Analysts like rumored Chrysler-Fiat alliance

The Wall Street Journal’s European edition says confirmation of a Chrysler Fiat alliance could come as early as today. Bloomberg News has picked up on the reports from the Financial Times and Automotive News which say a memorandum of understanding was signed last Friday. Chrysler has issued a non-committal statement and Fiat has said nothing at all. But that hasn’t stopped every Monday-morning quarterback on Wall Street from weighing in on the deal.

The latest is that Fiat SpA would take a 35 percent stake in Chrysler LLC by the middle of 2009, apparently leaving the automaker owned by Fiat, Cerberus and Daimler AG, with Cerberus still holding the majority. Fiat would have an option to increase its stake to 55 percent making it the majority owner. There would be no cash involved in the deal but Fiat would pay to convert a Chrysler plant to produce Fiat vehicles for sale in the United States. Chrysler would get access to Fiat’s technology for small and medium vehicles. It could also provide North American support for a return of the Alfa-Romeo line. Fiat gets to return to the North American market, still the world’s largest, without a major investment in infrastructure. Both companies would also benefit from increased economies of scale with an estimated savings in the billions of dollars as well as an expanded global presence.

It’s said the rumored tie-up was engineered by Fiat’s CEO, Sergio Marchionne, who rescued the company from collapse when he took over in 2004.

Analysts have been almost uniformly in favor of the deal, saying both sides need an alliance to survive. Chrysler’s troubles are well known here, but Fiat also faces challenges: production estimates for the Italian auto industry indicate 2009 domestic output will be the lowest since 1961.

One potential spoiler: Chrysler is said to still be discussing a partnership with Nissan, according to the usual “people with knowledge of the matter.” Once again, though, Carlos Ghosn, Nissan’s CEO, is wary of putting any money into Chrysler, especially when he is already dealing with a loss at Nissan and is seeking assistance from the French government for Renault. Still, Chrysler and Nissan already have production agreements in place and it’s likely a Fiat small car would compete with the car Nissan has already committed to supply.

Stay tuned: Allpar will keep you posted as new developments become known.

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