Donald J. Patti

Chrysler & Fiat — The World’s First Happy Shotgun Marriage?

In Auto Industry, Business, Trends, Uncategorized on 23 January 2009 at 10:49 am

It was not long after I posted my “10 Steps to Save Chrysler” blog that I began hearing rumors about a Fiat/Chrysler merger, which intrigued me.  Autosavant, one of the best auto-industry blogs on the ‘Net these days, scooped many of the traditional media outlets by reporting talks on the 19th in this blog entry by JS Smith that’s well worth reading:  http://www.autosavant.com/2009/01/19/chrysler-may-survive-by-fiat/.

Forced together by anemic – no, paralytic –  auto sales, the global credit crisis and some key strategic mis-steps, this engagement between two auto giants may well turn out to be one of the industry’s happiest marriages.  I decided to look back at my article from last week and see which of my “10 Steps” the Chrysler-Fiat partnership helps to address to see whether this isn’t one of the wisest merger opportunities we’ve seen this decade.

Based on a quick tally, a Chrysler-Fiat merger could effectively address these steps:

1. Original Recommendation: Stop building engines.  Analysis: Initially, I recommended that Chrysler stop building engines because of the enormous development costs associated with engine development, the uncertainty around which powerplant would drive growth in the next decade and my past experience seeing how well engine vendor relationships can work.  While a Chrysler-Fiat merger would by no means outsource engine development and production, it does enable Chrysler to share the economic burden of engine design and development, while giving Chrysler access to some of the smaller, more efficient engines that Fiat has dropped in to their European and South American products so effectively (See JS Smith Article).

2. Original Recommendation: Share platforms.  Analysis: This is also a big win for Chrysler and Fiat because the two can share platforms during design and lower overall product development costs.  Suddenly, Chrysler has access to smaller-framed vehicles at a low cost, while Fiat can eliminate some of their larger platforms and adopt similarly-sized Chrysler platforms.

4. Original Recommendation: Focus on the brand(s).  Analysis: Here’s another big success.  I mentioned in my previous blog that Chrysler lost its brand ladder when it dropped Plymouth, then diluted Dodge and weakened Chrysler.  Consider the brand ladder potentially created by a Chrysler – Fiat merger:  Fiat (small, fuel efficient cars), Dodge (mid-range, family-oriented vehicles), Jeep (off-road, rugged), Alfa Romeo (sporty, high-end, high-performance) and either Lancia or a resurrected Chrysler (luxurious, well-appointed, full-featured).  Positioned effectively, the brand ladder would be complete in a matter of 3-5 years instead of decades.

5. Original Recommendation: Dump the Dealerships, not the Dealers. Analysis:  Another big win, because it addresses the fact that Chrsyler’s dealer network is far too large given it’s product lines and likely future sales. Remember, I said that declining product sales continue to put strain on Chrysler dealerships and it’s time for Chrysler to reduce ranks so some dealers can survive the downturn.  If some Chrysler dealerships are transitioned over to the Fiat brands, this effectively reduces the number of Chrysler dealers and gives Fiat products access to an enormous U.S. Market.  I still believe it’s important for Chrysler to look at other sales channels, including shopping malls (read my original blog) and the Internet, but a merger addresses half of the problem.

Of note, I would caution Chrysler against creating “Fiat/Dodge” or “Fiat/Chrysler” dealerships.  This merely increases brand confusion and makes it difficult for the dealers to cater effectively to their customer niche.  Better to offer Dodge dealerships the opportunity to convert over to Fiat.

For the remaining six recommendations in my previous blog, a Chrysler/Fiat merger does not prevent a merged organization from addressing these issues, but does little to help them.  Chrysler would still have to address quality perceptions, needs to change the underlying philosophy of leadership and explore new channels for delivering its products to customers.  Given this, a Chrysler/Fiat merger has the potential to be a very happy marriage, but it would be unwise for  Chrysler/Fiat leadership to stop there.

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