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Mike Stevens | Jan 21, 2009

Recent speculation about a collaboration between Chrysler and Fiat has been confirmed. The two companies have announced plans for a global strategic alliance. Under the deal Fiat will receive a 35 percent stake in Chrysler. In return Chrysler will gain access to Fiat’s range of fuel efficient technologies.

The ability to use Fiat’s existing technology should equate to substantial savings for Chrysler. Completion of the deal will still require approval from US regulatory bodies, including the US Treasury, to ensure the alliance meets the terms set out as part of the initial USD $4 billion loan granted to Chrysler by the US government.

The deal has been welcomed by the United Auto Workers union in America. "The alliance offers Chrysler new opportunities to compete in the US market and the global marketplace," UAW president Ron Gettelfinger said. The union is also confident that the agreement will help to preserve manufacturing jobs in the US.

"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," Bob Nardelli, Chairman and CEO of Chrysler said.

Under the terms of the new deal, Chrysler stands to gain access to Fiat’s distribution network in key markets outside of the US, and access to environmentally-friendly technologies and components developed by Fiat - all of which should deliver “substantial cost savings”. In addition, Fiat is also to provide management services to support Chrysler’s submission of a viability plan to be put to the US Treasury (to ensure on-going access to the taxpayer-funded industry-support loans).

In return, Fiat will gain access to Chrysler’s distribution network and a 35 percent equity stake in Chrysler. Fiat however is under no obligation to fund 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,” Sergio Marchionne, the CEO of Fiat Group, said.

Daimler has also indicated that it would be interested in selling-off its remaining 20 percent stake in Chrysler.

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