Breaking: Fiat, Chrysler Announce Partnership

Well, what do you know? Many in the automotive industry have speculated on Chrysler requiring some sort of strategic partnership with another automaker to survive, and that's exactly what has happened. Fiat S.P.A  and Chrysler, LLC have today announced a partnership, with Fiat taking a 35 percent equity stake in Chrysler, LLC. 

The deal serves only further to add an exclamation point to a dramatic turnaround for Fiat, who only just a few years ago found itself in dire financial straits and embroiled in conflict with General Motors. Fiat and General Motors were involved in a strategic partnership of their own, and Fiat's sustained losses during the period brought them close to excercising what is known in business as a "put option", under which they would in effect force their sale upon General Motors.

This option was something Fiat negotiated for in the original partnership contract in 2000. The conflict ended with GM paying Fiat $2 billion to get out of it's contract, and therefore the obligation to purchase the (then floundering) company. The $2 billion infusion proved crucial to Fiat's success and the company has begun a rebound worldwide in the years since.

Now, today the announcement comes of the partnership with Chrysler, a large U.S automaker. Fiat has been having it's eye on the U.S for quite some time and has been looking to form a cooperation with a significant U.S presence to do just that. Chrysler, for it's part is sorely lacking in small car expertise and an international presence. So the collaboration between the two companies certainly seems to make the most sense for both parties involved versus deals with some of the other potential companies named (like GM, for instance).

Maybe this means we'll be seeing Fiat cars sold in the U.S through Chrysler's dealer network? No one knows for sure, but the deal seems to offer a lot of possibilities for the future, maybe even further cooperation if this proves successful. I look forward to seeing the benefits of this partnership materialize for both Fiat and Chrysler.

Here is the text of the joint press release on the partnership released by the two automakers:

 Fiat S.p.A., Chrysler LLC (Chrysler) and Cerberus Capital Management L.P., the private investment majority owner of Chrysler LLC, announced today they have signed a non-binding term sheet to establish a global strategic alliance.

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 U.S. Treasury as required. Fiat has been very successful in executing its own restructuring over the past several years. 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 U.S. Treasury financing to Chrysler. Per the U.S. 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. Such steps would greatly contribute to Chrysler's long term viability plan. Completion of the alliance is subject to due diligence and regulatory approvals, including the U.S. Treasury.

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 percent 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.

"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. The deal follows a number of targeted alliances and partnerships signed by the Fiat Group with leading carmakers and automotive suppliers over the last five years aimed at supporting the growth and volume aspirations of the partners involved," the CEO of Fiat Group, Sergio Marchionne said.

"A Chrysler/Fiat partnership is a great fit as it creates the potential for a powerful, new global competitor, offering Chrysler a number of strategic benefits, including access to products that compliment our current portfolio; a distribution network outside North America; and cost savings in design, engineering, manufacturing, purchasing and sales and marketing," said Bob Nardelli, Chairman and CEO of Chrysler LLC. "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. 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."

"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," said Ron Gettelfinger, President United Auto Workers (UAW).

"We're on board with this important strategic initiative as it will help preserve the long-term viability of our great company, its brands and of course UAW-Chrysler jobs," said General Holiefield, Vice President, United Auto Workers (UAW).