Fiat says alliance will create two stronger automakers

By pairing up, Italy's Fiat SpA and Chrysler LLC will become stronger players better able to compete in the global auto industry, Fiat Chief Executive Sergio Marchionne said Thursday.

"This transaction represents a constructive and important solution to the problems that have plagued not just Chrysler in recent years, but the global automotive industry as a whole," Marchionne said in a statement.

"Our goal since we first entered discussions with Chrysler nearly a year ago was to leverage the strengths of both companies to yield the scale, efficiencies and cost savings necessary to create two stronger automakers able to compete more effectively on a global scale," he said. "This transaction is an important step toward achieving this objective."

Marchionne has said he wants to line up partners for Fiat to create a group with annual sales of 5.5 million to 6 million vehicles -- nearly triple its current sales.

His strategy resembles that of France's Renault SA, which paired up 10 years ago with Nissan SA of Japan, a similarly sized company that was losing money.

But that is one of the rare examples of a successful alliance. Most of them, including Chrysler's relationship with Germany's Daimler AG, turn out badly. Daimler sold Chrysler to Cerberus Capital Management LP two years ago. A fledgling alliance between Fiat and General Motors Corp. was scrapped in 2005 after a few years.

"Our work is just beginning," Marchionne said. "But together with our new partners at Chrysler we look forward to delivering on the vast potential this alliance holds and reintroducing to North American customers of some of our most popular brands, including Alfa Romeo and the award-winning Cinquecento."

He praised the efforts of the U.S. auto task force, the Canadian government, Chrysler's management and stakeholders including the U.S. and Canadian unions.

"Over the coming weeks and months, I will be spending a great deal of time meeting with Chrysler employees and touring its facilities," he said.

"We are certain that a stronger and more international Fiat will emerge from this alliance, with an even greater capacity to compete in markets worldwide."

Fiat, based in Turin, Italy, and Chrysler had announced plans in January to establish an alliance whereby Fiat would offer small car and engine technology in exchange for equity in the Auburn Hills automaker. Last month, the U.S. government, which has provided Chrysler with $4 billion in loans, set a deal with Fiat as a condition for further aid.

Chrysler filed for bankruptcy today after failing to obtain debt-reduction accords with all of its lenders.

Under the terms of the accords signed today by Fiat and Chrysler, Fiat will receive 20 percent equity in a new company comprising most of Chrysler's assets without putting in cash.

It may increase its stake by an additional 15 percent by fulfilling certain steps, such as producing fuel-efficient engines and cars in U.S. plants and offering Chrysler vehicles through its retail outlets.

Fiat will have the right to appoint three of the nine directors on a new Chrysler board, and a fourth if it increases its stake by a further 15 percent.

Fiat will be granted an option to acquire an additional 16 percent shareholding stake effective in 2013 but may not exercise it if Chrysler still owes the government more than $3 billion. Its stake will be capped at 49 percent until Chrysler's loans from the U.S. Treasury are fully repaid.

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