January 21, 2009 at 1:00 am

Editorial: Alliance with Fiat may save Chrysler

Fiat 500 )

Chrysler's newly forged alliance with Fiat SpA should cheer those worried about the fate of Detroit's auto industry. The deal should give Chrysler some breathing room to operate as an independent company.

Before Tuesday's announcement, Chrysler's options were limited and bleak.

It had discussed a merger with both General Motors and Renault Nissan, without success. Even with government loans, Chrysler was likely looking at selling itself off in pieces or declaring bankruptcy.

The deal with the Italian automaker gives Chrysler two things it needs: access to new global markets and relief from the crushing costs of developing a fleet of small, energy-efficient vehicles.

Fiat, which takes a 35 percent noncash stake in Chrysler, will market the American vehicles through its distribution network in Europe and Asia. It will also bring to North America its small cars, giving Chrysler quality products in a market niche it has had difficulty cracking.

Fiat will also use some of Chrysler's excess manufacturing capacity in this country, a rare bit of good news for American auto workers.

Fiat gets a return to the North American market. It intends to also bring its Alfa Romeo luxury lineup here, news that has to hearten Chrysler's dealers.

This is a good fit all the way around. Chrysler and Fiat do not compete in any product line. The alliance plays to each company's strengths and does not involve a ceding of management control by either, although Fiat could eventually acquire Chrysler from its owner, Cerberus Capital Management.

For Michigan, the fear of losing the massive Chrysler headquarters in Auburn Hills, which surely would have happened in a straight merger, is off the table for now.

Losing one of the Big Three automakers is this state's worst nightmare. The loss of jobs and tax base would be devastating.

Certainly, Chrysler still has a long struggle ahead. It continues to lose both cash and market share.

But the deal with Fiat gives the company a better chance to get its turnaround plan in place by the March deadline set by Congress in exchange for the loan package.

It also allows Chrysler to pour its resources into building vehicles that will be profitable in the marketplace instead of developing the small car line that Fiat has already mastered.

It's hard to see how Chrysler could have made a deal that would have better served its customers, its workers or the state of Michigan.

Fiat Bravo