Both Fiat S.p.A. and Chrysler LLC would fill significant gaps in their global businesses with the proposed alliance announced today.
The deal would give Fiat Auto, which sells virtually no vehicles in the United States, manufacturing capacity and a U.S. sales network. It also would give Fiat Auto the global automotive volume that Fiat Group CEO Sergio Marchionne says the company needs to survive.
Chrysler, meanwhile, could expand its product portfolio to include Fiat's small, less-polluting cars and gain distribution in Europe and Latin America. Chrysler could add volume to its U.S. plants by building Fiat vehicles for sale here.
One thing Chrysler doesn't get is money. The deal, which would give Fiat an initial 35 percent stake in Chrysler, involves no cash investment.
A joint statement by Chrysler, Fiat and Chrysler's majority owner, Cerberus Capital Management LP, said "the alliance does not contemplate that Fiat would make a cash investment in Chrysler or commit to funding Chrysler in the future."
The nonbinding agreement is subject to due diligence and regulatory approval.
It appears that Fiat's stake would come entirely from Chrysler's majority owner, Cerberus, and not from Daimler AG, which has been trying to sell its remaining 19.9 percent stake in Chrysler.
The UAW supports the deal.
Fiat Vice Chairman John Elkann told reporters today that the Italian group could increase its Chrysler stake from the initial 35 percent. According to press reports, Fiat will have an option to take as much as 55 percent.
"We can raise that" initial share, Elkann said, without being specific. "It's a good deal. ... We have already said that it's important to have consolidation in the auto sector."
The pact "would provide Chrysler with access to competitive, fuel-efficient vehicle platforms, powertrains and components to be produced at Chrysler manufacturing sites," the companies said.
Under the terms of the deal, Fiat would make available its distribution network in key growth markets. "Substantial cost savings opportunities" would be available to the alliance, the companies said.
Optimize global supplier base
The carmakers said a tie-up would allow them to take advantage of each other's distribution networks. They also said there would be opportunities "to optimize fully their respective manufacturing footprint and global supplier base."
Fiat Group CEO Sergio Marchionne said the alliance "confirms Fiat and Chrysler commitment and determination to continue to play a significant role" in the global auto industry.
That is consistent with Marchionne's view that the current economic crisis will reduce the number of global automakers.
In an interview published last month in Automotive News Europe, Marchionne said that within two years there could be only six global automakers.
"The only way for companies to survive is if they make more than 5.5 million cars per year," Marchionne told the publication, an affiliate of Automotive News.
In 2007, the most recent year for which global data are available, the two companies produced a combined 5,386,073 vehicles worldwide, which would have ranked them fifth globally. Fiat Auto produced 2,813,870 vehicles, and Chrysler produced 2,572,203.
Chrysler CEO Bob Nardelli says the alliance "creates the potential for a powerful, new global competitor." He said in a statement that Chrysler will benefit from "access to products that complement our current portfolio; a distribution network outside North America; and cost savings in design, engineering, manufacturing, purchasing and sales and marketing."
Although Chrysler has expanded global sales in recent years, its limited presence outside the U.S. has been a longstanding weakness -- one that the acquisition by DaimlerChrysler, which unraveled in 2007, was meant to solve.
Nardelli also said the partnership would help solidify the future of Chrysler, which has received a $4 billion federal bailout loan, as well as a $1.5 billion federal loan to Chrysler Financial.
The Fiat alliance would "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," Nardelli said.
Ron Gettelfinger, president of the UAW, said: "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."
A Daimler spokesman declined to comment on prospects for a combination of Fiat and Chrysler other than to say: "We welcome any initiative that serves to stabilize the situation at Chrysler and preserve jobs at the company."
Reuters contributed to this report
PRESS RELEASE: Fiat Group, Chrysler and Cerberus Announce Plans for a Global Strategic Alliance
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).
| Merger facts Italy's Fiat, which needs a partner to survive the auto crisis, has agreed to take a 35 percent stake in Chrysler LLC. Here are some key statistics about the two groups: FIAT • Key car brands are Fiat, Lancia and Alfa Romeo. • Also owns luxury sports car makers Ferrari and Maserati. • Has a market capitalization of about $7.5 billion. • Trading profit for the entire group including Iveco trucks and CNH tractors was 802 million euros ($1.04 billion) in the third quarter on sales of 14.3 billion euros, up from 13.9 billion a year earlier. • Main markets are Europe and Brazil. Nearly all of the profit for Fiat Auto comes from Brazil. • Founded in 1899 and steered from 1902 by Giovanni Agnelli whose grandson Gianni, chairman from 1966, was a legend of Italy's corporate scene, known as much for his society lifestyle as his business acumen. • Has struck a series of alliances with other manufacturers, including India's Tata and China's Chery. • In 2000, in the midst of a debt crisis, Fiat struck a deal with General Motors in which the U.S. car maker took a stake. The agreement was dissolved in 2005. • Current CEO Sergio Marchionne took over in 2004 and put in place a plan to turn the car maker around which was successful, but the company has suffered like others in the current global crisis. CHRYSLER • Founded in 1925. • Best-known models include Dodge, Plymouth and Jeep. • Bought by Germany's Daimler in 1998 in a $36 billion deal. • Daimler sold 80.1 percent of Chrysler in 2007 to Cerberus Capital Management LP for $7.4 billion. • Daimler retains a 19.9 percent stake which it said on Tuesday it still wanted to sell. It has been in talks with Cerberus about the stake. • In October, Chrysler held merger talks with GM. • Chrysler has taken $4 billion from the U.S. government as a loan to help it cope with the current global crisis and has also received $1.5 billion for its finance arm. Source: Reuters research, company Web sites |
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