Chrysler-Fiat Alliance

The timing of this MoU is significant, because it demonstrates to the U.S. government that Chrysler is serious about restructuring itself into a viable company. Prior to this MoU, Chrysler lacked a global footprint and viable long-range plans for small cars. Furthermore, without this MoU, Chrysler might have had difficulty passing through the government checkpoints scheduled for February 17 and March 31 in accordance with the bridge-loan funds. Now, the likelihood that Chrysler will receive the bridge loans necessary for it to stay in business through 2009 is significantly improved. It should be emphasized, though, that this is only a MoU. Due diligence and government approval will still be required.

IHS Global Insight is very encouraged by this development. Chrysler and Fiat are similar-sized companies that each have something to gain from this proposed partnership. There is minimal overlap between the two companies geographically and in their product portfolios, so the opportunity for synergies is very bright. This agreement, if enacted, could allow Chrysler to achieve long-term success and will greatly facilitate Fiat's re-entry into the U.S. market with the Alfa Romeo brand. Unlike some recent auto industry mergers that have not lasted, this agreement stands a good chance of succeeding because it fulfills strong needs for both parties.

In summary, Chrysler gets:

• Viability enhancement for the U.S. government's February 17 and March 31 checkpoints, thus helping to obtain further bridge-loan funding.
• An expanded global footprint, since Chrysler currently sells only 10% of its volume outside North America.
• Access to modern, fuel-efficient small and midsize car platforms and powertrains.
• Engineering, development, and homologation of small and midsize vehicles would be handled by Fiat.
• Improved plant utilization in North America by building Fiat and Alfa Romeo products for North American consumption.
• Improved dealer confidence.
• Added showroom traffic in North America, with the addition of the Alfa Romeo brand to Chrysler-Dodge-Jeep showrooms in North America.
• Improves Chrysler's outlook for meeting CAFE standards.
• Worldwide distribution of Chrysler products through Fiat.

Fiat gets:

• Access to an established dealer network to assist the launch of the Alfa Romeo brand in North America, and improved prospects for success of this brand.
• Access to North American production facilities for Alfa 159, Fiat 500, and possibly other vehicles in the longer term.
• Access to several world-class Chrysler platforms and associated powertrains to augment the Fiat-Alfa- Lancia brands globally, such as but not limited to:
• Jeep Grand Cherokee's SUV platform (for Alfa SUV).
• LX RWD premium car platform (for Alfa 169).
• Chrysler's minivan platform.

In addition:

• This agreement does not address Chrysler's short-term (2009) issues, but the automaker could get a positive bounce if consumer confidence in its long-term viability improves.
• It does not address both Fiat's and Chrysler's needs to expand in China and India, but it solidifies their presence in other significant growing markets like Brazil and Russia.
• Chrysler's existing joint venture agreements with Nissan (Dodge Hornet and Nissan Titan) and VW (VW Routan) continue.
• The UAW has indicated support for this alliance.

IHS Global Insight will not be making significant changes to our forecasts until we have further confirmation of this agreement, but we will keep our clients up to date on developments as they occur.