Some Italian Flavor to Spice up a Dry Chrysler Industry?

As you may or may not have heard Italian automaker Fiat S.p.A. and USA’s Chrysler LLC recently agreed to team up with each other to form a global alliance. Both automakers have been struggling in this economic crisis for quite some time now and are looking for alternative ways to stay afloat. In theory, this partnership will extend both their market shares so they will be able to compete against stronger international rivals such as Toyota and Volkswagen, thus allowing them to weather the storm together. According to the Wall Street Journal, “Fiat is likely to take a 35% stake in Chrysler by the middle of this year. It would have the option of increasing that to as much as 55%.”

From what news sources were told, the terms of the deal allow Fiat take partial ownership without any buy in costs. “Instead it would obtain its stake mainly in exchange for covering the cost of retooling a Chrysler plant to produce one or more Fiat models to be sold in the U.S. Fiat would also provide engine and transmission technology to help Chrysler introduce new, fuel-efficient small cars -Wall Street Journal.” According to Reuters, Chrysler feels that this is essential to its survival because it not only helps them provide the means to fulfill the demand for fuel efficient technology, but it also frees up the initial $4 billion of funds from the U.S. government's Troubled Asset Relief Program (TARP). Chrysler can receive an additional 3 billion by the end of March if its plan is accepted as a viable solution for cutting costs and future profitability. As for Fiat, the merger will give them an inexpensive option of re-entering the US market and a possible opportunity to become a majority shareholder of Chrysler at a later point in time.

Still, the billion dollar question remains. Will this consolidation really work or will it prove to be more heartbreak than anyone of us can handle right now? There are many differing opinions on this matter each offering opposing viewpoints. Daimler or as many us know them as Mercedes-Benz still holds a 20% stake in the Chrysler company and shows no optimism for sticking around to find out what will happen with this alliance. “In Germany, a spokesman for the former Chrysler owner said the German car-maker was continuing efforts to sell its holding and welcomed any initiative that served to stabilize the situation at the U.S. car-maker. Daimler has written down the value of that stake to zero. Germany's Chancellor Angela Merkel warned that state bailouts risk distorting competition and do not necessarily offer a long-term solution to this crisis -Reuters.”

The Wall Street Journal feels that, “working with Fiat could complicate a separate partnership Chrysler arranged last year with Nissan. Chrysler is supposed to start making pickup trucks in a few years that Nissan would sell in the U.S., and Nissan has agreed to make compact cars for Chrysler -- vehicles that potentially could compete with any small cars Fiat provides to Chrysler” Reuters goes on to survey the predictions from creditors such as J.P Morgan, Sal. Oppenheim, Bank of America Merrill Lynch, and Unicredit to gauge how they feel this joint venture will pan out. Just as expected there is a large disparity whether they feel this was the right move for these automakers.

Though this is not Chrysler’s first marriage, there are many that believe this new relationship will be a successful one. Fiat has high hopes for bringing two of its most successful brands to the US. The Fiat 500 is considered is one of the best cars you can’t buy in the US and is looking to give the popular Mini-Cooper a run for its money once it becomes available here. The Alfa Romeo was once a hot seller in the U.S. decades ago but was pulled due to the tightening of smog and safety laws. The Alfa Romeo is getting revamped for its readily awaited return to the states.Fiat has quite an extensive global reach with plants dispersed throughout Europe, Africa, Asia, and South America. With such a large footprint Chrysler can help Fiat distribute highly demanded models which they could not supply before this partnership.According to Us News Rankings and Reviews, “Fiat has no pickup trucks to offer for sale anywhere - and Chrysler's Dodge Dakota and Ram might do well in South America, where Fiat has a large dealership network.” Chrysler would also gain access to nations where development is exploding in both China and India.

No matter what, there is a lot at stake here. Chrysler is indebted to many of its creditors having to mortgage many of assets last year just to stay alive. Many are depending on their survival and they have to plan their next few moves accordingly. So far, Wall Street Journal reports an estimate of 3-4 billion in costs will be saved through this alliance. Furthermore, these collaborations have motivated foreign countries such as France to become involved in aiding efforts. Fiat now has a new responsibility for submitting their plans to the US Treasury Department and Washington is anxious to meet with them. Everyone is becoming involved and they must all work together to get through these hard times. I am trying to remain optimistic but still have many of my own worries and concerns for these automakers. Nonetheless, I am looking forward to seeing these hot new European models on our roads. I am hoping it is just what we need to help support the economy and is the right flavor to spice up this dry automotive industry.