Chrysler-Fiat Alliance Is a Gamble Worth Taking

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By Warren Brown
Sunday, March 22, 2009

Congress should approve the additional loans for General Motors and Chrysler.

That assumes GM's continued turnaround in an economic recovery, a restructuring success that was demonstrably evident before the global financial crash crushed consumer credit and stalled vehicle sales worldwide.

It also assumes that a memo sent to employees last week by Chrysler chief executive Robert L. Nardelli is right. Chrysler for the last 22 years has been in and out of joint ventures, "alliances," and a "merger of equals" in a bid for stability and growth.

Chrysler now is seeking an "alliance" with Italy's Fiat SpA to fill a gaping, expensive and risky-to-fill product hole for small, fuel-efficient cars.

Fiat has the expertise and technology to fill that hole. And it has been working with Chrysler on a technology-swap proposal that would give it a 35 percent stake in the American car company.

Fiat's proposal is based on the belief that the recession won't last forever, but that America's dominance of global automotive sales and its love of big trucks might be a forever thing. Chrysler is a leader in truck manufacturing in the American market.

Fiat also has floated the idea of acquiring another 20 percent of Chrysler, for the less-than-princely sum of $25 million, at a later date.

That seems to be a steal for Fiat, but a lousy deal for U.S. taxpayers who already have loaned Chrysler $4 billion -- and a deal made worse now that Chrysler is seeking $5 billion more in U.S. taxpayer loans.

Fiat gets a controlling interest in Chrysler for $25 million in cash after American taxpayers invest $9 billion in the company? The math didn't seem right.

But in his employee memo last week, actually written to placate a skeptical media and an increasingly skeptical Congress, Nardelli makes, at least for me, a convincing argument.

He said the proposed partnership with Fiat could be worth as much as $10 billion, "equal to or greater than the total amount of loans we have requested from the U.S. Government." Nardelli added that partnering with Fiat, which has authored small-car hits such as the Fiat 500, could save Chrysler up to five years in the design and development of small, fuel-efficient automobiles.

That could be a money-saving, market-gaining advantage.


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© 2009 The Washington Post Company

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