Fiat and Chrysler Sign Alliance Plan

Fiat and Chrysler said Tuesday they have signed a nonbinding agreement for a strategic alliance that would give the Italian auto empire a 35-percent stake in the troubled U.S. carmaker.

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Fiat and Chrysler said Tuesday they have agreed to form a strategic alliance that would give the Italian auto empire a 35-percent stake in the troubled U.S. carmaker and could eventually bring it full control.

The deal means Chrysler, which is fighting off bankruptcy and struggling to sell less fuel efficient larger models, would have access to new markets and cheaper, more environmentally friendly technologies.

Fiat Group SpA, which makes Fiat, Lancia and Alfa Romeo vehicles, would gain a foothold in the huge U.S. market. The company has bounced back recently with cars such as the tiny 500 two-door hatchback, a hit remake of an earlier iconic Fiat model that competes with Daimler AG's Smart, BMW AG's Mini and other very small cars.

The two companies said in a joint statement that in exchange for sharing its small-car platforms and fuel-efficient engines, Fiat would take an "initial" 35-percent stake in Chrysler but would not invest cash.

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The indication that Fiat could eventually gain full control was further backed by John Elkann, Fiat vice president and heir of its founding Agnelli family, who was quoted as saying by the ANSA news agency that the company's stake "could increase."

However the joint statement stressed that the Turin-based Fiat was not committing to funding Chrysler in the future.

CreditSights analyst Brian Studioso said Fiat, which has its own challenges this year from continued drops in car and truck production, isn't in a position to part with cash.

"For Fiat, the non-cash transaction would limit downside exposure while giving the company a foothold in the North American market," Studioso wrote in a note to investors.

For Chrysler, based in Auburn Hills, Michigan, the deal would mean breaking out of the North American market and gaining access to more competitive products.

"A Chrysler-Fiat partnership is a great fit as it creates the potential for a powerful, new global competitor, offering Chrysler a number of strategic benefits, including access to products that complement our current portfolio (and) a distribution network outside North America," said Bob Nardelli, Chairman and CEO of Chrysler LLC.