Fiat and Chrysler Now Working Together

Photo Credit: Economist

Italian carmaker Fiat Motors announced that it would enter into an agreement with Chrysler to exchange ideas and inside production secrets to help turn around the failing automaker. In exchange for Fiat's support both in the production of energy efficient cars and for promotion of Chrysler cars around the world, Fiat will receive a 35% stake in Chrysler, making it the second largest private shareholder.

Too heavy, too costly

For years, Chrysler has struggled as its SUVs and trucks became unpopular in a world of $4 per gallon gasoline. Its heavy sedans and large cars and trucks were lagging significantly behind those of foreign competitors,such as Toyota and Honda in energy efficiency and even domestic automakers GM and Ford.

The agreement Chrysler was begging for

The automaker has received billions to date from the US Federal Government and Treasury to keep it in business until the company could produce a plan for turning profitable in the future. Various government lifelines were given to its financing arm to help promote its products, such as 0% financing on new cars to help move its cars off dealer lots and into the garages of buyers. Many economists and analysts have predicted that without a full scale bailout or an agreement with other automakers, it would be impossible for the company to continue its operations, as its interest expenses and generous pension packages were draining the companies balance sheets.

Going global

Chrysler will benefit from Fiat's offer to help promote the automaker in Europe, where it has experienced very little reach. European gas prices are consistently higher than in the United States, making their products even less affordable across the Atlantic than they are in the United States. Currently, the Chrysler brand produces 14 diesel-only cars and trucks that are popular in Europe for their higher gas efficiency, but are not made available in the United States due to tightened emission regulations.

Fiat's deal might not be enough

Fiat was quick to address that the agreement does not stipulate any capital injection into Chrysler and comments that additional funding may be needed, but will not stem from Fiat Motors. Future aid in the form of additional government bailouts may be necessary to see if Chrysler's new agreement will keep the automaker alive.

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