News from Notch Consulting, Inc.

On March 30, Chrysler LLC announced on its website that the company and its majority owner, Cerberus Capital Management L.P., had agreed on the terms of a formal global alliance with Fiat S.p.A. In the statement, Chrysler said that it was “encouraged by the commitments of the Administration, U.S. Treasury and President’s Auto Task Force to the American automobile industry and Chrysler’s viability, with a Fiat alliance.”

The statement continued:

Chrysler has consistently said that the alliance with Fiat enhances its business model that expands its global competitiveness. We appreciate the willingness of the Task Force, along with industry and financial experts, to consult closely with us in order to achieve this significant step.

By providing Chrysler with product and platforms, technology cooperation and global distribution, Fiat strengthens Chrysler’s ability to create and preserve U.S. jobs; gives U.S. consumers more choices for environmentally advanced vehicles; gives its dealers more of the products they need to be successful; helps stabilize the supplier base; and allows Chrysler to pay back government loans sooner.

Chrysler has had a series of very constructive discussions since our plan was submitted February 17, including weekly face-to-face meetings with the Task Force. We have been impressed by their speed, diligence, good faith and strong grasp of the difficult issues our industry faces in this financial crisis. This is evidenced by the U.S. government’s initiatives to support consumer warranties and suppliers, as well as their appointment of Dr. Edward Montgomery, Director of Auto Recovery.

On March 27, the Department of Transportation announced that fuel economy standards will be increased in the United States for the first time since they were established in 1975. Under the new rules, which are scheduled to be released this week, fuel economy standards for passenger cars will be increased to 30.3 miles per gallon (mpg) from the current 27.5 mpg, while standards for light trucks would rise to 24.1 mpg from 23.1 mpg.

The new standards only apply to model year 2011 vehicles, thus differing from those proposed (but not implemented) by the Bush administration, whose proposal also included standards for 2011-2015. However, the new rules are considered a first step toward Congress’s mandate that automakers reach 35 miles per gallon by 2020.

The new standard for passenger cars is lower than the 31.2 mpg that the previous administration had proposed. With regard to future standards, the Obama administration has requested that DOT undertake a more thorough review of future standards, including a forthcoming report on fuel economy from the National Academy of Sciences that was required by the 2007 Energy Independence and Security Act, which had also required the more stringent fuel economy rules.

According to US News and World Report, another test for the administration will come in May, “when it’s thought that the administration will make a decision on whether to allow California and 13 other states to enact laws to reduce carbon emissions. Those laws would cut new-vehicle emissions by 30 percent by 2016. In one of his first moves in office, Obama issued a directive ordering the EPA to re-examine the Bush administration’s rejection of the states’ bid—a worrying sign for automakers.”

The National Highway Traffic Safety Administration’s Corporate Average Fuel Economy Standards are available here.

Tire Business on the new standards (subscription required)