Fiat completes alliance; new Chrysler Group takes shape

ERJ staff report (Automotive News)

Milan / Detroit (Reuters) -- Fiat SpA has closed its takeover of Chrysler, sealing the deal on Fiat's ambitious move to create a growing global player amid one of the worst crises in the auto industry's history.

In a victory for the US administration driving the restructuring of bankrupt Chrysler, the Supreme Court on Tuesday denied a request from Indiana pension funds to delay the sale. That cleared the way for the alliance to be completed, six months after it was announced.

Fiat CEO Sergio Marchionne will become CEO of the renamed Chrysler Group LLC. The automaker's former CEO, Bob Nardelli, leaves the company as previously announced and returns to Cerberus Capital Management LP, its former majority owner.

Chrysler's former president, Jim Press, will become Marchionne's deputy CEO, and Fiat's chief financial officer, Richard Palmer, will be CFO of the new company.

In a memo to employees, Marchionne voiced optimism about the new company.

"There is no doubt in my mind that we will get the job done," he said. He called the alliance a "bold first step to implement" lessons learned.

He added that Fiat will begin the process of transferring Fiat's technology, platforms and powertrains to Chrysler plants in the next few months.

Fiat is joined by a UAW-aligned health care trust and the U.S. and Canadian governments in taking over the best parts of Chrysler.

Scale wanted

Fiat began looking for partners to gain scale late last year when the auto crisis intensified, leading to a dramatic drop in car sales.

CSM Worldwide, an industry consultancy, has forecast a 20 percent drop in global production to 52 million vehicles this year as carmakers lay off workers and leave their factories idle in the face of a sharp drop in demand.

CSM said it saw a "tremendous amount of risk" in Fiat's effort to revive Chrysler.

Not only did Fiat have to renew an aging product line but also persuade former customers to buy a Chrysler again.

Fiat has sent a team of executives and engineers to Detroit to work with Chrysler to cut costs and prepare for the U.S. launch of the 500, Fiat's popular small car.

Its stake in Chrysler will start at 20 percent and should rise to 35 percent over time.

The U.S. Treasury's equity interest is 8 percent, and the Canadian government's is 2 percent.

Tougher sell

Fiat has had a harder time of persuading German auto and government officials of its plans to create a world automotive giant.

It lost out to Canadian car parts maker Magna International Inc. for General Motors' Opel unit although the government invited it to improve its bid.

The sale is part of GM's restructuring, which caused it to file for Chapter 11 bankruptcy protection on June 1 after Chrysler did the same on April 30.

Erich Merkle, an independent auto analyst based in Grand Rapids, Michigan, said the court's decision on Chrysler was good news for GM because it was using a similar quick-sale strategy to facilitate its way through bankruptcy.

The new Chrysler will be managed by a nine-member board of directors, chaired by Robert Kidder. The board will consist of three directors to be appointed by Fiat, and four directors to be appointed by U.S. government. The process of determining additional board members is continuing.

From Automotive News (A Crain publication)