By Kevin Krolicki and Gilles Castonguay
WASHINGTON/MILAN, March 28 (Reuters) - The boards of Chrysler LLC and Fiat SpA have given executives approval to complete an alliance deal that now hinges on the terms for additional aid for the struggling Detroit automaker, according to people with knowledge of the discussions.
The development comes two days before U.S. President Barack Obama is expected to make an announcement on auto industry aid and more than two months after teams from Chrysler and Fiat began reviewing the proposed tie-up and developing a business plan for their combined operations.
Final terms of any deal will depend on what terms the U.S. autos task force headed by former investment banker Steve Rattner imposes on Chrysler as a condition for providing additional funding, according to the sources, who asked not to be identified because of the confidential nature of the talks.
Fiat said on Saturday it was optimistic a Chrysler deal could be reached. Chrysler said it was working with the United Auto Workers, its major union, and with creditors to complete the cost-cutting deals the government has set as a target.
Chrysler has asked for $5 billion in loans from the U.S. Treasury on top of the $4 billion it has already received. Executives at Chrysler and its owner, Cerberus Capital Management, have said that funding would allow the No. 3 U.S. automaker to be viable on its own.
The funds are crucial because Chrysler's proposed alliance with Fiat would not bolster its cash. The Italian automaker has proposed acquiring a 35 percent stake in Chrysler in exchange for small-car technology, not cash, with an option to take its ownership stake as high as 55 percent.
Projections developed by the automakers show the proposed deal would require several hundred million dollars in spending in the 2009-2010 period to launch Fiat-based small cars in the U.S. market and start reaping the benefits of a tie-up, according to one source familiar with the plans.
BIG SAVINGS SEEN DOWN THE ROAD
The automakers stand to save more than $5 billion over the next five years by combining vehicle platforms and parts procurement. But those savings would not start to accrue in a significant way until 2012 and 2013, the source said.
The pending Fiat deal with Chrysler represents something of a political wild card for Obama, who is expected to make an announcement on Monday on the next steps for Chrysler and larger rival General Motors Corp.
The administration has signaled it wants to support a U.S. auto industry but also faces special pressure in crafting support for Chrysler, which analysts see as needing a merger or alliance partner to survive the weakest consumer market for new cars in almost three decades.
Fiat's status as an overseas automaker also has the potential to complicate the taxpayer politics of a Chrysler bailout, although that has not figured in the public debate.
UAW President Ron Gettelfinger, an Obama ally during last year's election campaign, has offered his support for the deal. Chrysler estimates it would save 5,000 U.S. production jobs.
Fiat Chief Executive Sergio Marchionne, who has appeared twice before the U.S. autos task force in closed-door meetings to make the case for the Chrysler deal, said on Friday he was ready to make changes the U.S. government could demand.
'In all likelihood, if the deal gets approved, it will be on terms that are more reflective of the requirements of the Treasury,' he said. 'There will undoubtedly be adjustments to be made. We do want to be the industrial partner of Chrysler.'
Marchionne also said that Fiat would be patient for its partnership to produce financial results. 'For that, we are willing to wait and it will take years,' he told reporters in Turin.
Chrysler Chief Executive Bob Nardelli said this month that the value of the Fiat deal could be between $8 billion to $10 billion based on what it would have cost Chrysler to develop the cars and engines it will be getting from Fiat.
Fiat has said it would provide Chrysler with access to the platforms behind its popular 500 minicar as well as a subcompact and compact model.
'At this moment, we have no agreement to announce,' Fiat said in a statement on Saturday. 'Fiat continues to engage in constructive dialogue with the president's automotive task force and Chrysler, and we remain optimistic that an agreement can be reached that is mutually beneficial to Fiat, Fiat's shareholders, Chrysler and the U.S. taxpayers if all stakeholders involved are willing to do their part.'
Chrysler said in a statement on Saturday that it was still working with the U.S. autos task force.
'We have continued to emphasize that Chrysler is a viable business on a stand-alone basis and our future is further enhanced through the proposed global alliance with Fiat. At the same time, we are continuing to work collectively and determinedly with all constituents to successfully conclude our negotiations,' the company said.
(Editing by Peter Bohan and Peter Cooney) Keywords: CHRYSLER/FIAT (email: kevin.krolicki@thomsonreuters.com; +1 313 300 7276) COPYRIGHT Copyright Thomson Reuters 2009. All rights reserved. The copying, republication or redistribution of Reuters News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Reuters.
WASHINGTON/MILAN, March 28 (Reuters) - The boards of Chrysler LLC and Fiat SpA have given executives approval to complete an alliance deal that now hinges on the terms for additional aid for the struggling Detroit automaker, according to people with knowledge of the discussions.
The development comes two days before U.S. President Barack Obama is expected to make an announcement on auto industry aid and more than two months after teams from Chrysler and Fiat began reviewing the proposed tie-up and developing a business plan for their combined operations.
Final terms of any deal will depend on what terms the U.S. autos task force headed by former investment banker Steve Rattner imposes on Chrysler as a condition for providing additional funding, according to the sources, who asked not to be identified because of the confidential nature of the talks.
Fiat said on Saturday it was optimistic a Chrysler deal could be reached. Chrysler said it was working with the United Auto Workers, its major union, and with creditors to complete the cost-cutting deals the government has set as a target.
Chrysler has asked for $5 billion in loans from the U.S. Treasury on top of the $4 billion it has already received. Executives at Chrysler and its owner, Cerberus Capital Management, have said that funding would allow the No. 3 U.S. automaker to be viable on its own.
The funds are crucial because Chrysler's proposed alliance with Fiat would not bolster its cash. The Italian automaker has proposed acquiring a 35 percent stake in Chrysler in exchange for small-car technology, not cash, with an option to take its ownership stake as high as 55 percent.
Projections developed by the automakers show the proposed deal would require several hundred million dollars in spending in the 2009-2010 period to launch Fiat-based small cars in the U.S. market and start reaping the benefits of a tie-up, according to one source familiar with the plans.
BIG SAVINGS SEEN DOWN THE ROAD
The automakers stand to save more than $5 billion over the next five years by combining vehicle platforms and parts procurement. But those savings would not start to accrue in a significant way until 2012 and 2013, the source said.
The pending Fiat deal with Chrysler represents something of a political wild card for Obama, who is expected to make an announcement on Monday on the next steps for Chrysler and larger rival General Motors Corp.
The administration has signaled it wants to support a U.S. auto industry but also faces special pressure in crafting support for Chrysler, which analysts see as needing a merger or alliance partner to survive the weakest consumer market for new cars in almost three decades.
Fiat's status as an overseas automaker also has the potential to complicate the taxpayer politics of a Chrysler bailout, although that has not figured in the public debate.
UAW President Ron Gettelfinger, an Obama ally during last year's election campaign, has offered his support for the deal. Chrysler estimates it would save 5,000 U.S. production jobs.
Fiat Chief Executive Sergio Marchionne, who has appeared twice before the U.S. autos task force in closed-door meetings to make the case for the Chrysler deal, said on Friday he was ready to make changes the U.S. government could demand.
'In all likelihood, if the deal gets approved, it will be on terms that are more reflective of the requirements of the Treasury,' he said. 'There will undoubtedly be adjustments to be made. We do want to be the industrial partner of Chrysler.'
Marchionne also said that Fiat would be patient for its partnership to produce financial results. 'For that, we are willing to wait and it will take years,' he told reporters in Turin.
Chrysler Chief Executive Bob Nardelli said this month that the value of the Fiat deal could be between $8 billion to $10 billion based on what it would have cost Chrysler to develop the cars and engines it will be getting from Fiat.
Fiat has said it would provide Chrysler with access to the platforms behind its popular 500 minicar as well as a subcompact and compact model.
'At this moment, we have no agreement to announce,' Fiat said in a statement on Saturday. 'Fiat continues to engage in constructive dialogue with the president's automotive task force and Chrysler, and we remain optimistic that an agreement can be reached that is mutually beneficial to Fiat, Fiat's shareholders, Chrysler and the U.S. taxpayers if all stakeholders involved are willing to do their part.'
Chrysler said in a statement on Saturday that it was still working with the U.S. autos task force.
'We have continued to emphasize that Chrysler is a viable business on a stand-alone basis and our future is further enhanced through the proposed global alliance with Fiat. At the same time, we are continuing to work collectively and determinedly with all constituents to successfully conclude our negotiations,' the company said.
(Editing by Peter Bohan and Peter Cooney) Keywords: CHRYSLER/FIAT (email: kevin.krolicki@thomsonreuters.com; +1 313 300 7276) COPYRIGHT Copyright Thomson Reuters 2009. All rights reserved. The copying, republication or redistribution of Reuters News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Reuters.