New Business October 28, 2009, 5:41PM EST

Can Fiat Cars Save Chrysler?

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If Chrysler is to have a hope of boosting sales, it will need a strong network of experienced dealers. Over the past year, Chrysler has pared its dealership ranks by a quarter, bringing the number to 2,400 nationwide. At the same time, the company has been pushing dealers to bring all three of its brands—Dodge, Jeep, and Chrysler—under one roof. Building new retail space is expensive, and many dealers need to borrow the money.

Death of a Car Salesman

Now a number of them can't get loans and may bow out. Leo Griggs has been selling Dodges in the tony Park ­Cities neighborhood of central Dallas on and off for the past 15 years. In January, Griggs acquired a Chrysler-Jeep franchise to go along with his existing Dodge showroom and borrowed $22 million from Chrysler Financial. But when Chrysler went into bankruptcy, the Treasury Dept. decided to wind down Chrysler Financial and designate GMAC Financial Services, the former General Motors unit, as lender of choice for Chrysler dealers and customers.

GMAC, which in late October asked the government to shore up its finances, gave Griggs a temporary credit line to buy cars from Chrysler. But GMAC would renew the credit line only after Chrysler Financial released the liens on his dealership's assets. Chrysler Financial refused unless Griggs paid all the money back at once. Griggs was forced to shut his business. And Chrysler lost an experienced dealer. "I never understood that anything like this could happen," Griggs says. Chrysler says its dealer network is stronger, but with sales down, many are struggling.

A credible turnaround plan from Marchionne could go a long way toward calming the nerves of suppliers and dealers, Stallkamp says. And Marchionne plans an extravagant rollout—an eight-hour sales pitch in Detroit to the media and financial community.

People familiar with his plans say he wants to develop Chrysler and Fiat cars together, sharing parts, vehicle platforms, and engineering in a way former parent Daimler (DAI) never did. He also wants to export Jeeps, a plan that would be helped by a cheaper dollar. Says James N. Hall, who runs the auto consulting firm 2953 Analytics in Detroit: "Jeep has a lot of upside potential."

An Emerging Brand Strategy

For the U.S., Marchionne may replace the weak Chrysler Sebring and Dodge Avenger with midsize cars using hardware engineered for Fiat cars in Europe. Alfa Romeo may also build a premium SUV using the underpinnings of the Jeep Grand Cherokee. And Fiat's premium Lancia brand may replace its flagship car, the defunct Thesis, with a sedan built alongside Chrysler's 300. That car would sell only outside the U.S., but its sales volume could help make Chrysler's factories more profitable.

As Marchionne's product plan rolls out, the brand strategy will take shape. The Ram truck brand will be split from Dodge, which will sell entry-level cars and sporty rides. Chrysler will maintain its higher-priced status. Jeep will be strictly SUVs. And Alfa Romeo will be offered as a lower-priced (but still upscale) sporty rival to BMW.

Marchionne's grand plan is to create a global car giant by combining the best pieces of Fiat and Chrysler. The strategy makes sense on paper. But the best-laid global plans can be undermined by heavy losses in the U.S. market. That's what happened to GM. Shoring up Chrysler at home won't be easy, not in this competitive environment. "Chrysler can make it," says Hall. "The question is, how committed is Fiat to saving Chrysler?"

Welch is BusinessWeek's Detroit bureau chief.

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