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Fiat and Chrysler - maybe a tie up.

Editorial Staff

It's widely being touted as a done-deal. But there is a small phrase in Chrysler's statement about links with Fiat that show that the deal is far from complete.

Fiat owns some impressive brands - including Alfa Romeo, Maserati and Ferrari. But it is its bread and butter is in the mass market, a market that almost sank it a decade ago. At that time, it was already a part-owner of a platform that was also used by SAAB and Renault for their large cars (at least, large by European standards).

But Alliances come and go. SAAB was bought by General Motors who set out to destroy the brand by turning it into a badge-engineered Eurobox filled with bits from the GM parts bin, and Renault joined up with Nissan. Fiat seemed destined for oblivion. But new designs, new management and new strategies lifted the company from a near-death experience and a raft of new models have penetrated markets that were previously difficult.

Even so, Fiat is still, in global terms, a small company. It needs economies of scale, and equally it needs outlets for some of the clever tech. it's been developing. Chrysler is big, owned by money men who don't understand cars, pretty much failing to sell a range of big Detroit metal monsters that are out of fashion. It's on the rebound from a disastrous marriage to Daimler Benz that all-but wrecked the image of Mercedes in the US but boosted Chrysler with tech and design that US buyers walked away from in droves. What Chrysler needs is an injection of fresh ideas for production and design - and some engines that meet fuel consumption expectations. Commentators widely say that the US market is just waiting for a domestic manufacturer to provide US versions of Euroboxes that sip fuel instead of gulping it, yet have both what Americans call style, and a degree of cachet.

Fiat can provide those things.

So, in return for 35% of Chrysler - and no money down - Fiat gains access to Chrysler's distribution network first in the US then worldwide. That will spread the Fiat brand quicker than almost anything else. And Fiat will deliver to Chrysler both models and platforms. But perhaps most importantly, Chrysler gains access to Fiat's latest fuel-efficient technology. That's the buy-in for Chrysler. The deal gets them the tech they need to meet the terms of the US Government bail-out.

The unions love the deal. They would: as of yesterday, their man is in the White House and he thinks it's wrong to make Union-protected workers in US car makers earn the same as their foreign counterparts. Chrysler that doesn't go into Chapter 11 won't be able to negotiate lower wages despite the obvious and urgent need to do so. And it won't find it easy to close production lines and import and rebrand Fiat: local unions won't let that happen to any worthwhile extent.

The venture capitalists who now own Chrysler recognise that: Bob Nardelli, Chairman and CEO of Chrysler LLC said yesterday "This transaction will enable Chrysler to offer a broader competitive line-up of vehicles for our dealers and customers that meet emissions and fuel efficiency standards, while adhering to conditions of the Government Loan. The partnership would also provide a return on investment for the American taxpayer by securing the long- term viability of Chrysler brands in the marketplace , sustaining future product and technology development for our country and building renewed consumer confidence, while preserving American jobs."

And Fiat did not exhibit too much Latin excitement either: "The agreement will offer both companies opportunities to gain access to most relevant automotive markets with innovative and environmentally friendly product offering, a field in which Fiat is a recognised world leader while benefiting from additional cost synergies. The deal follows a number of targeted alliances and partnerships signed by the Fiat Group with leading carmakers and automotive suppliers over the last five years aimed at supporting the growth and volume aspirations of the partners involved," the CEO of Fiat Group, Sergio Marchionne said.

And that's at least in part because it's not an agreement yet. It is described as "a non-binding term sheet."

That's what others may call a "heads of agreement." In short, the broad terms have been outlined but the detail remains to be set, due diligence has to be completed and - equally importantly - regulatory hurdles have to be overcome. And then there's the small question of the US Treasury which now does not own Chrysler but, as a result of its loan, has a large say in what happens to it.

So, the plan to fill US roads with Fiat 500s - fitting the same segment (although not price range) as BMW's modern version of the Mini - just as the original 500 cross-matched the classic Austin / Morris versions - may yet come unstuck. Americans may still be trapped in their horrible - but amazingly cheap to buy if not run (26mpg on a highway) - Chrysler 300s or flabby Sebrings instead of the latest Alfas for some time to come.

Last week, Chrysler said that the USD1.5 milliard in loans it has from the US government will mean that "qualified new vehicle customers will be able to apply for zero percent financing for up to 60 months when financing a new Chrysler, Jeep® or Dodge vehicle through Chrysler Financial." But only for certain models.

Those models are, mostly, those that use the most fuel, take up the most space and are currently filling fields around Detroit: "Zero percent interest financing will be available on 11 Chrysler LLC vehicles, and in many cases for up to 60 months. Vehicles included in the program are Chrysler Town & Country, 300 and 300C, Jeep Grand Cherokee, Commander, Wrangler, Dodge Grand Caravan, Charger, Magnum, Challenger, Ram Pickup and Ram Heavy Duty," said the company in a statement on 16th January.

Significantly, it does not include the Aspen Hybrid - which claims to have achieved almost 54% increase in its fuel economy in the city. Not, of course, that anyone with any sense would consider the monster-4x4 to be a city car.

The company pleaded with buyers to go back to its showrooms. "Now, with USD1.5 milliard to loan, more customers can get financed; so it is a good time for them to revisit their Chrysler, Jeep and Dodge dealers,” said Steven Landry, Executive Vice President of Chrysler LLC North American Sales, Marketing and Mopar Parts and Service. “Now we have a special bond with the American people and we will do our part by providing the best quality vehicles, with the best fuel economy and now, the best financing. It has never been a better time to buy a car or truck from Chrysler.”

Whether prospective customers agree that it's time to buy any new car, Chrysler or otherwise, has to be seen. When the "additional features" list that is supposed to make cars appeal to buyers includes, as standard "Aspen Badge" and "Limited Badge," plus, on the model that costs USD5,000 more than any other, "HEV Badge," it looks as if both designers and marketing people are scrabbling for ideas.