Fiat maestro to head Chrysler.

May 7, 2009
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, WASHINGTON, May  7 – The landscape of the global auto industry is set to be radically redrawn with the appointment on Thursday of Fiat corporate rescue maestro Sergio Marchionne to head Chrysler.

Another sign of change emerged in Germany where Volkswagen and Porsche are also moving towards a financial tie-up.

"Marchionne will be the new chief executive of Chrysler after the procedure," a Fiat spokesman said, referring to bankrupcy protection for Chrysler and clearance by a US judge for a rescue by Fiat to go ahead.

Fiat, in acquiring a key stake in Chrysler while also stalking the General Motors\’ Opel business in Europe, is setting the pace of change in the global industry.

Across the world, auto and auto-part makers have been driven into reverse gear by a slump of sales and drop in profits, which have pushed many governments into providing massive aid and old-for-new car incentive schemes.

In the United States, the oldest and biggest names in the auto industry have been humbled, partly by the surge in fuel prices last year and then by the economic landslide.

Fiat gets its stake in Chrysler without payment but in return for small-car technology, now seen as vital to the viability of the US juggernauts.

But analysts say Chrysler still faces a long road ahead as it tries to emerge from court protection and gain traction in a difficult North American market hit by a worldwide collapse in car demand.

Fiat\’s business dealings took on even more complexity on Thursday as the New York Times reported that US giant General Motors was seeking a 30-percent stake in Fiat in any exchange for its operations in Europe and Latin America.

The report said that Fiat was willing to cede only 10 percent of its equity to obtain the GM subsidiaries.

Meanwhile German sportscar maker Porsche and giant Volkswagen, the world\’s second-biggest producer behind Toyota after General Motors lost the top spot last year, unveiled on Wednesday sketchy but well-received plans for a tie-up.

Analysts said the deal still raised a lot of sticky questions however.

"There are more questions remaining than answers," Germany\’s NordLB bank analyst Frank Schwope told AFP. Juergen Pieper from Metzler Bank added: "It\’s not really clear how they will construct it."

The latest developments are part of multi-faceted upheaval in the auto industry, accelerated by the world financial crisis, which has sapped demand and driven once-dominant US auto giants towards bankruptcy.

The role of General Motors and Chrysler is set to decline as production shifts to smaller, more ecology-friendly cars and governments from the United States to the Middle East are the industry\’s new leading lights.

Qatar and Abu Dhabi are seen as top candidates for a share of any Porsche-VW tie-up, while governments in the US and Europe have a major say in the auto industry because of the billions of dollars (euros) they have lent car firm.

Fiat is to take a 20-percent stake in the new Chrysler once its bankruptcy proceedings are over and could eventually increase this to a controlling share of 51 percent if Chrysler repays its debts to the US government.

Marchionne says he plans to create an industry giant including GM Europe, which is based on the Opel and Vauxhall brands.

But there have been concerns that Fiat is planning to cut jobs and shut down plants.

In the latest report, German daily Handelsblatt on Thursday said Fiat was planning to shut five plants in Austria, Britain, Germany and Italy.

Fiat, which was itself on the brink of collapse just a few years ago, has taken up many of the recent headlines with its chief Marchionne predicting that only six major car makers will survive the current crisis.

"As far as mass-producers are concerned, we\’re going to end up with one American, one German of size, one French-Japanese… one in Japan, one in China and one potential European player," he told the Automotive News Europe earlier.

Analysts have been more sceptical at the prospect of such a massive consolidation but say auto makers will be forced to cooperate more in research and development and production in order to achieve economies of scale.

And many say that the window of opportunity for an auto industry shake-up will be this year in the middle of the slump as signs are beginning to emerge that government schemes to boost the auto industry are having an effect.

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