With Chrysler recently announcing yet another profitable quarter, the future might look more promising for the “struggling” American automaker. But it’s time I sprinkled some gloom on that optimism. I have had a lingering suspicion that Fiat taking over Chrysler might not paint as rosy a future as the public might think. Sure there are synergies to be had in this partnership, but two sick companies coming together often doesn’t make a healthier single company.
Ever since Fiat laid its hands on Chrysler, everyone seems to have forgotten how financially unstable the Italian company is. But I guess Knights in Shining Armor tend to have that effect on people. The fact of the matter is that Fiat has long struggled as an automaker globally, even in its chauvinistic home market of Italy. Once a dominant player in Europe and South America, the company has since watched its market share in both regions, but particularly in Europe, drop like a hot brick. Fiat, in a way, was (and still is) the pre-bankruptcy Chrysler of Europe — little to no profits resulting from relatively uncompetitive products. This is even after Sergio Marchionne did wonders for the company. This of course begs a question: if a solid management team is what Chrysler lacked, is Fiat’s leadership what it needs?
Desperation is the word of the day — that’s what Fiat’s takeover of Chrysler is all about. It was only a matter of time before the company could no longer stand on its own. It is no secret that Chrysler was so undesirable that the U.S. government and UAW would have essentially handed the company over to any automaker that asked. It just happens that Fiat was the only company large enough and desperate enough to make a reach for the company, and as smart as this move might be for the Italian automaker, it might not be the best move for Chrysler for the long-run. Fiat’s leadership might prove to be game-changer, but you can’t blame me for having my doubts.
Money talks, and money is what Chrysler needs the most. Unfortunately, money is the one thing Fiat doesn’t have. You can argue that Chrysler needed more than money, that it lacked key technical know-how, particularly in developing fuel-efficient mid-size and compact cars, and you would be right. But practically all volume automaker possess this know-how. The fact that Chrysler is already making more money than Fiat is a serious matter. If Chrysler becomes more viable, the large earnings disparity between the two companies would point-out what I have always suspected — Fiat needs Chrysler more than Chrysler needs it.
Money is important because the viability of every automaker, more so than ever, now depends on how well they can expand beyond their saturated and generally shrinking domestic markets. Chrysler has a very small global footprint and is one company that is in desperate need of new international markets. Fiat is more of an international player, but struggles to maintain whatever foothold is has in its far-flung markets. With one company barely making money and the other still crawling its way out of bankruptcy, how will any expansion initiatives be afforded? The sharing of technologies and products between Fiat and the Chrysler Group could go a long away to enhance the product reach of both companies, but the success of any effective product tailoring and penetration will heavily depend on a big budget.
As things stands, Fiat is far from being an optimal “owner” of Chrysler. Whether it has anything to bring to the table, aside from the technical know-how in making small cars and a relatively more global dealership network, has yet to be seen. Although Marchionne has proven himself to be a competent leader, managing one Italian company is a lot different than managing two very different (in the realm of the automotive industry) and very sick companies.
The automotive industry is consolidating — the smaller automakers are being gobbled by the larger one through alliances or mergers…in the in case of Volkswagen and Suzuki, through intimidation. Fiat has the right idea in merging with Chrysler, but for any chance for this partnership to succeed, both companies need to get in bed with another, more financially stable partner. Having Fiat in the picture should be only a short-term solution for Chrysler’s woes. The search for a sugar mommy should have already begun.