Fiat and Chrysler Come Up with a Strategic Alliance to Help Both Auto Makers

Chrysler has been struggling like the rest of the auto industry as of late. In fact, the company ended the year with only about $2 billion in cash and was reliant on government funding to survive. The government has given Chrysler until March of this year to come up with a plan to prove that the ailing car company can be a viable one (source: news.yahoo.com). Chrysler may have just taken a crucial step by striking an alliance with Italian automaker Fiat.

Under the agreement, Fiat will receive 35 percent of Chrysler but will not pay cash for the ownership. Instead, Fiat will give Chrysler access to fuel-efficient platforms and something else the company has been lacking in greatly; sales outside the United States. Chrysler said it would also be given access to all the Fiat auto lines with the exception of the Ferrari sports car line (source: news.yahoo.com).

The deal, which still has to be approved by the U.S. government, is hailing much support from the United Auto Workers (UAW) as they are concerned with the prospect of even more jobs being lost should Chrysler fail. Chrysler has been cutting prices on vehicles and cutting jobs at the plants while it has been looking for a possible partner (source: news.yahoo.com).

Chrysler, which owns the Dodge, jeep and Chrysler brands, is currently 80.1 percent owned by Cerberus Capital Management which bought its stake in 2007 for an estimated $7.4 billion. Some analysts are critical of the deal saying it is simply a set up for an exit strategy for Cerberus Capital Management to get out of a bad investment (source: news.yahoo.com).

For Fiat it is really a low risk opportunity. No cash will be exchanged and they now gain an increased access to the U.S. auto sales market which remains the best in the world despite the current global economic downturn. The added sales might give Fiat enough of a boost to make it through the slow buying period brought on by the down economy. Fiat said that if all goes well it may consider going over the initial 35 percent ownership outlined in the alliance (source: news.yahoo.com).

While it is not clear if the strategic alliance with Fiat will end up ultimately saving Chrysler, it could just do the trick as far as the government is concerned and convince them to give the company another round of bailout money. Certainly just getting more exposure into the foreign markets is not a cure all, but it can't hurt and it just may help. And at a time when so many Americans are losing their jobs, it is good to see that Chrysler is doing all that they can to insure its survival and thus the survival of American jobs.