If you believe some of the headlines you might think the Chrysler/Fiat Merger is the best thing since relaxed credit standards and subprime home financing.
The supposed advantages of the merger are pretty obvious. Chrysler gets some much-needed small car entries that don't suck, and Fiat gets instant access to the Chrysler dealer network.
A no-lose proposition, right? Right?
Call me a cynic (seriously, call me one; I embrace the term), but I see more liabilities than assets springing from this pairing.
First there's an assertion by various entities that the bankruptcy and merger process will be quick and painless. It's not cyncism that drives my doubts here, just basic logic bolstered by historical examples (ahem, Delphi, among others). The lawyers are still assembling on this one, but I predict "quick" and "painless" will not be associated with this merger process in the coming weeks (or months...or years...).
But let's assume the merger actually happens and at some point before my retirement there's a functional Chrysler-Fiat (Chriat?) corporation.
I have three major concerns with this arrangment:
1. Resource Drain: Under the best of circumstances it will take two years for Fiat's products and/or technology to appear in U.S. showrooms. That's two years of federalizing, marketing and production costs that must go into this equation before any possible financial gains flow back out. In case you didn't notice, Fiat also lost money last year. Fixing Chrysler is going to take a lot of time and a lot more money under the best of circumstances. Can Fiat afford it? And for the record, I sincerely hope the answer isn't "Sure Fiat can afford it, espeically if the U.S. taxpayer is bankrolling the effort."
2. Fiat's Image: Those pushing for this merger seem to think simply putting Fiat technology and/or product in Chrysler showrooms will equate to sales and profits. A couple problems here. First, if gas prices stay below $3-a-gallon I'm not sure small cars with ANY badge will be selling particularly well. Second, even if small car demand goes up, who says small cars with Fiat badges or technology will be high on the U.S. buyer's shopping list? Fiat left this market 25 years ago because their cars weren't selling, and their cars weren't selling because they had questionable quality and reliability. Today's cars from Fiat may or may not be better in terms of quality, but there's little incentive for U.S. buyers to consider them versus a tried-and-true brand like Honda or Toyota or (increasingly) Hyundai. And those brands didn't attain their loyal following overnight...
3. U.S. Car Sales: Even if numbers 1 and 2 above work out there's no guarantee that U.S. car sales will rebound in the coming years. If annual new-car sales wallow in the 10-12 million unit range it will be difficult for even the most established brands to make a profit. With the baggage surrounding Chrysler these days, along with the questions sure to arise out of the merger process, Chrysler's/Fiat products are likely to be among the least established products in a struggling market (though some might spin that as "new" and "exciting").
Does all this point to certain doom for the Chrysler/Fiat merger? No...not certain doom. I'd label it as likely-to-probable doom, at worst.
But what do you think? Will the Chrysler/Fiat merger be a grand success or a titanic failure?
By ahightower
on May 5, 2009
06:42 AM
I read somewhere that Fiat was lowest on the Euro equivalent of JD Power reliability scores.
I'm no expert, but my opinion based on a lot of reading over the past few months is that this deal isn't going to save either company, or save the taxpayers any money at all. Like AIG, failure should have been rewarded with, well, failure. The "far reaching consequences" we were warned about will still come to fruition. The economy has done nothing but tank since the "help" arrived last fall. Govt intervention only delays the inevitable and racks up debt. Letting one or two giants go down in flames would teach the others to be more careful. Instead, every company in the Fortune 50 thinks they're "too big to fail" and can rely on special govt assistance if/when they screw up.
By ksm1
on May 5, 2009
06:59 AM
I realize a lot can change in 25 years, look at Hyundais, but the last Fiats I remember in the U.S. were just bad cars. I am past the point in my life when all I could afford was small appliance like cars so I can't imagine that I will show up at my local Fiat/Chrysler store anytime soon. This whole segment of cars is of no interest to me.
Now for Chrysler, my understanding is that they have been shopping themselves to every auto maker and may have come close with Nissan but ultimately there were no takers. This says a lot, no one else saw any economic value to Chrysler. Only Fiat? This seems to be two red headed step-children who have found each other.
I do find it amusing that while a Senator Mr. Obama drove a Chrysler 300C. When it came time to run for office he switched to the politically correct hybrid. Maybe our president is a closet Chrysler fan. Seriously though I think this is all about power, politics and the UAW not real economics.
By brn
on May 5, 2009
07:04 AM
The popular press would have you believe that Fiat is God's gift. They imply that Fiat is properly positioned, ignoring their own financial troubles. They imply that Fiat will "teach Americans how to make cars" (from Lear News Hour last night), because there's the assumption that everyone beside the US knows how to make a car.
A little critical analysis of Fiat would be nice.
By pushrod
on May 5, 2009
07:05 AM
In theory, a quick bankruptcy is possible (the main part of the Lehman bankruptcy last fall was over in about 2 weeks). A lot will come down to the judge, and whether he feels the section 363 bankruptcy makes the most sense for all involved. It is always possible that the judge won't like that, and then all bets are off on how long it will take. What it will likely depend on is how the dissatisfied creditors are viewed by the judge (put-upon victims being shoved aside or greedy whiners who think they can get more). I suspect that, given some of the dumber statements they've made recently, the judge may lean toward the "greedy whiners" side, since they seem to think they should be entitled to payout with the debtor in possession money (which they aren't entitled to at all, as I understand it). Objecting to the judge allowing the suppliers and dealers to get paid (thus keeping the supply & sales chains going for a while, preserving the overall value of the business) doesn't look too bright.
As for FIAT, the main issue is that they don't have any cash either, so "someone" (meaning the US and Canadian gov'ts) will end up footing the bill to bring FIAT product to N. America. Good for FIAT, since they get back into the US market without having to spend much, if any, cash. However, from what I understand, their product isn't exactly the best of the best, and may be no better than Chrysler product, so its not clear that this is better for Chrysler. FIAT also has to overcome the stigma that may still be attached to their name (cheap, shoddy product). Not sure how that is any better than the perception about Chrysler products, and it may mean they can't charge any more of premium on their product that Chrysler can now. No premium can mean no profit, and likely a loss, so its not exactly a big step forward.
The other issue is that FIAT hasn't even finished the Chrysler deal and they are already chasing after Opel. Trying to merge all 3 at the same time is going to be a nightmare, and I'm not sure that FIAT management is up to the task (I don't know any management that could pull that off successfully, quite frankly).
I don't know that this outcome is any worse for Chrysler, though, since they are dead without the deal anyways. The most this does is maybe give it a few more years of life before it winds down for good. I can see FIAT/Chrysler/Opel (FCO, FOC, COF?) coming back in a year or so, and asking for more money from various governments, getting some, and having the whole thing back in bankruptcy while they try to sell off the brands of value (Opel, Jeep, parts of the Dodge and FIAT lines) to someone else.
Basically, its not necessarily a titanic failure, its more like a slow, gradual sinking, but at first it actually seems pretty good because at least the water is warm right now :-).
By mnorm1
on May 5, 2009
08:18 AM
The only way this makes any sense, is if Fiat takes Chrysler and liquidates all factories and equipment for operating cash, and cherry picks dealers for a Fiat dealership network in the U.S.
In the end I think Fiat's new name will be Fiasco.
By estreka
on May 5, 2009
09:29 AM
A Chrysler-Fiat dealership here in the states is a horrid idea (which I will address later). But, the US isn't the only market out there. Keep in mind that Fiat is a global company. I could see them selling a few Chrysler products worldwide. Now, let's get back to the US.
To put it blatantly, Marchionne is going to know firsthand what it's like to be Schrempp. I will say, though, Marchionne is probably going to get Chrysler for peanuts compared to what Daimler paid ($36B) or even what Cerberus paid ($7B).
Since the UAW/CAW are funding their own pensions these days, Fiat may be able to wring out what's left of Chrysler (read, Wrangler) without too much trouble. This is especially true given the bankrupt status of Chrysler.
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Personally, I'd say liquidate Chrysler after you've taken the good stuff out. Since the UAW/CAW has a 55% share, that money can go toward their ridiculous pension plan, putting Ford and GM at ease. Fiat gets some excellent products, the unions and bondholders get their cash, and all automakers get a much-needed slice of marketshare. The only losers would be the dealerships and the current owners (or the taxpayers as we apparently provide the cash for warranties).
By firstwagon
on May 5, 2009
09:32 AM
I don't see why it can't work.
Chrysler has some really good products (Ram, 300C Challenger, Wrangler) and some repairable products (Grand Caravan, Grand Cherokee, Journey).
Fiat has something the US market is completely missing, great small cars with character that are fun to drive (except for the Mini and maybe the Fit).
There's no reason they can't be great together.
Sure poor management, evil hedge funds and sloppy greedy unions could screw it up but I prefer to think on the positive side.
By blackadder5639
on May 5, 2009
10:56 AM
"I don't know that this outcome is any worse for Chrysler, though, since they are dead without the deal anyways.........Basically, its not necessarily a titanic failure, its more like a slow, gradual sinking, but at first it actually seems pretty good because at least the water is warm right now :-)."
Pushrod, you hit the nail right on the head!
By blackadder5639
on May 5, 2009
11:03 AM
Firstwagon, you're right. But then the problem is that Fiat isn't exactly a rich company and their products (and Italian cars in general) are known for poor reliability. If Fiat had lots of cash and highly reliable cars, there would be no doubts about the deal.
By firstwagon
on May 5, 2009
12:35 PM
It will depend on how reliable they are. Talking to family in England and friends in Europe, they don't have a reputation for being unreliable (at least not anymore).
Within reason, I'm more then willing to put up with the occasional repair in order to drive a car I like.
Otherwise I would just buy a bland base Corolla or Yaris, forget about cars and take up golf or bowling or something like that.
By gcn
on May 5, 2009
05:26 PM
I thought this could just work as there's really no overlap in the FIAT and Chrysler product lines - and what little there is, are the worst of the current Chrysler crop. However, now FIAT think they can take on GM's European operations (primarily Vauxhall/Opel). If FIAT were biting off a lot with just Chrysler, I think they are bound to choke themselves and the others to death if they're allowed to proceed.
In the meantime, we could just end up with the Dodge Astra next year - it's already Americanized as the Saturn! What a twisted web we weave...
By msdaisy
on May 5, 2009
11:32 PM
http://blogs.consumerreports.org/cars/2009/05/chrysler-and-fiat-reliability-merger-of-equals.html
By rsholland
on May 6, 2009
05:46 AM
Fiat dead last in UK JD Powers Owner Satisfaction Survey.
http://blogs.edmunds.com/straightline/2009/05/fiat-ranked-28th-out-of-28-in-british-jd-power-satisfaction-study.html
By altimadude00
on May 6, 2009
08:21 AM
rsholland-- yes, but Fiat was only 2% worse than Ford. If that's the case, their quality is on par or just below Ford's, and that's not really a bad thing over here in N. America. It will level the playing field (hopefully with the banishment of plastic interiors).
By euroman71
on May 11, 2009
07:18 AM
I just don't see it. This big push toward smaller cars is just like shoving you with food you don't want to eat. Let's be real here. We, americans, like luxury and don't want to be driving econoboxes like they do in Europe. Fiat has not been associated with US market for over 25 years and it won't be an overnight success to re-establish the name. The quality would have to match those of Toyota and Honda and prices would need to be lower to attract consumers. In the end, how would they make a profit? I say it won't work and we'll be stuck trying to save Chrysler again.