As part of the potential deal, Fiat aims to share its engine and transmission technology with Chrysler, according to the person familiar with the matter. This cooperation would allow the U.S. automaker to also introduce new models of small cars with low emissions to its fleet, this person added.
For months Fiat has been exploring ways to gain a foothold in the North American car market, hunting for a partner that could manufacture its Fiat 500 model and re-launch its high-end Alfa Romeo brand in the U.S.
As part of the deal, Fiat is exploring whether it could sell its cars through Chrysler's US dealership network, the person said.
A Chrysler spokesperson did not immediately return calls seeking comment».
WSJ.com
«Fiat is talking with Chrysler LLC about giving it access to its technology in exchange for a stake in the U.S. car maker, a source close to the Italian group said on Monday.
"Between the two groups there is talk about Chrysler possibly using Fiat technology in exchange for a stake," the source told Reuters, confirming a report by industry publication Automotive News Europe. The source spoke on condition of anonymity.
Citing people familiar with the matter, Automotive News said in a report posted on its website (www.autonews.com) earlier in the day that Fiat could give Chrysler access to platforms, engines and transmissions.
The source told Reuters a deal with Fiat would help Chrysler make vehicles that produce fewer harmful emissions.
"To get financing U.S. (car makers) have to show that they are really committed to developing over the short term a new family of vehicles that pollute less," the source said. "By itself, Chrysler would not be able to meet this condition."
Along with General Motors, Chrysler has gotten billions of euros in government loans to avert collapse in exchange for meeting certain cost-cutting targets and demonstrating that they are viable by the end of March.
Neither Fiat, Chrysler nor its owner, Cerberus Capital Management, were immediately available for comment.
Fiat's stock ended 4.9 percent lower at 4.48 euros, recovering some lost ground after earlier news that it could only meet its 2010 targets if the market returned to normal -- something seen by analysts as being far from likely.
BET ON CHRYSLER'S FUTURE
In an interview with the same publication in December, Fiat Chief Executive Sergio Marchionne said Fiat needed a partner because it was too small to survive the crisis alone. He said automakers needed to have scale -- producing at least 5.5-6.0 million cars a year -- to have a chance of making money.
One London analyst said scale was probably the reason behind Fiat's interest in Chrysler, despite the U.S. car maker's desperate situation.
"This is a bet that Chrysler in some form will exist (in the future)," he said on condition of anonymity.
Apart from Ferrari and Maserati, Fiat does not sell cars under its three other brands in the United States.
Before crisis struck the car industry and decimated sales, Fiat had been talking with the three U.S. automakers about using some of their idle production lines to help it make a return to the U.S. market.
A second London analyst said the stake that Fiat could take in Chrysler would likely be a token 5 percent. Fiat would probably use Chrysler's dealership network to sell small cars, something which is lacking from Chrysler's product portfolio, the analyst said.
Although Chrysler denies positioning itself for a sale, it has been in talks with other manufacturers.
Chrysler Vice Chairman Tom LaSorda said last week it was not selling brands but hoped to sell equipment used to make one of its models, the PT Cruiser.
He declined to comment on a Reuters report about Chrysler having discussed selling assets to Renault-Nissan and Magna International.
Seen as the weakest of the Detroit manufacturers, Chrysler is in such a difficult situation that analysts question whether it can survive without a merger partner.
It suffered a 30 percent drop in sales in 2008.
In the second half of 2008, it burned through $9 billion to end the year with $2 billion in cash.
In a bid to cut costs and save cash, it has shut down all 30 of its U.S. plants for a month from the middle of December.
Fiat and other car makers have also been halting production to lower their inventories of unsold vehicles.
Moving the metal has meant offering attractive deals to lure drivers back to showrooms.
In Chrysler's case, its finance arm has begun offering zero percent financing after getting a $1.5 billion loan from the U.S. Treasury».
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