Fiat Taking 35% Stake in Chrysler

MILAN/PARIS (Reuters) – Italy’s Fiat took a 35 percent stake in Chrysler, launching a venture designed to secure the beleaguered U.S. carmaker’s future, 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, formed a key component of plans to secure its future, and would grant it access to Fiat’s more fuel-efficient vehicle platforms, engines and transmissions.

With governments struggling to fashion a coordinated response to the worst crisis to hit the auto industry in decades, French Prime Minister Francois Fillon said the sector was in urgent need of fresh funds and his government was considering a package 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.

German carmakers also took steps to bolster hemorrhaging cash reserves, though German Chancellor Angela Merkel criticized subsidies to the sector and warned that state bailouts risked distorting competition and did not offer a long-term solution to the crisis.

Under measures to be announced in the coming days, Fillon said French carmakers would be expected to make commitments on production volumes and business with suppliers in exchange for state aid.

Peugeot chief executive Christian Streiff warned on Monday that 2009 would be a “terrible year,” while his counterpart at Renault-Nissan, Carlos Ghosn, forecast on Tuesday that the auto sector crisis would be a long one.

In Tokyo, the world’s biggest carmaker Toyota Motor Corp — expected to post its first ever operating loss this year — named the grandson of the company’s founder to steer it through the crisis.


Fiat’s deal with Chrysler will give the Italian carmaker the scale it needs to survive, while Chrysler can expand its product portfolio to include small, less-polluting cars.

Cost savings from the collaboration are estimated at $3-$4 billion, according to the European edition of the Wall Street Journal on Tuesday.

In Germany, a spokesman for Daimler, which owns 20 percent stake of Chrysler, 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.

Domestic rival BMW became the latest in a long line of manufacturers to scale back production amid a relentless rise in inventories as industry sales plummet at their fastest rate in decades, putting 26,000 German staff on shorter working hours in February and March. The Munich-based carmaker also reiterated it may apply for German government guarantees for its financing arm.


The weakest of Detroit’s three car makers, Chrysler got $4 billion in U.S. government loans to avoid collapse and its chief executive said last week he was counting on $3 billion more.

Like General Motors, which also got government money, Chrysler was required to meet cost-cutting targets as a condition for the loans as well as show its plans are viable.

It also has to show it is committed to developing a new line of vehicles that produce fewer harmful emissions.

Analysts had questioned whether Chrysler could survive without a partner. Most of its sales are in the U.S. market, where Chrysler posted a 30 percent drop last year.

The Fiat deal is the latest in a series of alliances that car makers have formed over the years to cut costs and improve their profit margins.

Dutch car navigation systems company TomTom on Tuesday reflected the impact of the sharp sales decline on ancillary manufacturers as it cut its 2008 revenue and profit outlook.

By Helen Beresford and Claudia Cristoferi
(Additional reporting by David Dolan, Nathan Layne, Marcel Michelson and Gianni Montani; writing by John Stonestreet; Editing by Mike Nesbit and Dan Lalor)