Chrysler Fiat: Strategic Alliance

•Historically, Chrysler has been the number 3 auto manufacturer in North America, behind GM and Ford in market share; maintained number 3 designation after entry of Asian OEMs. •Chrysler:

oFounded 1925 by Walter P. ChrysleroManufactured cars for the masseso1980s: saved from the verge of bankruptcy by US government o1990s: starting receiving positive reviews from analysts, but remained behind Ford and GM oMerged with Daimler-Benz in May 1998 for $36 billion

o2007: Cerberus Capital Management, LP acquired 80% of DaimlerChrysler for $7.4 billion oApril 2009: Fiat SpA establishes strategic alliance with Chrysler oMay 2009: Chrysler files Chapter 11 bankruptcy

•Fiat::oFounded 1899 by Giovanni Agnelli with other Italian investors o1910: became largest auto firm in Italy and manufactured military vehicles and machinery for the government during World War II o1960-70s: massive labor strikes and assembly-line disruptions, causing 15 million worker hours lost o1980s: reduced labor force by 100,000 jobs

o1986: acquired Alfa Romeo from Italian government and became largest OEM in Europe oVolatile business and labor relations in the 2000s, GM acquired and sold back 20% oSergio Marchionne became CEO in 2004

oAgnelli family maintained 35% ownership as of 2009o2009: 24 models and primarily small vehicles, reintroduced Cinquecento 500 in 2007

•Global Auto Industry:oOne of the largest industries in the world, impacting countries and their socio-political environments oLabor unions continue to pressure governments and OEMs

oHundreds of cross-border strategic alliances, joint ventures and other efforts for the past 20 years oLeaders of North American market: GM, Ford and Chrysler; Japanese market: Toyota, Honda, and Nissan; Europe: Damler, VW, Fiat and Renault-Nissan. oFiat’s 2008 revenues were less than half of any of the top 3 at $80 billion.

oChanging demographics and rising costs lead to the moving of assembly lines to low cost economies in emerging markets. oAnalysts believe the future will have only a few firms left after additional consolidations and mergers of existing automotive manufacturers for efficiencies in flexible manufacturing, faster product development and supplier networks.

•2009 Chrysler-Fiat Strategic Alliance and Corporate Tie-Up:

oAimed at improving economies of scale and raising productivity oFiat takes 20% ownership, up to 51% after 2013, but required no significant initial injection of funds from Fiat oChrysler could qualify for more loans from the US government, but with weaknesses in the corporate integration and coordination of the brand portfolios

oChrysler was on a downward trend, hoping to be balanced by the steady rising of Fiat oThe alliance was required as a condition of the 2009 auto bailout oTransfer and sharing of technology and product development will benefit both firms oLeadership of Marchionne is expected to significantly help both sides oFiat can break into the North American market

oChrysler expected to sell public shares in 2011.

Issues and Questions

On paper and based on what has been disclosed publicly, the Chrysler-Fiat Strategic Alliance is almost too good to be true. I realize that there is as much benefit opportunity to Fiat as there is to Chrysler, but it still seems like Fiat is not as angelic as some would like to think in this situation.

Fiat brings their small car technology to the North American market and Chrysler has its supply chains and dealership networks already established, but will it be enough? There is concern that it is too late for Chrysler to compete with Ford and GM to develop and produce small cars in the US. As this is a relatively new market segment in the US, it is necessary to be the first or at least one of the first in the game, but Chrysler-Fiat will be the last to join the competition.

The same could be said for bringing Chrysler’s most successful brands and models to Europe. Fiat hopes that Jeep and Ram trucks will bring success to their SUV and truck segments in Europe, but that success may be a long way off. Will the strategic alliance pay off enough in the short term to perpetuate its existence in the long term? Question Responses

1.What are your views of the 2009 Chrysler-Fiat strategic alliance and its future prospects in the auto industry?

The 2009 Chrysler-Fiat strategic alliance appears to be a win-win situation for both companies. Chrysler was struggling, recently and historically and needs the support of a stable company. Since Marchionne took over leadership of Fiat in 2004, Fiat has been just that: stable…and rising. As a condition of the 2009 bailout by the US government, Chrysler was required to restructure and seek “partnership with an auto manufacturer for future survival” (Anwar, 2009).

The partnership will substantially benefit both parties as each brings assets to the table of which the other is in need: Chrysler has access and networks in the North American market and the large car, SUV and truck brands and Fiat has the European market access with the small car technology.

If the corporate and brand integration can be achieved smoothly, then the success of the strategic alliance will be profound and Chrysler will again see itself competing strongly with other US manufacturers. However, if Fiat and Chrysler cannot coexist and pull each other up, Chrysler will find itself again spiraling down and Fiat will be again running from the North American automotive market. 2.Analyze and evaluate Chrysler and Fiat’s strengths and weaknesses before and after their 2009 strategic alliance.

Before the partnership, Chrysler had strengths in the product development and low cost manufacturing, though labor contracts were an expensive cut into those cost savings. The continued success of the Jeep brand, minivans and trucks have significantly supported Chrysler and are of great benefit to diversifying Fiat’s small car product mix. An established dealership and supply chain network in North America is of high prospect to Fiat. Quality concerns loom over Chrysler’s products and Fiat hopes to combat this with their own record of high quality products.

Fiat’s technology platforms and small engine development will support Chrysler’s strong entry into the small car market, and vice versa for Fiat’s entry into the large car and SUV market. Since Marchionne took over in 2004, Fiat has been steadily rising and brings stabliliyt and growth potential to the partnership. 3.Compare and contrast Chrysler and Fiat with five other global auto manufacturers in the area of global operations and manufacturing issues.

Chrysler has long-time been considered the Number 3 manufacturer in the North American automotive industry, forever behind Ford and GM. Even after the introduction of the Japanese OEMs, Chrysler has remained consistently in 3rd place, but struggled to hold that designation. Initial quality issues in the manufacturing process were eventually improved, but by the time Chrysler was receiving good ratings, they were late to the innovative segment of the automotive market. Fiat has been faced with the rigid labor laws in Italy and massive labor strikes throughout the 1960s and 1970s.

But despite these difficulties, they have managed to find strength and success in the small car market of Europe, with a product portfolio of 24 models, including the Alfa Romeo brand. But these operations are only in Europe and allow for limited expansion internationally. Based on revenue, Fiat has been growing, but still does not compare to the large firms of the US and Europe, accounting for only half of their revenues. 4.Analyze Chrysler and Fiat’s brand portfolios in the world auto industry. How do you see both companies revamping and overhauling their brands in the short- (1-2 years) and the long-terms (5-6 years)?

Chrysler really had more of an impact with compact and midsize. They were extremely popular with JEEP Chrysler has relied on the success of its Jeep brand and the minivan and truck markets. Their product portfolio has changed extensively in the past ten years as the influence of their mergers and partnerships has been reflected in the cars they design and produce. Jeep and the minivan market have carried Chrysler through difficult market results for their compact and midsize vehicles. Product development in those segments has been lacking and quality issues were plentiful.

Fiat is known for the success of their small cars. Even with a limited brand portfolio of 24 models, Fiat has become an expert in their car segment and brings this success to the alliance with Chrysler. The two companies will share their success in the SUV and minivan and small car segments, respectively and collaborate for success and innovation in the remaining segments, such as midsize and crossovers.

In the short term, Fiat brings its skill for reducing the product development timeline as they share technology platforms and new engine that will be incorporated going forward for the long term. 5.What did you learn from the Chrysler-Fiat strategic alliance regarding managing multinationals in the changing global business? What role did the US government play in the formation of this alliance?

Both Fiat and Chrysler have had difficult histories and struggled to stay afloat against their regional competitors. Both were looking for an alliance that could benefit both and each company brought an expertise and success with it in an area in which the other lacked.

The partnership was nearly ideal as both companies were staged to benefit greatly from the other’s established successes. It would be fair to say that the US government was the driving catalyst for this alliance. While the conditions were conducive to a partnership between the two, it was the stipulation of the government bailout that forced Chrysler’s hand into a definite partnership after its difficult years following the release from Daimler.

6.What has happened to the company since this case was written as the alliance was being formed? Give an update as of the time of your reading this case.

Since the merger in 2009, Chrysler and Fiat have been cooperating smoothly and have done well to display their unity and integration, especially in the US. Sergio Marchionne was maintained as the CEO of the automotive group. Marketing strategies have been revised and Chrysler is reinforcing their strengths of the Jeep brand, without forgetting the introduction and push for the small car, Fiat 500.

Fiat’s initial 20% stake in the company hs the potential to increase to as much as 35%, even possibly 51% after 2013, and the UAW Retiree Medical Benefits Trust will own 55% of the new Chrysler Group.

The remaining ownership of the company is divided between the US and Canadian governments, at 8% and 2%, respectively. There is hope that Chrysler shares will be traded publicly in 2011. Comments and Reflections

It seems as though Chrysler and Fiat were both in need of each other and the timing could not have been more formidable. Despite Fiat’s recent success in the 2000s, they were limited to their niche in the small car market and Chrysler provided exactly the diversification that they needed. While it is still in the early stages of the partnership, it seems fair to say that things are looking up for both companies and the future looks bright. It is good to finally be able to say the same for the auto industry as a whole.

The recent crisis was difficult for all firms, foreign and domestic, but has shed light onto the greatest weaknesses of each and every manufacturer. This equates to a future and global auto industry that will be innovative, but with high quality and continued efforts to cut costs and improve environmental and economic standards.

The Chrysler-Fiat strategic alliance is not the first of its kind and it will certainly not be the last. The analysts are seemingly correct to assume the number of players in the game will be much less in the future auto industry as alliances, mergers, joint ventures and acquisitions continue to change the battlefield of the global automotive industry.


Deresky, H. (2011) International Management, Managing Across Borders and Cultures. Upper Saddle River, NJ: Pearson Prentice Hall.

Anwar, S. T. (2009) The 2009 Chrysler-Fiat Strategic Alliance. West TexasA&M University. Exclusively for International Management, Managing Across Borders and Cultures, 7th editio