Dodge Will Test Fiat Alliance

Chrysler Group LLC is nearing the first major test of its transatlantic partnership with Italy's Fiat SpA—the launch of a new, Fiat-developed compact car that Chrysler will build and sell in the U.S. under its own name.

The sedan will come in a version that is expected to go at least 40 miles on a gallon of gasoline in highway driving, company officials said. Chrysler will produce the Dodge-branded vehicle in Belvidere, Ill., beginning later this year. It will be unveiled at the Detroit auto show in January.


It's a type of vehicle that has been absent from Chrysler's truck-heavy model line for more than a decade, and holds great potential because compact sedans are one of the most popular selling vehicles right now.

"It's the missing link in our portfolio," said Ralph Gilles, who headed the Dodge brand until moving to a new post building up Chrysler's SRT performance-car business this month. With its Fiat roots, the car "shows the potential for the two companies coming together."

Launching the car is also a key step for Fiat to increase its Chrysler ownership. Under terms of Chrysler's government-financed bankruptcy reorganization, Fiat is entitled to an additional 5% share of Chrysler, once the Auburn Hills., Mich., auto maker launches a car that goes 40 miles on a gallon of gas.

Fiat currently owns 46% of Chrysler and is in the process of increasing that by buying the U.S. Treasury's remaining stake in the auto maker. It is also negotiating to buy a small stake owned by the Canadian government. Those two purchases would boost Fiat's ownership to a 53.5%, and the launch of the as-yet unnamed compact car would push it to 58.5%.

Right now, Chrysler's model line is tilted toward large cars such as the Dodge Charger; minivans; sport-utility vehicles like the Jeep Grand Cherokee and Dodge Ram pickup trucks—all of which usually sell at prices above $25,000. Those vehicles and prices usually don't appeal to customers seeking a fuel-sipper, or a low-priced vehicle.

With gas prices near $4 a gallon, compact cars have become big sellers, and account for 14% of the U.S. market this year, according to Autodata Corp. The leader in the segment is Honda Motor Co.'s Civic. Ford Motor Co.'s Focus and General Motors Co.'s Chevrolet Cruze also are strong sellers.

Chrysler last offered a compact sedan in 2005, before it dropped the Dodge Neon. The closest it has now is the Dodge Caliber, a boxy hatchback known for poor fuel-economy. A Caliber with automatic transmission is rated at 24 miles a gallon in combined city/highway mileage.


A new high-mileage car "is what we had been waiting for ever since the Fiat-Chrysler partnership was announced," said David Kelleher, president of the Glen Mills, Pa., David Dodge Chrysler Jeep. "We have never had a viable compact car. This will allow us to reach the entry level customer and it's a perfect fit for Dodge which has been faced with challenges."

The underpinnings of the as-yet unnamed compact are the same Fiat's uses to produce the Alfa Romeo Giulietta. Chrysler's version will be powered by a 1.4-liter turbocharged engine that's built in Dundee, Mich., and uses Fiat technology.

Chrysler will use the same basic components to produce five other vehicles, including a mid-sized sedan, that it intends to launch over the next three years.

"For Chrysler and Fiat, they need success here," said Jessica Caldwell, an analyst at auto information website Edmunds.com. "It's why the two auto makers even have a relationship."

Chrysler is spending $600 million to modify its Belvidere plant to assemble the new compact. International Automotive Components Group, a parts supplier to Chrysler, disclosed last week it will hire 200 people to work at a new plant it is building next to the Belvidere factory.

IAC expects to fill the positions by December. The plant will supply instrument panels and cockpits, door systems and various interior trims to the Belvidere plant.

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