Wednesday, January 21, 2009

Chrysler Fiat Merger

From Forbes Jerry Flint

The announced deal between Chrysler and Fiat has benefits for both, but it is not a game changer--not yet.

The alignment between Fiat of Italy and Chrysler does not exactly save Chrysler, but it gives Fiat an entry into the U.S. In short, Fiat is to get 35% of Chrysler, will not pay any cash for the stake, and it will give Chrysler access to its technology.

Fiat (nyse: FIA - news - people ) had publicly said it wanted a production base in North America for its Alfa Romeo brand--and presumably the Fiat brand, too. Through its 35% interest that it is getting in Chrysler, it would presumably have access to a U.S. plant to build its cars.

The chief executive of Fiat, Sergio Marchionne, has also worried that his company was not big enough to survive in today's world. Marchionne was born in Italy in 1952 but built his early career in Canada and has dual Canadian and Italian citizenship. Chrysler has some Canadian plants, and the Canadian autoworkers union, separated from the American UAW, has been quite cooperative in working with the industry in recent years.

So at no cash cost, Fiat may have its production base on this continent. What about Chrysler? The company has been weak technically and does not have enough money to finance the kind of new vehicle programs that Chrysler needs to stay competitive in this market.

Fiat is strong in small cars and in their engines and transmissions, as well as in luxury cars and diesel engines. Getting the technology could be a huge help for Chrysler, but the American company will still need the money and ability to create new cars even with Fiat technology.

The alliance might help Chrysler if it needs to get more money from the American government in its battle to survive.

Chrysler's strength has been in sport utility vehicles, pickup trucks and minivans. We do not know Fiat's degree of interest in these businesses. Meanwhile, another foreign maker, Nissan (nasdaq: NSANY - news - people ) (which is part of the Renault/Nissan alliance) has an agreement with Chrysler whereby Nissan is to get a version of the Dodge Ram, a big pickup, and Nissan is to build small cars destined for Chrysler....More

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