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Fiat, Chrysler in partnership talks: source

19/01/2009 - 22:15
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FIAT 6,940 -2,12%

By Gianni Montani

TURIN, Italy (Reuters) - FIAT (F.IT)is talking with Chrysler LLC about giving it access to its technology in exchange for a stake in the U.S. car maker, a source close to the Italian group said on Monday.

"Between the two groups there is talk about Chrysler possibly using Fiat technology in exchange for a stake," the source told Reuters, confirming a report by industry publication Automotive News Europe. The source spoke on condition of anonymity.

Citing people familiar with the matter, Automotive News said in a report posted on its website (www.autonews.com) earlier in the day that Fiat could give Chrysler access to platforms, engines and transmissions.

The source told Reuters a deal with Fiat would help Chrysler make vehicles that produce fewer harmful emissions.

"To get financing U.S. (car makers) have to show that they are really committed to developing over the short term a new family of vehicles that pollute less," the source said. "By itself, Chrysler would not be able to meet this condition."

Along with General Motors, Chrysler has gotten billions of euros in government loans to avert collapse in exchange for meeting certain cost-cutting targets and demonstrating that they are viable by the end of March.

"In today's economic environment, talks are going on between companies in all industries -- ours is no different," Chrysler said in a statement in response to the reports of talks between the automaker and Fiat.

"Chrysler LLC as a matter of policy however, does not confirm or disclose the nature of its private business meetings," the automaker said. "Beyond those partnerships and alliances already announced, Chrysler has no further announcements to make at this time."

Neither Fiat, nor Chrysler owner, Cerberus Capital Management, were immediately available for comment.

BET ON CHRYSLER'S FUTURE

In an interview with the same publication in December, Fiat Chief Executive Sergio Marchionne said Fiat needed a partner because it was too small to survive the crisis alone. He said automakers needed to have scale -- producing at least 5.5-6.0 million cars a year -- to have a chance of making money.

One London analyst said scale was probably the reason behind Fiat's interest in Chrysler, despite the U.S. car maker's desperate situation.

"This is a bet that Chrysler in some form will exist (in the future)," he said on condition of anonymity.

Apart from Ferrari and Maserati, Fiat does not sell cars under its three other brands in the United States.

Before crisis struck the car industry and decimated sales, Fiat had been talking with the three U.S. automakers about using some of their idle production lines to help it make a return to the U.S. market.

A second London analyst said the stake Fiat could take in Chrysler would likely be a token 5 percent. Fiat would probably use Chrysler's dealership network to sell small cars, something lacking in Chrysler's product portfolio, the analyst said.

Although Chrysler denies positioning itself for a sale, it has been in talks with other manufacturers.

Chrysler Vice Chairman Tom LaSorda said last week it was not selling brands but hoped to sell equipment used to make one of its models, the PT Cruiser.

He declined to comment on a Reuters report about Chrysler having discussed selling assets to Renault-Nissan and Magna International.

Seen as the weakest of the Detroit manufacturers, analysts have questioned whether Chrysler can survive without a partner. Most of its sales are in the U.S. market, where Chrysler posted a 30 percent drop last year.

Chrysler burned through $9 billion cash in the second half of 2008 to end the year with $2 billion in cash. It shut all of its U.S. plants for a month from mid December and said last week that some of the shutdowns would be extended.

Fiat and other car makers have also been halting production to lower their inventories of unsold vehicles.

Moving the metal has meant offering attractive deals to lure drivers back to showrooms.

In Chrysler's case, its finance arm has begun offering zero percent financing after getting a $1.5 billion loan from the U.S. Treasury.


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