Fiat takes Chrysler stake as France readies aid

Tue Jan 20, 2009 8:35am EST
 
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By Helen Beresford and Claudia Cristoferi

MILAN/PARIS (Reuters) - Italy's Fiat took an initial 35 percent stake in Chrysler, launching a venture designed to secure both carmakers' futures, as France asked its auto industry to commit to output targets in exchange for aid.

Chrysler said on Tuesday the deal, which involves no cash investment, was a key component in its survival plan, giving it access to Fiat's more fuel-efficient vehicle platforms and freeing up an initial $4 billion of funds from the U.S. government's Troubled Asset Relief Program (TARP).

News of the transatlantic partnership broke as politicians struggled to fashion a coordinated response to the worst crisis to hit the auto industry in decades.

French Prime Minister Francois Fillon said his government was considering an aid package for the country's carmakers worth 5-6 billion euros.

"I think all European governments share this opinion ... There is an emergency. We need a massive response on the automobile sector's financing," he told a French car industry summit. Measures would be announced in the coming days, he said.

But as German carmakers also took steps to bolster hemorrhaging cash reserves, Chancellor Angela Merkel criticized U.S. subsidies to the sector and warned that state bailouts risked distorting competition and did not offer a long-term solution to the crisis.

ECONOMIES OF SCALE

The Chrysler stake, which Fiat's vice-chairman John Elkann said might be increased, will give the Italian carmaker the scale it needs to survive.   Continued...

 
<p>A worker inspects a newly produced Fiat Ducato at the Severstal Auto plant in Elabuga May 27, 2008. REUTERS/Denis Sinyakov</p>