The cash-free deal will see Fiat pick up the equity stake in return for sharing its technological and product know-how with the struggling American company.
The aim of the deal is to secure a lifeline for Chrysler, giving it access to Fiat’s technological know-how, while providing the Italian company with a much-needed platform to expand into the US.
In an email to Chrysler staff chief executive Bob Nardelli said the agreement, which allows Fiat to raise its stake to 55% over the medium-term, would “significantly enhance the long-term viability” of the company.
Chrysler will now be able to expand its sales network into countries where Fiat has a significant footprint, as well as bolstering the US company’s beleaguered deal network – still reeling from a 30pc drop in sales in 2008 – by adding the Fiat range over time.
The pair will also be able to cut costs as a result of their partnership, with annual cost savings of between $3 billion and $4 billion likely.
The majority of analysts suggested Fiat had got a better deal than Chrysler – which has also held merger talks with General Motors and Renault-Nissan in recent months.
With reference to Chrysler’s owners – Daimler and Cerberus – and their respective failings, Bank of America Merrill Lynch analyst Harald Hendrikse wrote in a research note: “What Daimler or private equity could not fix is not likely to be fixed by Fiat.”
However the unification of the two companies is likely to give Chrysler a stronger case when it returns to the US Treasury and newly-elected President Obama for more government funding in a few months’ time.
Part of its agreement in taking $4 billion was that it would strive to focus on technological development and commit to operational changes.
Fiat chief executive Sergio Marchionne said the deal represented “a key milestone in the rapidly changing landscape of the automotive sector”.
Nardelli must now focus on the company’s bondholders and employees, needing to convince both constituent groups to accept radical changes to their existing contracts. The United Auto Workers union welcomed the deal, saying it could help preserve US manufacturing jobs.
Wall Street Journal
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