Fiat Takeover Of Chrysler To Take Place In Increments

Although the deal hasn’t been finalized, Chrysler LLC will soon find
itself in alliance with Fiat sPa, the Italian automaker. When the deal
is ironed out some time this month, Fiat will gain an immediate 20%
share in Chrysler with options to increase it to 49%, perhaps as high
as 55% when all is said and done.

The original agreement hammered out between Chrysler and Fiat had Fiat
assuming a 35% stake in Chrysler in exchange for giving the American
automaker access to its small car technology including platforms,
engines and transmissions. The federal government, which has had
Chrysler on a lifeline since late last year, determined that the 35%
stake was too generous given the decreased worth of the automaker.
After all, if Chrysler does fail, the Obama administration wants to
protect the American taxpayer who effectively now owns Chrysler.

Prior to accepting government intervention, Cerberus Capital
Management, L.P. owned 80.1% of Chrysler while Daimler AG held 19.9%
of the automaker. In exchange for receiving additional government
support, Cerberus will cede its share in the automaker. Daimler will
retain its portion of Chrysler, something that the German company is
actively shopping to whoever might be interested in purchasing it.

Fiat’s initial share of Chrysler will not cost the company any money.
However, as the two companies build their alliance and funds are
repaid to the federal government, then Fiat will be allowed to assume
greater control of Chrysler. This will happen in increments and could
take place even before funds are paid back. If a Fiat engine goes into
production in North America or a shared platform is rolled out, then
Fiat will increase its stake in Chrysler.

For the time being, Fiat will likely keep Chrysler’s four brands in
tact which includes Chrysler, Dodge, Jeep and MOPAR, the latter the
company’s parts, accessories and motorsports racing division. Chrysler
also owns GEM – Global Electric Motorcars, a producer of mostly
off-road vehicles. Likely, GEM would be included in the deal too.

Fiat will look to quickly bring several of its own models directly to
the states to sell via Chrysler’s dealer network. Fiat branded as well
as Alfa Romeo cars could appear at select Chrysler, Jeep or Dodge
showrooms, perhaps sold alongside their American cousins. Fiat might
also decide to convert some existing dealers to sell its own vehicles
exclusively.

Of course, I’ve painted the best case scenario for a Chrysler-Fiat
alliance, one that doesn’t cover the many challenges facing the auto
industry. With sales in the tank, people need to begin buying cars
again, otherwise the best laid plans of men will not come to fruition.