Thu, May 07, 2009
Business > Industries > US auto industry's downfall

Chrysler and Fiat have hopes for happy relationship

2009-05-07 07:38:59 GMT2009-05-07 15:38:59 (Beijing Time)  China Daily

In this combo made from Sept. 22, 2005 file photos, the Chrysler, left, and Fiat logos are shown at the International Auto Show in Frankfurt, central Germany. Chrysler LLC on Thursday, April 30, 2009 filed for bankruptcy protection and will form an alliance with the Italian carmaker Fiat Group SpA in an effort to revive the nation's ailing third-largest automaker. (AP Photos/Michael Probst, file)

DETROIT — When Daimler-Benz merged with Chrysler in 1998, their leaders told the world to "expect the extraordinary" from the German-American auto giant.

The expectations for Chrysler's newly minted alliance with the Italian automaker Fiat are much less grandiose.

And partly because of its more modest promises, the Fiat-Chrysler alliance may ultimately become the success that DaimlerChrysler never was.

Automotive mergers and alliances have a poor track record and seldom yield lasting results. A long list of deals soured because of cultural differences and an inability to meld product lines and deliver on promises to cut costs.

Daimler acquired Chrysler to augment its own line of Mercedes-Benz luxury cars, not to integrate their operations and products. That merger ended badly in 2007, when the German parent could no longer tolerate the losses of its American division, and sold Chrysler off to the private equity firm Cerberus Capital Management.

By contrast, Fiat and Chrysler both sell into the mass market, though with vehicles of starkly different sizes. They hope to build on their similarities, and save money in the process by sharing purchasing, engineering and distribution.

"Our goal since we first entered discussions with Chrysler nearly a year ago is to leverage the strengths of both companies to yield the scale, efficiencies and cost savings necessary to create two stronger automakers," Sergio Marchionne, Fiat's chief executive, said last week.

Mr. Marchionne is eager to add the European operations of General Motors to the mix as well.

But first, he must avoid the same mistakes that derailed the DaimlerChrysler deal.

The German leaders of that combined company — first Jürgen E. Schrempp and then Dieter Zetsche — refused to tear down the walls that separated Chrysler from Mercedes. Instead, they tried to run Chrysler as a stand-alone division and failed to take advantage of opportunities to develop vehicles together.

Fiat executives say there is no comparison to their alliance. "For Daimler to buy Chrysler was like Neiman Marcus merging with Home Depot," said one Fiat executive, who insisted on anonymity because of company policy. "They are a mass carmaker, and we are a mass carmaker," he said of Fiat and Chrysler. "We know this market better."

Fiat and Chrysler have much to offer each other. Chrysler desperately needs Fiat's small cars and fuel-efficient engines to balance an aging lineup of S.U.V.'s.

For Fiat, Chrysler offers an instant dealership network for its return to the United States. They can also benefit from savings on the $46 billion worth of parts and materials they would buy as a combined entity.

Chrysler's prospects are far worse now than when Robert Eaton, then its chairman, sold the company to Daimler. In the late 1990s, Chrysler was enormously profitable and determined to grow in tandem with Daimler.

Now Chrysler is bankrupt, and Fiat is its only hope.

Since it was sold in 2007, Chrysler has pursued a merger, alliance or joint ventures with several automakers, including G.M., Volkswagen, Toyota, Honda, Nissan and Hyundai, according to documents filed in the company's bankruptcy case in New York.

None of the overtures worked, including a last-ditch attempt in February to drum up interest from Chinese automakers in Chrysler's assets and product lines.

"Despite continual efforts over the course of approximately two and a half years, no party except Fiat has emerged as a viable and willing alliance partner for us," Thomas LaSorda, a Chrysler vice chairman, said in a court affidavit.

From the first discussions between Mr. LaSorda and Mr. Marchionne in March 2008, it was clear that the interests of the two companies were well aligned.

"The two companies were ideally matched," Mr. LaSorda said in his affidavit. He added that joining with Fiat would "solve strategic problems that Chrysler has been wrestling with for years."

Under Daimler's control, Chrysler lost its knack for reading consumer tastes and delivering timely products, like the original minivan and its first Jeep Grand Cherokee. An Italian union leader, Giorgio Airaudo, said that Fiat did not operate that way.

"The German managerial system is more rigid, hierarchical," Mr. Airaudo said. Mr. Marchionne has vowed not to stifle Chrysler's designers and engineers, or overwhelm its executives with demands from Italy.

"The mentality of Chrysler is closer to the Italians," said Ferdinand Dudenhöffer, director of the Center for Automotive Research in Gelsenkirchen, Germany.

Mr. Dudenhöffer said that DaimlerChrysler was crippled by the endless committees that Mr. Schrempp and others favored in the decision-making process. "All they did was find arguments about why thing wouldn't work," he said.

Fiat also will not be taking over Chrysler from top to bottom as Daimler did upon acquiring it in a US$36 billion stock deal.

Initially, Fiat will have only a 20 percent stake in Chrysler, although it can increase its ownership to 35 percent by meeting benchmarks set by the Treasury Department.

And Mr. Marchionne has signaled that he will see Chrysler facilities himself before making changes to plants and products.

"Over the coming weeks and months, I will be spending a great deal of time meeting with Chrysler employees and touring its facilities," he said.

Experts in Italy said it was unlikely that Fiat would succumb to the overconfidence that Daimler exhibited when it took over Chrysler.

"In this unforeseeable situation for the world economy, everybody is under pressure to be humble," said Mario Monti, president of Bocconi University in Milan. "They shouldn't have inferiority complexes either."

(Agencies)

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