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Fiat Group, Chrysler LLC and Cerberus Capital Management L.P. Announce Plans for a Global Strategic Alliance

Auburn Hills, Mich. , Jan 20, 2009 - 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).

About Chrysler LLC
Chrysler LLC, headquartered in Auburn Hills, Mich., produces Chrysler, Jeep®, Dodge and Mopar® brand vehicles and products. Total sales worldwide in 2008 were 2 million vehicles. Outside of North America, 2008 was the second-best sales year in the last decade and the third-best ever for Chrysler International. Chrysler LLC’s product lineup features some of the world's most recognizable vehicles, including the Chrysler 300 and Town & Country, Jeep Wrangler and Grand Cherokee and Dodge Challenger and Ram. In the fall of 2008, Chrysler introduced three advanced electric-drive vehicle prototypes – the Dodge EV, Jeep EV and Chrysler EV. One is targeted to be produced in 2010 for consumers in North American markets, and European markets after 2010.

About Fiat
Founded in 1899, Fiat is an automotive-focused industrial group, serving customers in more than 190 countries around the world. With some 185,000 employees, 114 R&D centers and 178 plants worldwide, the Fiat Group designs, manufactures and sells passenger cars (Fiat, Lancia, Alfa Romeo, Abarth, Maserati and Ferrari), agricultural and construction equipment (CNH Case New Holland), trucks and industrial vehicles (Iveco), and automotive components (FPT Powertrain Technologies, Magneti Marelli and Teksid). More information available at FIAT GROUP or Fiat Group Automobiles Press.

Chrysler LLC:)

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A message from Bob Nardelli regarding Fiat

A message from Bob Nardelli regarding Fiat

Posted Tuesday, Jan 20, 2009 at 7:11 am in Company News

Dear Colleagues:

I’ve consistently promised that your leadership team would communicate fully and directly to you regarding important business issues. Today, I have some very important information to share with you regarding a positive new development for Chrysler; one that will significantly enhance the long-term viability of our great company.

In our continuing commitment to build a profitable enterprise for the future, consistent with the viability plan we submitted to congress and with the written and oral testimony I made on behalf of Chrysler, we are announcing today that Cerberus, Chrysler LLC and Fiat S.p.A. have entered into a preliminary non-binding agreement to establish a global strategic alliance. Upon completion of a due diligence process and required approvals, the agreement is expected to be completed as early as April.

This alliance provides significant strategic benefits that support our viability and long-term competitiveness, including product and platform sharing, global distribution, and operational and business efficiencies. Fiat would also 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.

Under the agreement, Chrysler will have access to all Fiat group vehicle platforms, which would complement our current product portfolio with fuel-efficient, environmentally-friendly small cars and powertrain technology. The alliance would greatly increase the global reach for our three brands in markets outside of North America, and Fiat’s distribution organization would provide Chrysler a strong partner to help build our brand’s presence in important markets where we have little presence today.

Fiat would benefit from product and technology sharing as well, with access to our vehicle platforms and our manufacturing capabilities in North America. In addition, Chrysler would assist Fiat to bring their brands to the U.S. market.

As a condition of the U.S. government loan agreement, all constituents will be asked to contribute to Chrysler’s restructuring effort including: lenders, employees, the UAW, dealers, suppliers and Chrysler Financial. This partnership would adhere to the conditions of the U.S. government loan, and help us provide a return on investment for the American taxpayer by securing the long-term viability of Chrysler brands in the marketplace. The alliance would help sustain Chrysler’s product development, manufacturing, and sales operations here in the U.S which further supports our viability plan, and preserves American jobs. Our partners at the UAW have announced their endorsement of the proposed alliance.

Along with the rest of the leadership team, I am aware of your desire and need to learn as soon as possible how the alliance will affect you personally. The agreement is just the first step, and we intend to keep you informed of key developments on an ongoing basis.

You have brought great pride to the Company through your tireless efforts to make Chrysler successful. Please continue to approach the important work you do with the same passion and commitment today and throughout the weeks ahead as we work together with all our constituents to implement our viability plan, and pursue this exciting new alliance.


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Discussion Starter #3
Alliance With Fiat Gives Chrysler Another Partner and Lifeline

January 21, 2009
Alliance With Fiat Gives Chrysler Another Partner and Lifeline

DETROIT — Chrysler has flirted with bankruptcy at several points in its 84-year history, only to come back from the brink with new management, a new owner, a hot new product or a financial lifeline from the government.

It won yet another lease on life on Tuesday, with its deal to join forces with Fiat.

The Italian car company will get a 35 percent ownership stake in Chrysler and an opportunity to bring its Fiat and Alfa Romeo brands back to the United States through Chrysler’s dealership network.

In exchange, Fiat will bring Chrysler what it needs to be a viable player in the evolving United States market, with its fuel-efficient engine technology and the engineering that goes into its small cars.

One reason Chrysler has struggled over the last year is its mix of vehicles, which tends heavily to sport utility vehicles, pickup trucks and minivans.

“They are going to bring to the table what we don’t have and would cost billions to develop,” said Anthony Viviano, a Chrysler dealer in suburban Detroit.

To be sure, Chrysler has made promises before about the synergies to be gained from joining forces with a European partner.

In 1998, the chief executive of Daimler-Benz, Jürgen Schrempp, christened that company’s combination with Chrysler as a “marriage made in heaven.” But it ended in a messy divorce in 2007 because the German company’s luxury-car lineup had little in common with Chrysler’s portfolio of vehicles.

Chrysler has also been a financial sinkhole since it was acquired two years ago by the private equity firm Cerberus Capital Management.

Despite cutting tens of thousands of jobs and enough production capacity to build 1.2 million vehicles a year, Chrysler has been burning through more than $1 billion in cash a month because of its rapidly deteriorating sales, which plummeted 30 percent last year. Chrysler suspended investment in most new products while it looked for a partner.

Before striking a deal with Fiat, it held discussions about joining the Nissan-Renault alliance and merging with General Motors.

“Chrysler’s been looking at multiple solutions, and been quite erratic,” said Erich Merkle, an independent auto analyst. “But given the times that we’re confronted with, there’s a lot of creative thinking going on right now.”

Finding a strategic partner is considered critical to Chrysler’s ability to deliver a long-term business plan required as a condition of its federal loan.

“The timing is significant because it demonstrates to the U.S. government that Chrysler is serious about restructuring itself into a viable company,” said a report by the research firm IHS Global Insight.

In their joint announcement, Chrysler and Fiat said the nonbinding agreement helps both companies do what they could not achieve on their own. Fiat, however, is not likely to pour any cash into Chrysler, according to the statement.

“It creates the potential for a powerful, new global competitor, offering Chrysler a number of strategic benefits,” said the Chrysler chairman, Robert L. Nardelli.

Chrysler can cut costs further by sharing purchasing, engineering and manufacturing functions with Fiat, and broaden its sales in international markets through Fiat’s distribution network.

The company can also fill huge holes in its product lineup by using Fiat’s small and midsize cars to develop Chrysler models with their own distinctive sheet metal.

“We won’t see anything in the next 12 to 18 months, but after that I expect there to be two or three Fiat platforms which Chrysler can bring over here,” said Michael Robinet, an analyst with the firm CSM Worldwide.

Mr. Robinet said the Fiat 500 minicar is a prime candidate for Chrysler to adapt for its own use. Fiat already shares the platform for the 500 model with the Ford Ka in Europe, and is working with BMW on a platform for the next Mini.

“Fiat has a long history of working with other automakers, and they have quietly established themselves as one of the best small-car builders in the world,” Mr. Robinet said.

For Fiat, joining with Chrysler represents a big step to re-entering the United States market that it left in 1983. (The company has continued to market its Ferrari and Maserati models in the United States.)

The Fiat brand suffered from a reputation for poor quality among American consumers. Fiat models still score below average in J. D. Power customer-satisfaction surveys in some European markets.

But Fiat has gone through a major streamlining in recent years, including selling off nonautomotive operations, and its award-winning 500 minicar is changing the image of the brand.

Neither Chrysler nor Fiat made their executives available for interviews on Tuesday, so few details were available on how quickly the two companies will begin working together.

The alliance is expected to be completed by April, although questions remain about what will happen to Daimler’s 19.9 percent stake in Chrysler. Daimler had been in talks with Cerberus about selling its stock, which the German automaker has said had zero value.

Cerberus, which owns 80.1 percent of Chrysler, has revealed little about its longer-term plans for the automaker after the Fiat deal closes. A Cerberus spokesman, Peter Duda, said Tuesday that the firm supports the alliance and “believes it is in the best interests of Chrysler’s stakeholders.”

Analysts expect Fiat to be closely involved in Chrysler’s restructuring plans, to be submitted for review to the federal government by Feb. 17. “This is not going to be a hands-off relationship,” Mr. Robinet said.

Under the alliance deal, Fiat will get seats on Chrysler’s board and possibly have executives assigned to its management, according to people with knowledge of the agreement. Fiat will also be able to increase its stake beyond 35 percent if the alliance achieves certain performance benchmarks, the people said.

Together, Chrysler and Fiat make more than four million vehicles a year. Analysts said the companies will probably build some models together in Chrysler plants in North America.

In the short term, Chrysler still needs additional financing from the government to stay in business. During interviews at the recent Detroit auto show, Mr. Nardelli said Chrysler was counting on an additional $3 billion in loans to get through the year.


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Italian-American mashup could bear some interesting fruit.

Fiat and Chrysler Announce Strategic Alliance - Car News

This Italian-American mashup could bear some interesting fruit.

January 2009

Fiat S.p.A and Chrysler LLC (backed by its majority stakeholder Cerberus Capital Management) today announced an alliance that will see the two automakers share vehicle platforms, distribution channels, and technology. Fiat will take a 35-percent stake in Chrysler, although no money will change hands, as Chrysler gives up a chunk of itself in return for viable future product development. (Chrysler’s been broke for long enough that virtually all meaningful product development has been halted for some time.) The current agreement is nonbinding but should become a finalized partnership by April, according to Chrysler.

Fiat Group includes the bread-and-butter brands of Fiat, Lancia, and Alfa Romeo, with luxury and performance marques Maserati and Ferrari perched at the top of the empire. We would expect most of any platform sharing to come courtesy of the lesser three Italian companies, although a rundown on the alliance by Chrysler chairman and CEO Bob Nardelli states that his company would have access to all but Ferrari’s bits and pieces. Would this open the door to a second coming of the legendary Chrysler TC by Maserati? Let’s hope not.

Chrysler needs all the help it can get to once again become viable—and prove that it can stay that way—especially considering that the U.S. government and the American populace expect to be repaid for their recent $4 billion loan to the troubled automaker. Indeed, Chrysler will likely need additional loans to continue its transformation. To that end, the Fiat/Chrysler partnership and its potential for leveraging global markets—thus strengthening both companies—could help convince lawmakers to approve further assistance.

Did we see this specific partnership coming? In a word, no. Chrysler had been in talks with GM several months back, but those fell apart when both companies began to experience serious financial hardship. A strengthened Chrysler/Nissan/Renault alliance was also rumored. But should we have expected Fiat to make such a move? In an upcoming issue of Car and Driver, we quote Fiat CEO Sergio Marchionne as saying, “Independence in this business is no longer sustainable.” His prediction that only six global carmakers will still exist in two years is pretty telling. This new alliance is apparently his attempt at merging rather than dying.

What Does Chrysler Get?

Fiat will share with Chrysler its platforms and powertrain technology, including engines, transmissions, and fuel-saving tech. Today’s announcement specifically mentions city and compact vehicles, products Chrysler will need should American consumers actually decide to buy the small, fuel-efficient cars U.S. lawmakers claim they want. Chrysler will also get better distribution of its products, certainly in Europe, but also in places such as India—Fiat has a partnership with Tata Motors—and Brazil. Fiat also has a deal with Chery, the Chinese automaker with which Chrysler had been trying to partner. Both Chrysler and Fiat will also be able to better leverage their global supplier ties and therefore see cost savings in larger volume.

What’s in it for Fiat?

For Fiat, the reward is simple: distribution channels. Currently, Fiat only sells Maserati and Ferrari in the U.S., although Alfa’s gorgeous 8C has been sold here in extremely limited numbers, as well. If Fiat wants to become a truly global entity, a foothold in North America would be most helpful. Alfa Romeo has been promising a proper return to the U.S. market for some time, and Chrysler’s distribution network could ease that brand’s return to our shores—perhaps even saving some Chrysler dealers from closing altogether—and could also serve as a point of sale for potential Fiat and Lancia imports, too.

Fiat will also likely be able to use excess global production capacity to assemble Chrysler-badged variants of its products. With worldwide auto sales slowing, that would help Fiat to continue manufacturing at pre-slowdown levels; Chrysler could potentially build Fiats in its plants, as well.

A wrench in the works: Chrysler is still in a partnership with Nissan. One product of that hook-up is expected to be a Versa-based small car, possibly based on the Dodge Hornet concept. (That car was also rumored to have sprung from the potential Chrysler/Chery partnership.) We wonder how this new Italian-American deal might affect those already in place with Nissan, which include rebadging the new-for-2009 Dodge Ram as the replacement for the Titan.

It’s All About Synergies—and Other Buzzwords

Despite Fiat being on the financial ropes itself only a few years ago, Italy’s last remaining large car company has come fighting back like Rocky Balboa thanks in part to a $2-billion alimony payment from its annulled marriage with General Motors. Chrysler could do a lot worse when it comes to picking a dance partner for 21st century survival. Speculating further, here’s how a few Fiat products could make an impact. A caveat: most of Fiat’s vehicles weren’t designed with U.S. crash and emissions standards in mind (the 500 being an exception), so it’s possible that we’ll have to wait at least until the next generation of each of these cars arrives before they could be sold here.

Fiat Grande Punto: It wouldn’t be much of an exaggeration to say that the Grande Punto is the car that saved Fiat. At the time of its introduction back in 2005, the Italian auto giant was staggering after years of neglecting the small-car market, a segment which had made it such a powerhouse from the 1950s through the ‘70s. Handsome, well-built, and economical, the Grande Punto surprised the automotive world by being, well, so unlike the rust-prone wheezeboxes Fiat had peddled to European consumers for the previous two decades. Maybe it didn’t single-handedly save Fiat, but had the Grande Punto flopped, it could have destroyed the company.

Sized to compete with cars like the new Ford Focus and Honda Civic, this small Fiat would look nice rebadged as a Chrysler. Its range of economical gasoline-fired engines (from a feeble but fuel-sipping 64-hp, 1.2-liter four-banger to the tire-smoking, 178-hp four found in the sporty Abarth SS model) could earn Chrysler green-car cred, props from the sport-compact crowd, and a valuable slice of the small-car market.

Fiat 500: Following the lead of other retro-themed small cars like the Volkswagen Beetle and BMW’s Mini, Fiat mined its rich small-car history to create this thoroughly modern update of an automotive icon. Stylistic inspiration came from the original 500 that was produced from 1957 to 1975. That 500 managed to be cool, cheap, and—when tuned for performance—a giant-killer on road and racetrack alike.

Today, the new Fiat 500 makes an urban-hip car like the Mini Cooper suddenly look as conformist as a beige Corolla. Under the 500’s chic-looking shape is the front-drive platform of the current Fiat Panda and the new Ford Ka. A wide range of water-cooled engines are found under the 500’s stubby nose, including a 69-hp, 1.2-liter gasoline engine and a frugal, 75-hp, 1.3-liter turbo-diesel. If the 500 were to come to the U.S., bet on something a bit more powerful stuffed under the hood, like the optional 100-hp, 1.4-liter 16-valve gas-powered four-cylinder. A 158-hp four-cylinder is offered in the sporty 500 Abarth model.

In terms of sales, the 500 has been a home run for Fiat in Europe. Not only has the car sold remarkably well, customers are loading the car with pricey options, which allows Fiat to score maximum profit out of a small runabout. The 500 could spearhead Fiat’s reentry into the U.S. market and/or Chrysler could snag the rights to build an equally quirky, sexy small car based on the little Italian’s mechanicals. Chrysler owns the rights to the Gremlin name, right?

Fiat Bravo: This is probably as far as the Chrysler/Fiat link dare go up the automotive food chain, at least in the U.S. market. The C-segment is filled with heady competition, not least of which is the bestselling car in Europe, the Volkswagen Golf (currently Rabbit in North America). Fiat has routinely sputtered and stalled when it came to building larger cars in the past.

Yet the new Bravo is proof that the Italian manufacturer is ready to take on mainstream rivals in such a volume area. Stylish and refined, the Bravo is filled with high-tech features, and a high-end Chrysler hatchback or sedan based on it might not be so far-fetched.

LINK:Fiat and Chrysler Announce Strategic Alliance - Car News/Latest News & Reviews/Car Shopping/Hot Lists/Reviews/Car and Driver - Car And Driver
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