Crysler-Fiat 2009

Chrysler was found in 1925 by Walter P. Chrysler, who had worked for Buick Motor Company. As mentioned earlier, Chrysler manufactured cars for the masses and particularly targeted the mainstream American consumer. Between 1941 and 1960, Chrysler introduced a variety of newer models and took credit for technological innovations in North America.

As the third largest auto manufacturer, Chrysler always remained behind GM and Ford and was rated one of the “late movers” in the industry. In the early eighties, the company was on the verge of bankruptcy but was rescued by the U.S. government. In the nineties, Chrysler vehicles started to get good rating from analysts but continued to remain behind other manufacturers in quality and consumer satisfaction. When Daimler-Benz proposed the merger in January 1998, Chrysler’s board of directors saw new markets. In the next four months, both companies negotiated extensively and closed the deal in May 1998.

The next eight years witnessed many ups and downs for Chrysler because of the issues of post-merger problems, losses and lay-offs. In 2007, DaimlerChrysler announced that Cerberus would acquire 80 percent of Chrysler for $7.4billion. As Chrysler dealt with the 2008-2009 global recession and high oil prices, Cerberus kept on exploring the possibilities of either selling Chrysler or creating an alliance with GM, Nissan, Fiat, or Volkswagen. Early 2009, Fiat turned out to the key contender for Chrysler. In April 2009, Chrysler and Fiat announced their strategic alliances and agreed on a new ownership structure.

Fiat S.P.A is an Italian automobile manufacturer based in Turin. Fiat was found in 1899 by a group of investors, including Giovanni Agnelli. Fiat was the fourth largest European automaker by production behind Volkswagen Group, PSA, Renault and the eleventh largest automaker by production in the world. Fiat based cars are built around the world. Outside Italy, the largest country of production is Brazil, where the Fiat brand is the market leader.

The group also has factories in Argentina and Poland and a long history of licensing production of its products in other countries. It also has numerous alliances and joint ventures around the world, the main ones being located in Italy, Serbia, France, India and right here in China.

Within today’s business conditions, Chrysler’s tie-up with Fiat was not only a matter of survival but become a part of bankruptcy proceedings. Fiat can take care of some of the retooling activities by sharing its technology with Chrysler for building small cars in North America.

This will help them receive additional loans from the U.S. government. In addition Chrysler will have Fiat’s readily available distribution network in the European markets. For Fiat, the alliance is a quick access to the North America market that the company exited in the eighties. An initial 20 percent stake in Chrysler is a good market entry strategy for Fiat and could reach to 51 percent. In the coming years, both companies combined production capacity could reach to five million cars.

Some of the weaknesses of the alliance could show up in corporate integration, technology shearing, and mismatch of brand portfolios. In most of the alliances, company’s goals and changing markets can pose problems. Also areas that may create predicaments in cross boarder alliances are knowledge sharing in R&D, control, regulatory and antitrust issues, and distribution and ownership problems. In the nineties, Chrysler was known as a low cost a manufacturer. Most of the changes that took place during that time were the result of Chrysler legendary CEO Lee Iacocca, who joined the company in the late seventies. After the departure of Iacocca, Chrysler took a different approach because of changing market and losses.

The company lost most of its competitive advantage because of global competition and expensive labor contracts. On the other hand, Fiat made a good recovery by reinventing itself, resulting in fuel efficient small cars and a lean and well integrated organization. In 2009, Fiat assembled quality vehicles and carried a good learning curve in R&D, manufacturing and dealer networks. Both companies are looking at future opportunities regarding their tie up that aim at saving millions in R&D know how and joint technology platform. The strategic alliance is envisioning major saving in the area of joint product development as well.

In February 2009, the Obama Administration initiated the auto bailout by specifically targeting GM and Chrysler. Ford did not participate in the government financial rescue. In 2008, Chrysler’s losses amounted to $8 billion plan, Chrysler was given and GM received $13.4 billion. The U.S government also demanded that the company implement two major changes: file bankruptcy and seek a long term partnership with an auto manufacturer for future survival.

Fiat was the only auto company that aggressively showed interest in a strategic alliance. One of the major clauses of the alliance is technology sharing. Fiat plans on supplying four technology platform and two types of engines to Chrysler. This will help Chrysler to get involved in small cars technology. In Europe, Fiat is known for its small car production model that particularly helped the company to seek recovery since 2004.

As a CEO of Fiat, 56 year old Sergio Marchionne joined the company in 2004. Marchionne was trained as a chartered accountant and solicitor who received a master’s degree in business administration from the University of Windsor and worked for SGS-SA, a Swiss company that dealt with trade goods. Under his short tenure at Fiat, Marchionne was able to turn around the company in difficult times. Marchionne sought a planned and systematic restructuring of the company by concentrating on new technologies and consumer issues and has realigned its management structure.

Because of Marchionne’s leadership, Fiat in 2008 showed a profit, and its new product development cycle was cut from four years to 18 months. Fiat left the North American market in the eighties because of its limited market share, quality problems and mismanagement. To re enter the North American market, Fiat needed a well established partner that knew the market. Chrysler was the best choice available for this tie-up. No wonder Marchionne had been seeking this strategic alliance to sell Fiat cars in North America.

Globalization is a major force impacting countries and their industries. The same applies to the global auto industry that continues to be dynamic yet highly competitive in sales and market shares. Regardless of the auto industry’s consolidation and mergers and acquisitions, there are opportunities available to those companies that bring new technologies and auto models. Chrysler and Fiat may have a good opportunity to target small car and hybrid segments. If planned accurately, both companies have the potential in targeting middle classes in North America, Europe, and emerging markets.

Chrysler and Fiat’s brand portfolios seem compatible. Both manufacture small cars that are in demand because of high gasoline prices. In their strategic alliance, the companies can pool resources together to consolidate brand portfolios aiming at significant saving in R&B and technology platform. The company’s joint dealer networks can bring enormous saving in the long-term is expected to become CEO of Chrysler. The company’s losses may be brought under control if the alliance pays off. Of course this also depends on the bankruptcy proceedings and restructuring of Chrysler.

Major structural changes in manufacturing of Chrysler. This could lead to job cuts, plant closings, and consolidation in dealer network. In the long term, the alliance may face challenges in the following areas: recasting the brand image of Chrysler and Fiat products, dealing with labor unions in Europe and North America, redesigning management structures and formulating new global synergies for long term survival.

Regardless to the issues occurred to Chrysler-Fiat as mentioned above, in order to prevent the same problem in the future. Chrysler and Fiat need a strong global presence, competitive brands and efficient technology platform. Fiat has been successful in Europe but lacks of visibility in North America. Chrysler has a brand name in North America but does not carry a strong dealer network in the European markets. Both companies’ brand can be reinvigorated in the alliance structure. Of course, this will be a daunting task in the short term.

Chrysler and Fiat carry acceptable brand but lag in quality and global integration. In the next four years, if Chrysler and Fiat achieve their alliance objectives in the areas of cost cutting, technology sharing, global integration, product rationalization and R&D saving, the tie up will definitely be rated as a major achievement. Within Chrysler’s bankruptcy proceedings and Fiat’s North American expansion, both companies will be credited for crafting a successful transatlantic auto alliance. Reference:

_ Company website, Wikipedia (2009). Chrysler, http://en.wikipedia.org _ http://en.wikipedia.org/wiki/Fiat _ International Management ( Helen Deresky ) _http://www.caranddriver.com/news/fiat-and-chrysler-announce-strategic-alliance-car-news International Investment And International Management

Case Study: THE 2009 CHRYSLER-FIAT STRATEGIC ALLIANCE