Wednesday, June 10, 2009

Fiat to close Chrysler deal on Wed, shrs rise

Italian car maker Fiat SpA was set to close its takeover of Chrysler on Wednesday in an ambitious move to survive and grow out of one of the worst crises in global auto industry.

Fiat shares traded 4.1 percent higher at 7.79 euros at 0945 GMT -- twice the rise in the DJ Stoxx auto sector -- following news that the U.S. Supreme Court had removed the final obstacle to the deal on Tuesday.

In a victory for the U.S. administration driving the restructuring of bankrupt Chrysler, the Supreme Court on Tuesday denied a request from Indiana pension funds to delay the sale.

''The news from the Supreme Court is very good for Fiat,'' one Milan trader told Reuters.

Fiat is joined by a union-aligned trust and the U.S. and Canadian governments in taking over the best parts of Chrysler.

Fiat is expected to close the deal by 1400 GMT, according to two sources familiar with the procedure.

In a statement, Fiat said it would occur shortly.

DROP IN SALES Fiat began looking for partners to gain scale late last year when the crisis came into full force, leading to a dramatic drop in car sales. This year is expected to be no different.

CSM Worldwide, an industry consultancy, has forecast a 20 percent drop in global production to 52 million vehicles this year as car makers lay off workers and leave their factories idle in the face of a sharp drop in demand.

Others in the industry do not feel the urgency to look for partners. Renault-Nissan Chief Executive Carlos Ghosn, for example, said on Wednesday his group had no problem with scale.

In Fiat's case, CSM Worldwide said it saw a ''tremendous amount of risk'' in trying to revive Chrysler.

SG Securities analyst Eric-Alain Michelis said turning around Chrysler would prove to be a tougher challenge for Fiat than convincing U.S. authorities of its plans for the U.S. car maker.

Not only did it have to renew an aging product line but also persuade former customers to buy a Chrysler again.

Fiat has sent a team of executives and engineers to Detroit to work with Chrysler to cut costs and prepare for the U.S.

launch of the Cinquecento (500), Fiat's popular small car.

Its stake in Chrysler will start at 20 percent and should rise to 35 percent over time.

GERMANY Fiat has had a harder time of persuading people in Germany of its plans to create a world giant in car industry.

It lost out to Canadian car parts market Magna International for General Motors Corp's Opel unit although the government invited it to improve its bid.

The sale is part of GM's restructuring, which saw it enter court protection on June after Chrysler sought bankruptcy on April 30.

Erich Merkle, an independent auto analyst based in Grand Rapids, Michigan, said the court's decision on Chrysler was good news for GM because it was using a similar quick-sale strategy to facilitate its way through bankruptcy.

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