Chrysler - Fiat alliance

Since there are a number of users of the labour forum who watch the auto industry- including some Chrysler workers- I thought I’d share some observations and thoughts on the interesting development of this proposed alliance between Chrysler and Fiat.

Fiat is getting 35% of Chrysler for no cash and no concrete promises of anything else.

It boils down the Chrysler getting a lifeline- where Fiat commits nothing except the promise to help Chrysler pull away from the brink. The 35% ownership stake Fiat will have is its stake in saving Chrysler from collapse.

Most observers point out what a good fit this is. Production and marketing wise it could hardly be better: almost no overlap in product, and Chrysler has minimal international presence while Fiat has no presence in North America.

But that is what gives the marriage POTENTIAL. The alliance only gives Chrysler the possibility of surviving. Fiat has its own immediate problems. Those aren’t dire, but they need addressing and even if the alliance with Chrysler works, it does nothing to address Fiats near and medium term needs.

Fiat has been very successful with small cars. But even before the current downturn Fiat was more behind the 8 ball than the other European producers around over-capacity and just being not big enough. On top of that, it has run into a lot of recent debt at the wrong time. Chrysler needs small cars, but Fiat is already selling those as fast as they can make them.

My guess is that they will be making Fiat based cars here as fast as humanly possible. That any of the very popular 500s will only be brought over from Poland to build a profile for the cars to be built here.

Fiat isn’t just playing hardball putting up no cash for Chrysler because Chrysler is desperate- Fiat simply does not and will not have cash to put in. Access to North American markets doesn’t do anything for Fiat’s near and mid term picture. You could say its playing for longer term ambitions while the nearer term issues remain.

Chrysler has much better long term prospects with the alliance. But the only thing they are getting for their immediate survival needs is the confidence game: "invest in / buy from us" [now we’re not hopeless you know].

In fact, between small cars and electric cars that Chrysler has been banking on, Chrysler could become quite a good operation. IF it can figure out how to sell enough of what it produces today to get through to tomorrow.

And here is Chrysler dependent on its next bailout injection, now with significant foreign ownership. And Fiat gets 35% ownership for risking nothing, while US and Canadian taxpayers loan money that may dissapear and get nothing for that.

Some will say the governments should get ownership. In fiduciary terms, investors are better off holding dubious bonds than essentially worthless stock. What governments should get for bailout funds is bonds AND an ownership cut for taking on risk that no interest can compensate for.

Comments

Submitted by KenS on January 24, 2009 - 7:12am.

From a trade press article:

"Their [Fiat's] contribution is billions of dollars in engineering and hardware," Press said. Fiat is not investing any money in Chrysler. The term sheet for the proposed deal calls for Fiat to take a 35 percent stake and gives the Italian carmaker the option to increase that stake to 55 percent.

Fiat values the platforms and technology being made available to Chrysler at $3 billion, according to a Reuters report yesterday.

A marriage made in heaven: engineering and technology with no value that can be realized in the market, in exchange for an ownership stake that has only a potential value.

The Globe article today actually covers more than any other single article I've seen, even though its main material is a Chrysler Pres PR speech.

Chrysler ‘alive and well,' president says

http://business.theglobeandmail.com/servlet/story/RTGAM.20090123.wchrysler0123/BNStory/Business/home

Here's another gem from a trade press article, a large dealer at the event where the Chrysler Pres spoke:

Adam Lee, president of Lee Auto Malls, which owns Chrysler dealerships in Portland and Auburn, Maine, said the Chrysler incentive program "is a good one from a dealers' point of view, but how they can keep funding it is beyond me."

Press said Chrysler's incentive plan will bring the company "incremental revenue"

Translation: the dealer knows bailout money will fund those surprisingly large dealer incentives. "Incremental revenue" means 'at least some money will come in. Selling cars at a loss beats creates anothe big hole to dig out of later [and increases the risk of ultimately defaulting on the taxpayer loans], but the alternative is no sales and close the doors now.

Submitted by Boom Boom on January 24, 2009 - 9:58am.

Back in the 1960's FIAT used to mean: "Fix It Again Tony" because they were so unreliable. However, while in England not long ago I discovered they're excellent products today, and I'd love to see FIAT sell cars here again - I think FIAT has been gone from the North American market for the past thirty years or so. I'd certainly love to see several FIAT products re-badged as Chryslers and some crappy Chrysler product lines dropped entirely. FIAT cars tend to be much smaller and more fuel efficient than a lot of the Chrysler line if I remember correctly.

Submitted by KenS on January 26, 2009 - 10:39pm.

Here's a trade press article on the cars that the alliance plans to build in North America. I think this one does not require a subscription.

CHRYSLER AND FIAT JOIN FORCES The plan: 7 Fiat vehicles for U.S.

http://www.autonews.com/article/20090126/COPY/301269965/-1

The popular Fiat 500 mini-car will be built in Mexico. Ford is producing the Fiesta first in Mexico, with the expectation that when sales pick up that it will be built in US or Canada. Since the 500 will have a smaller market segment here, it may only be built in Mexico.

No specifics about where the much bigger selling Fiat Panda [a normal compact] would be built... which means that would probably be well over 2 years in the future before it could be built.. longer still if Chrysler has trouble getting ahold of more than bailout survival funds.

The article is even vaguer about the kind of slightly larger cars Chrysler also needs, and probably would be able to build with the least changes to existing plants. Presumably they are probably furthest to go to engineer those platforms to North American requirements.

In other words- the devil is in the details. Realizing all this potential is from 3 years up till cars can hit showrooms. All of which requires investment that at least right now Fiat also neither has or expects to have.... let alone that none of this has ANY bearing on how Chrysler is supposed to survive that long.

Getting through all that I'm sure is consdierably better than a longshot... but no done deal.

Submitted by Boom Boom on January 26, 2009 - 10:44pm.

I saw the Fiat Panda in England, and it's not a bad product. I'd love to see Chrysler licensed by Fiat to build it in Canada, but that sounds like a pipe dream at present.

Submitted by KenS on January 26, 2009 - 10:53pm.

I can't imagine Chrysler building cars in Canada now. But I would think that Windsor would be a candidate for building the engines for the 500 and the Panda, and/or other cars. There have been people on this forum from Local 444, maybe they'll pipe up.

Submitted by petty on May 27, 2009 - 3:40am.

It's all about not letting the auto industry vanish. Chrysler is committed to working closely with Fiat. And people are getting optimistic with (link to ad removed by moderator) alliance to Fiat.

Submitted by oldgoat on May 27, 2009 - 9:16am.

Petty, you want to advertise on rabble you can pay to do so. Meanwhile, I've closed your account and I'll be going through your posts to remove the ads today as time allows.