Fiat to Increase Stake in Chrysler to 35% within Two Years

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Researched by Industrial Info Resources (Sugar Land, Texas)--At this time last year, The Chrysler Group LLC (Auburn Hills, Michigan) was in dire need of a complete reorganization. After receiving billions in federal aid only months before, Chrysler continued to struggle to right its ship. Sales were dropping and debt was mounting before the automaker filed for bankruptcy. Fiat SpA (Italy) came to the rescue after Chrysler entered bankruptcy, taking a 20% stake in the ailing automaker and taking control of the company, reorganizing Chrysler and using the American automaker as an avenue to return Fiat vehicles to the American marketplace. As part of the deal that enabled Chrysler to exit bankruptcy, Fiat would be allowed to increase its stake in the automaker to 35% when certain conditions were met. Sergio Marchionne, Fiat's chief executive officer, announced last week that Fiat would be in a position to do just that within the next two years.

The initial 5% increase in ownership could occur as soon as this year, once Fiat launches the electric Fiat 500. The updated, 2007-model conventional version of the Fiat 500 celebrated the assembly of its 500,000th car in only 21 months, making this model one of Fiat's best-selling vehicles. Fiat will introduce the conventional Fiat 500 to the U.S. market by the end of the year, while it also intends to roll out the electric version of the small car in Europe by next year at the latest.

Chrysler has been a non-entity in the small-car market, and the introduction of the Fiat 500 will bring the automaker into direct competition with its larger American competitors for the first time. The electric version of the Fiat 500 will not arrive in the U.S. until 2012, but in the meantime Fiat and Chrysler will be working on revamping Chrysler's mid-sized offerings based on Fiat platforms. Chrysler's strength always has been in large cars and trucks, while the company's mid-sized offerings have been unable to compete. The automakers are hoping that the conversion to the Fiat platform will help eliminate this glaring problem.

After the initial 5% increase in ownership, there will be two purchases of Chrysler ownership by Fiat. The first will be based on Chrysler's sales in Europe while the second will depend on Latin American sales. Chrysler and Fiat are hoping that by merging technology and entering the small-car market, they can break into both Europe and Latin America with a bang, boosting overall sales as they rebuild Chrysler's image in North America.

In the coming months, Fiat will adopt Chrysler's LX platform for its Alfa Romeo Lancia brands. The LX platform was successfully used by the Chrysler 300 and Dodge Charger and revamped for the 2011 models. Chrysler's Hemi-V8 engine also will stay, as will Chrysler's new 3.6-liter V6 engine, which is called "Pentastar." Fiat will add its 1.4-liter, four-cylinder engine to the mix as well. Fiat also will adapt its turbo-charging experience to Chrysler vehicles while adding its dual-clutch transmission to the Chrysler lineup; this transmission will replace the similar effort Chrysler had been attempting to develop.

All of these new vehicles and power train parts eventually will be manufactured in the U.S., although exactly where is still up in the air. Fiat is scheduled to release its five-year business plan in late April, which should shed some light on the automaker's long-term plans for Chrysler and its U.S. facilities. Fiat 500s will be built in the U.S. in the near future, as will Fiat engines and the LX platform. Other Fiat models should make the trip over to the U.S. in the coming years as Fiat determines the best way to use the Chrysler network to efficiently maximize its production.

While things have been relatively quiet at Chrysler since the company exited bankruptcy and Fiat entered the picture, things appear to be heating up now. The automakers have kept all but their general plans under their belts, while determining the best way to reintroduce Fiat to the American marketplace and the best way to use Chrysler. The coming months should be interesting as these plans are fleshed out and made public.

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