Fiat takes Chrysler stake as France readies aid
Italy’s Fiat took an initial 35 percent stake in Chrysler, launching a venture designed to secure both carmakers’ futures, as France asked its auto industry to commit to output targets in exchange for aid.
Chrysler said on Tuesday the deal, which involves no cash investment, was a key component in its survival plan, giving it access to Fiat’s more fuel-efficient vehicle platforms and freeing up an initial $4 billion of funds from the U.S. government’s Troubled Asset Relief Program (TARP).
News of the transatlantic partnership broke as politicians struggled to fashion a coordinated response to the worst crisis to hit the auto industry in decades.
French Prime Minister Francois Fillon said his government was considering an aid package for the country’s carmakers worth 5-6 billion euros.
“I think all European governments share this opinion … There is an emergency. We need a massive response on the automobile sector’s financing,” he told a French car industry summit. Measures would be announced in the coming days, he said.
But as German carmakers also took steps to bolster hemorrhaging cash reserves, Chancellor Angela Merkel criticized U.S. subsidies to the sector and warned that state bailouts risked distorting competition and did not offer a long-term solution to the crisis.
ECONOMIES OF SCALE
The Chrysler stake, which Fiat’s vice-chairman John Elkann said might be increased, will give the Italian carmaker the scale it needs to survive paydayadvance.
Chrysler can expand its portfolio to include small, less-polluting cars, meeting criteria for access to U.S. funds.
The U.S. carmaker’s CEO, Bob Nardelli, told employees in a letter the Obama administration would provide $4 billion of initial funding to Chrysler, and that the company would assist in bringing its partner’s brands to the U.S. market.
Cost savings from the collaboration are estimated at $3-$4 billion, the Wall Street Journal reported on Tuesday.
“Sharing technology should inevitably save costs,” said Bank of America Merrill Lynch analyst Harald Hendrikse.
“Fiat is looking at Chrysler as an inexpensive way to re-enter the U.S. market … should gain access to cheap U.S. assembly… Chrysler’s U.S. distribution.”
However, Fiat’s optimism about the deal was surprising, given that “what Daimler or private equity could not fix is not likely to be fixed by Fiat,” he said.
In Germany, a spokesman for former Chrysler owner Daimler, which still holds a 20 percent stake, said the German carmaker was continuing efforts to sell its holding and welcomed any initiative that served to stabilize the situation at the U.S. carmaker.
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