Chrysler, Fiat Forge Alliance
Cerberus Capital Management unveiled a major component of its restructuring plan today: an alliance with Italian automaker Fiat SpA.
As part of the deal, Fiat will take a 35% equity interest in Chrysler. The agreement calls for the two companies to leverage each other’s distribution networks and suppliers, among other things, to create “substantial” cost savings.
For more details about the agreement, click here.
The move comes on the heels of a $1.5 billion federally mandated capital infusion to Chrysler Financial last week.
The player who benefits most from this is Fiat, although it could be a dangerous gamble. Fiat wants to sell its cars here, especially the 500 and the Alfa-Romeo brand, but for the past few years a series of crises kept it from getting its act together to actually do it. We also know that Fiat considers its worldwide volume to be unsustainable beyond five years and was looking for a dance partner. Fiat also wants to beat PSA and Renault in returning to the United States, and if it can succeed, it will leave PSA as the only top-tier manufacturer with no presence in North America (Renault has Nissan, but has expressed interest in selling Renaults here in 2011).
According to the press release, Chrysler would get access to Fiat’s small cars and engines, but honestly – I think Fiat would rather sell them here under their own name. A far more likely scenario is that we wind up with one or two larger cars, Minivans, and a truck line under the Dodge and Chrysler names and then Fiat/Alfa-Romeo dealerships, while Jeep retains the middle of its lineup (Liberty/Grand Cherokee) while shedding the large Commander and the smaller Patriot/Compass. This, of course, is pure speculation. But honestly, this would not displease many people – Chrysler would continue in some form, Fiat would get what it wants, and most of the forgettable cars would be binned.
One wonders, however, if Fiat isn’t heading down the very same road that Renault once took when it took a controlling stake in American Motors in 1979. Renault got more dealers, AMC got a new car, but it all came together very poorly and the resulting product – the Renault-AMC Alliance/Encore – was one of the worst cars of the 1980’s and effectively torpedoed any good will towards Renaults that remained in the American buying public.
At the moment, it’s just happened. We’ll have to keep our eyes open for what kind of waltz Turin and Detroit plan to perform with each other.
I had my own experience with Fiat in the early eighties. With the fuel crisis of 1979 Plymouth Horizons were hot merchandise, but Chrysler’s production capacity was constrained. My partners and I thought the Fiat Strada looked kinda like a Horizon so we quickly signed up for a Fiat franchise. What an experience it was. We dealt with a Brava model that had been designed with the wrong size alternator pulley so the cars would lose charge after a few days of driving. I thought it would be a good PR move to have the GM drive a Fiat, so I took a Sider for a demo. It broke. Whiel waiting for parts, I took an X1/9. The transmission case cracked and spilled fluid and bits and pieces all over the driveway of a friend of mine as I backed out of their driveway. It took months to get the parts for both cars. I learned quickly I couldn’t sell one to a friend or anyone I wanted to maintain as a customer. There weren’t enough loaner cars in the world that could make up for Fiat’s parts service. Chrysler’s durability and service wasn’t so good in those days, but Fiat was MUCH worse. I’ve also had first hand experience with Jaguar, Renault, and Ferrari and none were good. Mercedes Benz, on the other hand, is a completely different story, so I can’t paint all the European cars with the same brush. Maybe they have had time to improve. In Fiat’s case, they had a long way to go. My gut tells me this is a desperation move in the case of both parties.
Wow, I never thought I’d be talking about Fiats here. 🙂
I’ve had more than a few Fiats, all but one of which were U.S. models – but I didn’t buy them new. One of the reasons I think Fiat can overcome its poor U.S. showing in the past is that there’s a whole generation of people in America (my age and under) who’ve never been able to buy a Fiat new and many have no idea what a Fiat is (when I would leave Fiats in New York parking garages, attendants would often ask me what they were – “VW? Nissan?”).
I’ve had about a half dozen Fiats, and every time I drove one people were interested in what they were and where I got them – most had never seen a Fiat and if they had, not one other than a Spider (the only Carter-era U.S. Fiat I’ve never owned).
I used to love Fiats and in particular, the Strada – which was a great car engineering wise (much of it originated in the Fiat 128, and lingered into the 1990’s as the Lancia Delta Integrale), but weird and very poorly made. The only ones to survive long enough for me to have them were the really good ones, and I’d honestly be surprised if more than 300 Stradas are still on the road in all of North America. Literally. I also had a green ’81 Brava that I liked, although its undersized GM TH180 hydramatic and 4:10 rear made it a mind-numbing car on long drives. The car was good, but poorly adapted for the demands of Americans. My X1/9 was a great car – and only one part broke during my whole ownership experience – a Bosch FI sensor.
My two Fiat 128’s were great cars, but one rusted out completely. The other survives in a Philadelphia area collection. Tales of Fiat quality, long waits for parts, and poor service are, however, legendary among Fiat fans, and in my family – which had a Lancia Beta when I was growing up. Even the Fiat dealers didn’t want to deal with that pretty-but-often-broken-contraption.
Today’s Fiats, however, would be barely recognizable in comparison to those old cars. Even the badges and logos are different. I would not put Fiat’s quality at the Toyota level, but as of a couple of years ago it was vastly improved over many other brands and about even with the Koreans. I think Hyundai and Kia have continued to improve to the point where they are on par with Toyota at this point, but only time will tell. Fiat isn’t quite that good, but they’re totally unlike the bad old days.
The last modern Fiat I drove was a 2001 Bravo 155 with lots of cool features and a strong turbocharged straight five (similar to what powers the Volvo C30 T5), and I loved it. It was, however, a whole different animal from the old cars.
If Fiat does return, they’ll face a huge legacy issue of problems with their cars in the 1970’s. They, like Peugeot, fundamentally misjudged American tastes and then failed to provide cars that were going to last – at a time when many Americans who were sampling imports were discovering Toyota and Honda for the first time.
But Fiat’s current lineup, excluding the vans and the too-strange Croma, are generally very good, exciting cars – in particular those that would potentially be volume leaders here – the 500, Grande Punto, and Bravo. They look and feel world class, and in general have shed most of the reliability issues. Fiat could make a good go of it by offering us cars that are like VW, but cheaper and with more personality, and despite the history, they face easier acceptance than imports from China and India.
Alex, you are an unusual guy! Other than other Fiat dealers from the past I rarely meet anyone who has your knowledge of their products. I loved driving the Spider…. I just couldn’t keep it running.
I’m sure Fiat has addressed many of the old problems. I’m one who might sacrifice a little quirkiness for some personality. But I think they will have to come with a Korean type warranty to do any good in the U.S. I just wonder if they could have any price advantages given high European labor rates and uncertain exchange rates.
What are the chances that Americans will by small fuel efficient cars that have personality but an unknown history in the face of cheap gas?
It still comes down to the fact how to keep your business profitable. Econimic conditions drive your treatment somewhat, but if the LTV’s are done the right way at the origination, the consumer has vested interest to keep paying and not loose the vehicle. At any time you do not want to let the customer add wear and tear if you have minimized you potential loss the right way.