After receiving nearly $13 billion in federal loans and filing for bankruptcy Chrysler is struggling with products that trail the competition in quality, styling and fuel economy. Sales have been down most of the year, while last month was the highest drop of any major car company. Its market share has gone from nearly 11 percent in the months before its May 1 bankruptcy filing to about 8 percent after it.

According to the Wall Street Journal, Fiat and Chrysler will enter an alliance in which Fiat will take an initial 35 percent stake in the troubled Detroit automaker, with an option to raise its ownership stake to 55 percent at a later date. The terms of the deal do not require Fiat to pay any cash to Chrysler. Instead, Fiat will receive equity in Chrysler for investments it will make in revamping a Chrysler plant to produce Fiat models for the US market.

Some of the Fiat models Chrysler would build in the United States, would likely include:
-Fiat Grande Punto and Linea
-A new compact SUV based on the Fiat C-Evo platform
-A four-door sedan possibly replacing the Sebring and Avenger
-Alfa Romeo version of the Grand Cherokee

On Wednesday, June 10, 2009, Fiat management assumed control of Chrysler after the company had emerged from 42 days under bankruptcy protection. The new company is restarting operations under the name Chrysler Group L.L.C. and will be under the management control of Fiat which initially will hold 20% and whose eventual holding may increase to 35%. The remainder of the ownership is divided between a health-care trust for retirees of the United Automobile Workers union which holds 55%, and the American and Canadian governments which hold 8% and 2% respectively. Fiat cannot take majority control of Chrysler until it repays the federal government the monies which had been borrowed by Chrysler.

Chrysler’s new board of directors will consists of nine members, with three to be appointed by Fiat, four from the US Treasury, one by the Canadian government, and one by the UAW health care trust. It is not yet clear whether Chrysler will be selling shares to the public but the UAW president, Ron Gettelfinger, had recently stated that he wanted to sell the health care trust holdings as soon as possible.

The new company announced it would restart production soon but in the meantime was re-distributing vehicles, which it has an ample supply of, from its closed dealerships to the remaining dealers. Chrysler closed approximately 800 dealers as part of its bankruptcy. Remaining dealerships will operate normally.

While the federal government had backed Chrysler warranties of new vehicles sold while the company was in bankruptcy, Chrysler Group will now assume that responsibility. Likewise, warranties on Chrysler products which were purchased before Chrysler filed for bankruptcy will also be honored until they expire. Warranty work for vehicles which were sold by the now closed dealerships can be done at any of the remaining open Chrysler dealers.

Fiat management announced last week that it would soon begin transferring technology, engines, transmissions and other components to the Chrysler plants to enable them to start building small and medium-sized cars for sale in North America. As one of the first steps Chrysler Group will be offering the Fiat 500 to US consumers.

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