TORONTO (CP) -- Fiat's hookup with Chrysler will expand the Italian automaker's presence in North America, but analysts and industry players say the alliance isn't a magic fix to Chrysler's financial woes and could actually hurt the Canadian auto industry in the long run.
The two companies announced Tuesday they have signed a nonbinding agreement for a strategic alliance that would give Fiat a 35 per cent stake in Chrysler, which has been fighting to stave off bankruptcy for months.
Industry analyst Dennis DesRosiers said Fiat alone can't save Chrysler, but the deal could help the North American automaker meet some of the conditions attached to emergency funding from governments in the U.S. and Canada.
The governments, which have agreed to provide Chrysler with billions in loans, have stipulated that the Michigan-based automaker must come up with a viable restructuring plan in order to receive the money.
"The government money helps save Chrysler -- Fiat doesn't," DesRosiers said in an interview. "But (the deal) may save them in the short term, because governments may feel more comfortable giving Chrysler money in the short term."
DesRosiers described the Fiat-Chrysler alliance as a "brilliant move over a two- to five-year time frame" that could lead to increased production and new auto industry jobs in Canada.
However, he said Chrysler won't be able to benefit from it unless it can get enough government funding to make it through the next couple of years.
"There isn't anything in the Fiat announcement that provides one iota of bottom-line financial help for Chrysler for at least two to three years, so they need help now," DesRosiers said. "The patient is on the table."
Under the proposed alliance, Fiat wouldn't invest cash in Chrysler but would provide access to its successful small-car platforms, as well as to its more environmentally friendly and fuel-efficient engines.
The statement said Fiat would take an "initial" 35 per cent stake, suggesting the deal may be broadened. It stressed that the company hasn't committed to provide funding to Chrysler in the future.
For Chrysler, based in the Detroit suburb of Auburn Hills, Mich., the deal would mean breaking out of the North American market and gaining access to more competitive products.
But business professor Joe D'Cruz, who teaches at the University of Toronto's Rotman School of Management, said that despite the apparent benefits for both companies, the alliance "is bound to fail."
"It's highly unlikely to be successful. Basically you're taking two very weak companies and trying to combine their operations," D'Cruz said in an interview. "You almost never produce a strong company by combining two weak companies."
He said Fiat, in an attempt to move into the North American market, will likely establish assembly operations in Canada or the U.S. because importing its low-end cars from Europe will be financially uneconomic.
"They're going to have to establish manufacturing facilities in North America and that's a very stupid idea because there's already extensive over-capacity in the North American system," D'Cruz said.
"Building more capacity in a market where you already have excess capacity doesn't make any sense for anybody."
But the local Canadian Auto Workers president in Windsor, Ont., where Chrysler employs approximately 5,000 people at its minivan plant, said he's hopeful the partnership will help protect Canadian auto workers.
"I don't see a whole lot of job loss in North America," said Local 444 president Rick LaPorte.
LaPorte said CAW members would be happy to build Fiats if the company decides to open an assembly plant in Canada.
"We're autoworkers and we'll build whatever we're needed to build."
In Canada, Chrysler employs about 9,800 people and operates vehicle assembly plants in Brampton, Ont., and Windsor and a casting plant in Toronto.
Chrysler is currently owned 80.1 per cent by Cerberus Capital Management LLP, which acquired its stake for $7.4 billion in 2007 as Germany's Daimler AG dissolved a "merger of equals" made in 1998 between Daimler-Benz and Chrysler Corp. Daimler still owns about one-fifth of Chrysler LLC, which is a privately held company.
It is likely that part of Fiat's stake will come from Daimler's remaining share in the company.