Chrysler, Fiat and Why It's Gonna Be Bad...

The news broke about two days ago that Chrysler, by far the worst off of America's big three, will enter into a "global strategic alliance" with Fiat S.p.A. Hailed as the move that could save Chrysler, the alliance includes market sharing for both companies (they both exist in very different marketing environments with Chrysler having little presence in Europe and Fiat having no presence in America), Fiat's experience in helping Chrysler develop a successful business plan, Chrysler gets a fleet of small, fuel efficient vehicles and Fiat's engineering aide, while Fiat gets 35% equity interest in Chrysler. And Cerberus, the private equity company that acquired Chrysler from Daimler-Benz a few years ago, finally gets rid of the giant sucking sound that has haunted them since they bought the #3 US automaker. It seems like a great idea, right? Not so fast.

First, Fiat's vehicles would fill a niche that Chrysler's current lineup basically ignores, and it's a niche that is selling like hotcakes right now. However, it's not like Fiat's cars can hop the next boat across the pond, get plastered with all manner of Chrysler logos and then be sold to the American consumer. Emissions and safety standards have to be met, and a quick re-entry into the US marketplace for Fiat, a company that many Americans have never heard of, will be arduous, difficult and expensive from a marketing standpoint. Rebadging Fiats as Chryslers won't make the landing any softer, as Chrysler/Dodge doesn't have a very good reputation with the American consumer right now either. Maybe they can brand them all Jeeps (or not).

There are further concerns. On the heels of these moves, Daimler has announced that it is looking to offload its remaining stake in the company. Cerberus has stated that they would consider buying it, but with the current economic climate, who knows. The scenario could look something like this: If Daimler unloads their remaining 20% to Cerberus, their share would jump from 45% to 65%, with Fiat owning 35%. If Cerberus is smart, they'll avoid this scenario and continue to divest themselves of Chrysler. Then again, if Cerberus were smart, they probably wouldn't have bought a controlling interest in this train wreck of an auto company anyway. On top of this, Democrat Barney Frank today proclaimed, as only Barney Frank can, that if the Fiat/Chrysler thingamajig goes through, the government wants its bridge loan money back. Certainly a reasonable request, but at an unreasonable time. This would make this alliance an even more difficult feat to accomplish.


But all of these problems pale in comparison to the nearly immovable obstacle that Chrysler faces before becoming profitable again. Chrysler has had inventory control and dealer problems for at least the last three years- the long and short of it is, they have been building more cars than they can sell for a long time, and it hasn't been catching up to them so much as piling on top of them. They have even resorted to paying dealers to take excess inventory, which the dealers then unload any way they can. Some estimates put Chrysler over-dealered by at much as 75%, even in a scenario that includes selling Fiats through their existing network. The Big 3 all face dealer and inventory issues, but Chrysler's problems are the worst, and they've been going on the longest.

All of this means that if this works, it is still going to be a long and very rocky road for Chrysler to survive. And that's a very big "if." Don't get me wrong, I would love for Chrysler to survive, and it would be great to have some of Fiat's products here in the United States. I would hate to see the Viper, the car that began my interest in all things automotive, disappear along with the company that created it, and I still maintain that Jeep is some of the most valuable automotive property in the US market. Only time will tell, but one thing is for sure- Chrysler's survival is anything but assured, and if anyone thinks they can coast to success after this deal with Fiat, they couldn't be more wrong.


Sources: Autoextremist.com, Autoblog.com