Today, Fiat S.p.A., Chrysler LLC, and Chrysler’s majority shareholder, Cerberus Capital Management LP, announced the formation of a strategic global alliance aimed at boosting viability of both Chrysler and Fiat as global, diverse brands. In an open letter to all Chrysler stakeholders, Chrysler LLC Chairman & CEO Bob Nardelli gave a brief synopsis of the tentative agreement, explaining that a Fiat-Chrysler partnership would grant Chrysler access to all Fiat vehicle platforms and powertrains (excluding Ferrari), allowing Chrysler to expand their product portfolio. More interesting to note, the Fiat-Chrysler partnership would also bestow Fiat with access to Chrysler’s North American production facilities as well as a vehicle (no pun intended) for introducing Fiat vehicles into the United States market.
“This represents a positive business strategy for Chrysler in today’s difficult economic environment,” said Nardelli in the letter. “Chrysler management believes the alliance provides significant strategic benefits that support our viability and long-term competitiveness.” Although still subject to official approval, Nardelli went on to say that he is confident the non-binding business agreement will be formalized by April 2009 and has high hopes for the future addition of Fiat to the Chrysler family.
Read Nardelli’s full letter after the jump
To All Chrysler Stakeholders:
In our continuing effort to build a profitable enterprise for the future, we are announcing today that Cerberus, Chrysler LLC and Fiat S.p.A. have entered into a non-binding term sheet to establish a global strategic alliance. Upon completion of a due diligence process that is now underway and required approvals, the agreement is expected to be completed by April.
This represents a positive business strategy for Chrysler in today’s difficult economic environment. Chrysler management believes the alliance provides significant strategic benefits that support our viability and long-term competitiveness.
As a condition of the U.S. government loan agreement, all constituents will be asked to contribute to Chrysler’s restructuring effort including: lenders, employees, the UAW, dealers, suppliers and Chrysler Financial. We recognize that the financial crisis, which has brought hardship to Chrysler, has created challenges for all of our dealers, suppliers and other constituents, and we are committed to working together to find ways to support our mutual and sustained long-term viability.
This alliance would adhere to the conditions of the U.S. government loan, and help the company provide a return on investment for the American taxpayer by securing the long-term viability of Chrysler brands in the marketplace. The alliance would help sustain Chrysler’s product development, manufacturing and sales operations here in the U.S., which further supports our viability plan and preserves American jobs. Our partners at the UAW have announced their endorsement of the proposed alliance.
Alliance Continues Chrysler’s Aggressive Restructuring
Seeking partnerships and alliances has been a cornerstone of our recent restructuring efforts. Following the separation from Daimler in August 2007, Chrysler launched a comprehensive restructuring to address declining market conditions and transform the business into an independent American auto company, aligned with consumers’ emerging needs. Since 2007, Chrysler has:
Reduced dealer inventory by 19 percent/more than 90 thousand units
Discontinued four vehicle models
Eliminated 1.2 million units, or 30 percent of previously installed capacity
Disposed of $700 million in non-earning assets
Reduced total employment 36 percent, to its lowest level since 1934
Reduced fixed costs by more than $2.4 billion
As a result, Chrysler began 2008 running ahead of its targets six months into a conservative plan before the unprecedented drop in vehicle sales caused by the financial crisis interrupted its business transformation. As the economy declined in late 2008, Chrysler responded quickly and aggressively to keep production and dealer inventory aligned with shrinking U.S. market demand, by making further reductions in manufacturing schedules. The extensive restructuring, cost reduction, and productivity enhancements support Chrysler’s competitive position in the continuing economic downturn.
The restructuring Chrysler began in 2007 has already produced gains in new product quality and reliability. Even in the toughest automotive market in more than two decades, we continue to improve our value, safety, quality, warranty, fuel-economy and innovation for our customers. For the 2009 model year, over 88 percent of Chrysler’s vehicles achieved five stars for frontal crash tests, 86 percent achieved the highest rating for side impact protection and 73 percent of our product line up offers improved fuel economy compared to last year’s models.
Using Design for Six Sigma, the Company focuses on the smallest details in order to delight customers and is committed to flawless execution. A new Interior Design Studio is significantly raising the craftsmanship and improving the materials in all Chrysler interiors. The Company is also reducing complexity and engineering changes to give customers better materials without increasing costs.
Reflecting the Company’s focus on designing and building in quality from the beginning, Chrysler had the industry’s lowest number of recalls in 2008 as reported by NHTSA — a total of 360,000, down from 2.2 million in 2007. In addition, internal warranty data show that Chrysler has achieved the lowest warranty claim rate in its history, with a 30 percent improvement in the last 12 months. Chrysler plans to continue to set new records, month by month, during 2009.
Benefits of Chrysler / Fiat Alliance
Under the agreement, Chrysler will have access to all Fiat group vehicle platforms, with the exception of Ferrari, which would complement our current product portfolio with fuel-efficient, environmentally-friendly small cars and powertrain technology. The alliance would greatly increase the global reach for our Jeep, Dodge and Chrysler brands in markets outside of North America, and Fiat’s distribution organization would provide Chrysler a strong partner to help build our brand’s presence in important markets where we have little presence today.
Fiat would benefit from product and technology sharing as well, with access to our vehicle platforms and our manufacturing capabilities in North America. In addition, Chrysler would assist Fiat to bring their brands to the U.S. market.
Chrysler is committed to work together with our owners, lenders, employees, dealers, suppliers and Chrysler Financial to implement our viability plan fully adhering to all conditions of our government loan. Today’s announcement is part of our continuing commitment to build a profitable enterprise for the future, consistent with the viability plan we submitted to congress. The agreement announced today is just the first step toward this prospective alliance, and we intend to keep all stakeholders informed of key developments on an ongoing basis.
Chairman and CEO, Chrysler LLC