Fiat Rescues Chrysler

January 20th, 2009 at 11:37am

Hallelujah, Chrysler has been rescued — – — again! The company that keeps bouncing back from the dead may have just gained a new lease on life.Fiat is going to take a 35% equity position in Chrysler, even though no cash will be involved. Instead, Chrysler will have immediate access to Fiat’s platforms, powertrains, components, and global distribution system. That alone could be worth billions to Chrysler.

Moreover, Fiat will provide management services supporting Chrysler’s restructuring plan that it has to submit to the US Treasury. That probably means Fiat will help convince the Treasury that Chrysler is going to survive and that it should get additional funding.

While most Americans don’t have a very good impression of Fiat, that’s because they are not familiar with the current state of the company. Fiat pulled off one of the most amazing turnaround in the automotive industry during this decade. It’s been solidly profitable, and has been carefully nurturing its three primary brands (Fiat, Alfa Romeo and Lancia) with attractive new products. So it could make a terrific partner for Chrysler.

The architect of Fiat’s turnaround is Sergio Marchione, the CEO of the company. Though born in Italy, he spent much of his formative years in Ontario, Canada, and even attended the University of Windsor, which is right across the river from Detroit. So Marchione has a pretty good idea of what Chrysler is all about and what its capabilities are.

Undoubtedly he would love to see Fiat finally get a foothold in the North American market. While Fiat has a small presence in Mexico, the only cars its sells in the US or Canada are Ferraris and Maseratis. By getting access to Chrysler’s distribution system, Fiat could gain an immediate presence in the North American market. Finally, we might see Alpha Romeo show up on these shores after years of rumors to that effect!

The next question is how is this alliance will affect Chrysler’s programs with Volkswagen and Nissan. Chrysler will be building minivans for VW and pickups for Nissan. And Nissan will be supplying Chrysler with compact cars for the North and South American markets.

Nissan’s CEO Carlos Ghosn has said for years that he would love to have an American partner as part of his Nissan-Renault alliance. I can only imagine that Ghosn is kicking himself that Fiat was able to get an equity position in Chrysler with no cash involved. That’s a big one to let slip away.

Of course, in today’s industry is seems anything is possible. Could Fiat-Chrysler ultimately become part of the Nissan-Renault alliance? Never say never.

And where does this leave Cerberus? Daimler still owns just under 20% of Chrysler. With Fiat taking 35%, and an option to take that over 55%, that means Cerberus will only own 45% of Chrysler and maybe less than 30%. While the Fiat deal requires Cerberus to maintain ownership in Chrysler, my guess is that the next step will involve top management changes at Chrysler. Not immediately, but before the year is over.

Cerberus brought Bob Nardelli in to get Chrysler back on its feet, and Fiat may decide it wants one of its own people at the top.

2 Comments to “Fiat Rescues Chrysler”

  1. R. Byerley Says:

    Traveling outside the US, I have seen the great styling coming out of Fiat. This may put Chrysler back as a leader in the style game. The Teutonic influence, in my opinion, has really damaged many of their current offerings. Hopefully, it does not transfer the perception of Fiat quality that exists outside the US – “Fix It Again Tony”.

  2. Trevor D. Says:

    Hey John, based on the penultimate paragraph, it would appear that Cerberus would only have a 20% stake in Chrysler if Fiat were to up its stake to 55% (assuming that Daimler were to hold on to its 20% stake). Also, I’m just wondering if it was good timing on Fiat’s part that they could get a stake in Chrysler without having to pay to do so. After all, it’s probably fair to say that Chrysler needed Fiat more than the reverse, wouldn’t you say?