Chrysler-Fiat Alliance - A New Twist

24th February 2009

The proposed alliance between Chrysler and Fiat is full of controversy. First, there was the outrage that Fiat would get 35% of Chrysler for no cash or other assets. Then the gods of the Potomac decided that they couldn’t let a foreign automaker take control of Chrysler after Chrysler took the loans from the US taxpayers. Fiat would get “control” by exercising its right under the agreement to claim an additional 20% of Chrysler (total would then be 55% for you math whizzes). Never mind that that’s exactly what needs to happen for Chrysler to be “viable” - the main requirement of the loans. Why let actual facts get in the way of good political theater? As automotive mergers go, this one is a great match, as I have already written.

Ford Ka

Today’s lesson is on the global auto industry and its many intertwined relationships. Virtually all automakers are related to many others, sometimes in ways that you might not have guessed. What if I told you that a potential beneficiary of the Chrysler-Fiat deal is none other than Chrysler’s Dearborn friend - Ford Motor Company? Ford has made public its plan to begin producing some of its European small cars here in North America. Production of the Expedition and Navigator SUVs has moved to Kentucky to make room for small car production at its Wayne, Michigan facility. Fiesta for North American customers will be produced at Ford’s Cuautitlán Assembly Plant beginning in early 2010. But there is one European car that Ford might like to sell here, but the volume would never support it - the Ka, Ford’s mini-compact entry in Europe. Ka is very popular in Europe, but has always been considered too small for US tastes. At the introduction of the new Ka in Paris last October (while gas prices were still high), Ford CEO Alan Mulally said, “I think the Ka could work in the US - the question is the volume.” The new Ka, by the way, is based on the Fiat 500 and is built alongside the 500 in Fiat’s plant in Poland.

Now along comes the Chrysler-Fiat alliance. From the beginning, what Fiat expected to get out of the deal is access to Chrysler’s excess assembly capacity and dealer network. The 500 is expected to be one of the

Fiat 500

products that they would sell here. If the alliance goes through, and Fiat does produce the 500 for North American sales, it would be relatively simple to add production of the Ka as well. Fiat would have a better business case for the 500 and Ford would be able to add the Ka to its North American lineup with minimal investment. Ford would also not need to push more than the customers want to buy (read: add rebates). They could (”gasp”) produce the amount actually demanded by customers!

Chrysler certainly had no intention of helping Ford with their proposed alliance with Fiat, but that’s the nature of the modern global auto industry.