share price rose by 6 per cent in afternoon trading on Wednesday.

Source: Financial Times