Chrysler-Fiat Alliance

21st January 2009

In what is surely the best possible outcome outcome (short of winning Mega Billions), Chrysler and Fiat announced an alliance where Fiat gets 35% of Chrysler from Cerberus, the majority owner of Chrysler. As opposed to the GM-Chrysler talks last year, this one actually makes sense, and lots of it. Fiat and Chrysler have almost no product overlap - Fiat sells small and medium cars under the Fiat name, luxury cars under the Lancia, Alfa Romeo and Maserati names and sports cars under the Ferrari name. All of these brands have, at one time or another, sold their wares in the US. Now only Ferrari and Maserati do. Chrysler sells cars, minivans and trucks under the Chrysler and Dodge names and Jeeps under the, ahem, Jeep name. They have no small cars and their medium cars are not very successful, to say the least.

So what does each partner get? Chrysler gets access to Fiat’s small and medium platforms and their powertrains, which are highly regarded. Fiat gets the larger platforms, especially the large, rear-wheel drive and minivan platforms. The big thing for Fiat, though, is access to assembly plant capacity and Chrysler’s dealer network. Alfa has been rumored to be planning a re-entry into the US market for years, and this deal allows them to build and sell Alfa Romeo in the US with minimal investment in plants and dealers.

In addition to the complementary products, there is also complementary geography. Chrysler’s sales are very North American-centric with very few sold outside of North America. Fiat is one of the largest European automakers, but does not sell very many outside of Europe. Giving each other instant access to the markets where they do not compete will only help both automakers.

The only tricky part is, of course, from the government. There will have to be government approvals for anti-trust reasons, but also from the Treasury Department, which loaned Chrysler $5.5 billion recently. Under terms of the loans, the feds get to approve any deal worth over $100 million. Giving loans to Chrysler which will now have foreign ownership of over 50% (35% for Fiat and 19.9% for Daimler) might make some in DC nervous, though. They should approve it, because this deal does exactly what the feds gave them the money for: to help ensure their long-term viability and safeguard American jobs.

A little Fiat trivia - did you know that Fiat is an acronym? True story. The original name of the company was “Società Anonima Fabbrica Italiana Automobili Torino“; the FIAT part means “Italian Automobile Factory in Turin.”