Fiat and Chrysler: Not a winning pair

Posted by: David Welch on January 19, 2009

The last time Chrysler and Fiat talked about some kind of engagement, GM Vice Chairman Bob Lutz—then Chrysler’s President—called the Italian carmaker “a bride…lying on her deathbed.” Well, there is talk of a marriage between the two again, almost 20 years later. Reports say Fiat and Chrysler may cut deals for joint product development with Fiat taking a stake in the Detroit carmaker.

Fiat isn’t quite as bad as it was in the early ‘90s. Improvements in quality and productivity led by CEO Sergio Marchionne have made it into a decent carmaker. But a savior for Chrysler? No. What Chrysler needs is a parent company with technological prowess and a lot of cash. Renault-Nissan comes to mind. Fiat has neither, really. It does have a good set of diesel engines. That was what General Motors wanted when it took 20% interest back in 2001. But Fiat isn’t exactly fighting it out with Toyota for hybrid and electric drive technology. And cash? Not enough to save Chrysler.

At the Detroit auto show, Chrysler CFO Ron Kolka said the company had between $2 billion and $2.5 billion. That’s the bare minimum Chrysler needs to meet payroll, buy parts and keep the plants going. Fiat has excess capacity in Europe and will need cash to fix some of its own problems.

Chrysler needs what owner Cerberus Capital Management and, before that, Germany’s Daimler AG never gave it. The cash, technology and hardware to turn loose the creativity that made Chrysler the loveable underdog. With money to spend, Chrysler always found a way to win over consumers. Chrysler invented the minivan. Jeep created the suv market. The 300 was a breakthrough design. But even styling costs money. So does revamping a whole product line.

Sure, the two companies have some synergies. Fiat is strong in Europe and South America and it’s a passenger car company. The company has rediscovered the flair of Italian design. Chrysler is a North American producer of minivans, pickups and suvs. Clearly they could fill in gaps for one another. But the money isn’t there to fix the problems. And neither has enough scale, technology or cash to make the other thrive. This seems like more a move of desperation than a winning formula.

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Reader Comments

Strategery

January 19, 2009 11:28 PM

It might be time for Chrysler to throw in the towel, just like Circuit City. Sure, Chrysler is good at hip and edgy vehicles, and I have to give them props for making a rear-wheel drive vehicle again; but when things are not so good, people need to buy a vehicle that is practical and reliable. Chrysler has been on life support for nearly 30 years; time to pull the plug.

pearljam

January 20, 2009 12:04 AM

If this goes through, its bad for Fiat. Stake in Chrysler when its almost bankrupt?!? Fiat will end up losing all its cash generated over the last few years.

James Mason

January 20, 2009 12:07 AM

I am sorry but Chrysler is basically a dead man walking. At some point they will have to get a doctor in to pronounce life extinct and then make funeral arrangements.

Thomas Carden

January 20, 2009 12:44 AM

I think one of the strengths of this deal is that Fiat may gain access to Chryslers dealer network for its small cars. If they can get the Fiat 500 to US market quickly through the network it might just save both of them.

Francesco Rossi

January 20, 2009 03:44 AM

Mr Welch,
I suggest you check better fiat's background of the recent past years before suggesting there isn't any winning options for the pair.
First of all Fiat right now is one of the biggest case histories of turnaround in the last decade.
Fixing all the quality problems, as well as debts and industrial disadvantages took really a lot of skills.
Still, fiat has now less debt than the big threes, the market share in Europe is close to Renault's one, while its technologies, like small car wheelbases (guess what? just what Chrysler is needing) have been used by many partners: least of them Ford Motor Company for the upcoming Ka model (set to be exported in US). Last but not least,south america - expecially brazil - is leaded by Fiat, which is not developing Hybrid Technologies (which even in your country is not a big share of market), but it is exploring alternative fuels (Tetrafuel anyone?) in developing markets.
As for money, Fiat right now it one of the few EU's carmakers that hasn't received any help from the goverment.
FIAT (and its other brands, like Alfa Romeo, Lancia and Maserati) is no more Fix It Again Tony.
thank you.

m.r.

January 20, 2009 05:03 AM

crisis makes strange bedfellows!
Chrysler needs finance, management,engineering and better direction! a distinct corporate set up with Nissan and with Fed help will save most of Chrysler! and may result in a viable competitor.

A.R

January 20, 2009 05:37 AM

renault-Nissan? Where do you live? Renault is in a big crisis, it's loosing a lot of market share since the new megane and now its possible that the French govern will help the french car makers with statl funding. Fiat its stronger and with Fiat Powertrain, also technologically advanced and the only one with a a market share that's growing and not declining

low gear

January 20, 2009 05:54 AM

Early 2005 Fiat tried to force GM to buy its money-losing auto unit. In vain. Today Fiat is in no better position than 2005, and today the future looks worse than early 2005.

How can Fiat suddenly buy Chrysler? Perhaps this is a strategy where one tries to hide a bad business under another money losing business - i.e. pile manure on top of manure. However, to hide a pile of manure under another pile will make a mountain of it, the hiding will not succeed. I can already smell something bad in this deal.

Harry Yang

January 20, 2009 06:06 AM

Good.

Lor

January 20, 2009 07:35 AM

Actually why someone should invest money on a dead man walking like Chrysler? Also considering that, if Chrysler passes through a government recapitalization, the capital structure will be heavily modified and the stock portfolio owned by another private company proportionally reduced?

Tom-in-Ohio

January 20, 2009 07:38 AM

35% equity for little more than a few patents? One must wonder if top management is being paid off to betray the stockholders, either directly or with positions/golden parachutes within Fiat.

David Welch

January 20, 2009 08:20 AM

David Welch with BusinessWeek here. I wrote the blog post. I’d just like to respond to the comment posted by Francesco Rossi. I’m well aware that Fiat CEO Sergio Marchionne has done wonders at Fiat. Many dismissed the company as dead just a few years ago and he even turned a profit. Styling is much better and the company certainly can compete. But Chrysler needs real investment capital to invest in new products and technology. The company may also need to close more plants once the market shakes out. If that’s the case, Chrysler will need even more cash. Early this month, CFO Ron Kolka said Chrysler had about $2.5 billion in cash and $7 billion in debt. Government borrowings will double the debt load. My point: It will take a partner with deep pockets to help mend Chrysler. Do the Italians know that?

Chris Hauser

January 20, 2009 09:59 AM

Fiat and Chrysler?! How many sick dogs does it take to make one healthy one? And if anybody thinks that Fiat has gotten a grip on their quality problems, one should read the latest European car quality report (short-medium-long term)and that report still shows Renault, Peugeot, Fiat, Lancia and Alfa Romeo on the very bottom of the scale, both short-, medium- and long-term. To me it seems that the only thing Fiat is after is to use a Chrylser plant to build the only Fiat that presently sells, which is the 500. But what happens when the initial cuteness-effect wears off? Simple! Close the plant and leave America - again!

norman ravitch

January 20, 2009 10:23 AM

It's like giving up prime rib for pasta ad olio ed aglio.

Schmeltz

January 20, 2009 11:43 AM

This just keeps getting uglier and uglier.

giorgio gaviraghi

January 20, 2009 12:00 PM

I believe this is a winning and not a losing strategy.
Any cash given to Chrysler would be swallowed by its debts and costs so it's pointless to put it in.
The US government is providing that.
IN reality Fiat and Chrysler are 100% complementary, both good in their market segment. Small advanced technology ecomonic cars Fiat, SUVs vans jeeps Chrysler. Together they can reach the world market with a complete range of products.
If they will be able to utilize its synergies this could be a good deal.
Where Daimler failed Fiat can suceed.
Quality?
Where does Ferrari and Maserati come from??

Giovanni Abrate

January 20, 2009 06:08 PM

I think the original post misses the point. The low US Dollar value makes this an excellent investment for FIAT. FIAT has the widest range of passenger cars in the world: Ferrari, Maserati, Alfa Romeo, Lancia, Autobianchi and FIAT. Some of the current FIAT models have the style, technology and road feel that would make them excellent alternatives for the BMWs and AUDIS sold in the US. The Chrysler connection gives FIAT US manufacturing, distribution and Service. Chrysler gets new technology in the powertrain area and the best common-rail diesel engine technology in the world. It also gets European, Asian and South American distribution networks that are second to none. Drive a FIAT product and you'll be surprised at the pleasure of the experience. Modern FIATs adopted the corrosion proofing processes of SAAB, thanks to a common development in the area of luxury sedans, a few years ago. They are certainly competitive with VW, the Koreans and the Japanese, as their success in markets such as China proves. I think this is a great marriage!

mpumi Malangabi

January 20, 2009 11:43 PM

INFLECTION POINT: What happened in these United States at 12h00 CET, 20 January 2009 is unprecedented in American history. This, without doubt, represents an inflection point in American history. The legacy of the founding fathers was to create a democratic system that is able to self-correct.

Motorhomes for sale

January 21, 2009 06:48 AM

Nice posting....about Fiat and Chrysler.????

Geni

January 22, 2009 07:05 AM

I suggest people like the author and Chris Hauser actually go out and drive some modern Fiats before dismissing this deal as a failure from the outset. The models and platforms that Fiat can provide to Chrysler and the dealership network Chrysler can provide Fiat are a perfect combination. The one area this plan mightn't work is Fiat doesn't have the cash to give to Chrysler to help it through the short term, most likely Chrysler will fold before they can do anything with the platforms. I wouldn't be surprised if Fiat already expect that though, and are just getting in now so that when Cerberus sells the broken pieces Fiat already has its foot in the door to take over the US dealership network at next to no cost.

A bankrupt Chrysler will cost Fiat very little, 35% of the company for the promise of a few platforms? Bargain. Fiat showed with the GM deal it knows how to write a bullet-proof contract. I'm sure Fiat will be able to walk away from this one if the need arises very lightly.

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Want the straight scoop on the auto industry? Detroit bureau chief David Welch , Dexter Roberts and Ian Rowley bring daily scoop, keen observations and provocative perspective on the auto business from around the globe. Read their take on such weighty issues as Detroit’s attempt at a comeback, Toyota’s quest for dominance and the search for an efficient car.

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