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Fiat to give Chrysler technology, markets

Fiat's 500 models and Chrysler's Dodge Ram pickups are at opposite ends of the vehicle size scale. Fiat's 500 models and Chrysler's Dodge Ram pickups are at opposite ends of the vehicle size scale. (STAN HONDA/AFP/Getty Images)
Bloomberg News / January 21, 2009
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SOUTHFIELD, Mich. - Chrysler LLC, seeking to bolster its case for long-term survival after a $4 billion bailout, is trading a 35 percent stake to Italy's Fiat SpA for access to small-car technology and a global sales network.

Cerberus Capital Management LP's Chrysler, the third-largest US automaker, would get a chance to wean itself from dependence on trucks and the North American market, while Fiat would expand a US foothold now limited to its luxury brands. The nonbinding agreement yesterday doesn't involve cash from Fiat.

Widening Chrysler's lineup and geographic reach would help counter its 30 percent sales slide in the United States last year. To keep its federal loans, Chrysler must meet a March 31 deadline to prepare a plan that includes slashing debt by two-thirds, trimming labor costs, and revamping operations.

"This does greatly improve their long-term viability," said Rebecca Lindland, an analyst with IHS Global Insight Inc. in Lexington, Mass. "It definitely will improve whatever they have to present to" the Treasury Department.

Hammered by slumping demand in the worst US auto market since 1992, Chrysler has said it burned through at least $6.5 billion in 2008's second half and would have been out of operating funds by mid-January without the government aid.

Fiat has the option to increase its stake to as much as 55 percent, though that likely wouldn't happen soon, said a person familiar with the deal who asked not to be identified because the terms are confidential.

US approval is needed for the alliance. Chrysler and Fiat said they would meet the terms of the Treasury Department bailout, which includes a provision that the loan would be considered in default should there be a change in control of the US company.

Cerberus bought 80.1 percent of Chrysler in 2007 from Germany's Daimler AG, which reaffirmed yesterday it plans to unload the rest.

Light trucks, which include pickups and sport-utility vehicles, made up 62 percent of Chrysler's US sales in 2008, the most among domestic automakers. That left Chrysler at a disadvantage as gasoline soared to a record $4.11 a gallon.

Fiat's strengths include a distribution network in Russia, China, and South America and a lineup of small, fuel-efficient cars.

Chrysler and Fiat should complete their partnership by April, Chrysler chief executive Robert Nardelli said in a letter to employees.

The alliance "offers new opportunities to compete in the US market and the global marketplace," United Auto Workers president Ron Gettelfinger said in a statement.

The proposed structure of the alliance differs from the 1998 merger of Chrysler Corp. with the former Daimler-Benz AG. There are no plans to combine management, and Fiat and Chrysler vehicles are both aimed at a mass market, instead of at luxury buyers like those targeted by Daimler's Mercedes-Benz.

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