Leaning on Fiat's Sense of Direction To Guide Chrysler
Tuesday, April 14, 2009
When corporate executives brief Wall Street analysts, they can usually be counted on to put their companies' performances in the best light. But Fiat's engaging chief executive Sergio Marchionne rarely minces words. After taking the wheel at the Italian automaker in 2004, he promised analysts he would do "radical surgery" because "we've got an organizational structure that needs to be snapped out of its stupor."
Marchionne purged Fiat's management, bringing in outsiders and ordering up snappier car models that helped double Fiat's market share in four years. He demonstrated skills as a dealmaker, extracting $4 billion from General Motors to end a complex agreement with the Detroit firm. And he persuaded some of Fiat's biggest lenders to accept common stock in return for slashing Fiat's debt.
Now the Obama administration is wondering whether Marchionne can do for Chrysler what he did for Fiat. Marchionne is "unconventional, but it seems to work," an administration official said. "We believe he's kind of the real thing in his own way."
Chrysler is struggling to avoid bankruptcy, and the president's auto task force is weighing whether to pump another $6 billion into Chrysler. The Obama administration has decided that Chrysler needs a partner to survive, and it has put its hopes in Fiat and Marchionne. It has given Fiat and Chrysler until the end of the month to negotiate partnership terms.
An examination of how Fiat has evolved under Marchionne, as well as his views on the U.S. auto market and his management style, sheds light on the type of company that a Chrysler-Fiat marriage could create.
A linkup could bolster Chrysler's limited product line with Fiat's small, fuel-efficient cars while giving Fiat access to the United States through Chrysler's established distribution network.
It would also dovetail with Marchionne's strategy to expand Fiat, and his assessment of the U.S. auto industry, which is as blunt as his earlier assessment of Fiat. "U.S. car companies have lived in a dream world," he said in an interview a few weeks ago. "Their financing activities covered up the sins on the industrial side."
Fiat might not be among the world's biggest car companies, but at least it made money last year. "I made 2.2 million cars last year and made [$1.3 billion], more than GM with 8 million car sales," said Marchionne, who prefers open collars and sweaters to ties and suit jackets. "Size is important if done well. . . . If you're doing it for ego, that's worth nothing."
The chances of a Fiat-Chrysler marriage are still remote. If it does happen, Fiat would get a 20 percent stake in Chrysler in return for giving Chrysler access to Fiat's line of small cars and Fiat's international sales network. Some of Chrysler's current brands would be eliminated and some assembly lines retooled to produce the Fiat 500 and Alfa Romeos. Chrysler would be better able to sell its most popular brands, such as Jeep, abroad. Fiat would reenter the U.S. market after a 23-year absence. If the arrangement works, Fiat might ultimately acquire 51 percent of Chrysler.
Chrysler's financial needs are immediate, whereas introducing Fiat cars will take time. The Fiats need to be reconfigured to meet U.S. regulations, and Chrysler assembly lines need to be revamped; Fiats might not appear in U.S. showrooms until 2011. So Chrysler still needs to persuade unions and bondholders to accept deep cuts now. Fiat, whose own debt rating was reduced to "junk" status by Standard & Poor's last week, said it does not plan to provide cash to Chrysler or to assume any of Chrysler's debt.
"Getting this thing done by the end of this month is a Herculean task," said Maryann N. Keller, an auto analyst and author of a book about GM.
The Comeback Kid
Fiat has been absent from the U.S. car market for two decades, and those who remember its earlier vehicles have mixed memories. Fiat was said to stand for "fix it again, Tony," Keller said.