Fiat to take 35 per cent stake in Chrysler

Under the outline, non-binding deal, Fiat would obtain 35 percent of Chrysler without making any payment in exchange for giving Chrysler access to its own vehicle platforms, products and technology “to expand Chrysler\’s current product portfolio.

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It would offer access to new markets through its international network.

Press reports had suggested earlier that a transfer of technology by Fiat would be aimed specifically at enabling crisis-hit Chrysler to develop quickly a complete range of small, front-wheel-drive and “clean” low-carbon-emission vehicles. Each group would benefit from the other\’s sales outlets.

The deal would enable Chrysler to demonstrate to the US Treasury that it could remain viable, and so avoid having to repay 5.5 billion dollars of just-received federal rescue finance.

Both groups have had unsuccessful trans-Atlantic alliances — Fiat with General Motors and Chrysler with Daimler of Germany.

A statement by the two sides said that in exchange for contributing products and technology, Fiat “would receive an initial 35 percent equity interest in Chrysler.”

The statement with Chrysler\’s main shareholder, US Cerberus Capital Management, said: “The alliance does not contemplate that Fiat would make a cash investment in Chrysler or commit to funding Chrysler in the future.”

The Chrysler group has just received conditional US state aid of 5.5 billion dollars.

Fiat shares gained 3.5 percent when trading in the shares, which had been suspended pending a statement, was resumed.

Chrysler, the smallest of the big three US carmakers including General Motors and Ford, is also considered to be the weakest.

It was bought by Daimler for 36 billion dollars and jettisoned nine years later in May 2007 to US investment fund Cerberus for 7.4 billion dollars.

Cerberus owns 80.1 percent of Chrysler.

In seeking a route out of crisis, Chrysler is handicapped by its range of four-wheel-drive and pick-up vehicles which no longer match the requirements of the economically-strapped US economy and consumers.

The tiny Fiat 500 model, the Cinquecento, is part of the power package now set to pull Chrysler out of its product-range hole.

The Fiat group, founded in 1899 by the Agnelli family and owner of the Fiat, Lancia, Alfa Romeo, Abarth, Maserati and Ferrari brands, grew rapidly in the post-world-war two years with the launch in 1957 of the minuscule Cinquecento.

The small car was designed to scamper through the narrow back streets of Rome and Italy\’s other ancient cities and was re-launched with a city-chic look in 2007.

The new version is credited with having helped pull Fiat car group from its own financial abyss.

Fiat\’s auto unit finalled switched into profit at the end of 2005 after reporting 17 consecutive quarters of losses.

Italy\’s Industry Minister Claudio Scajola welcomed the alliance as a “great opportunity.”

“It\’s a great opportunity for the automotive industry as well as for Italy,” Scajola said in a statement.

Chrysler and Fiat have been hard hit by the global downturn, but Chrysler is in deep trouble, largely also because sales of typical big US vehicles were slashed by high fuel prices last year.

The statement said that Fiat would help Chrysler draft a viability plan for the US Treasury, commenting that Fiat had restructured successfully in recent years and was a “recognized world leader” in innovative and environmentally-friendly vehicles.

Chrysler chairman Bob Nardelli said said the partnership “creates the potential for a powerful, new global competitor.” It would give a return on investment for American taxpayers “by securing the long-term viability of Chrysler brands in the marketplace.”

Fiat, which has emerged from a long period of financial crisis and has tied up several strategic alliances in the last five years, had an unsuccessful alliance with General Motors.

In February 2005, GM agreed to pay 1.55 billion euros to settle a long dispute over an option for the Fiat group to sell Fiat Auto to GM. The deal involved GM surrendering 10 percent of Fiat and the unwinding of alliances.

The chief executive at Fiat, Sergio Marchionne, had explained at the beginning of December that the only way for car makers to withstand the crisis in the global auto industry was to make alliances or marriages.