Case Study: Chrysler-Fiat Partnership
Case Study: Chrysler-Fiat Partnership
When America’s economical crisis reached its apex, domestic car manufacturers were at the forefront of struggling industries, and Chrysler was one of the hardest hit (Car and Driver, 2008). In 2008 the automotive giant, along with fellow industry stalwart General Motors, received a $17.4-billion reprieve from the American Government to keep from closing its doors altogether (Car and Driver).
Chrysler did lose a lot of respectability, and was ordered to cease and desist with any new product development until the company proved it could be a viable business (Gluckman & Kurczewski, 2009). However, the loan from the government proved to still not be enough to get Chrysler back on its feet, and in 2009 the company filed for Chapter 11 bankruptcy (Groth, 2011). Fiat faced its own organizational struggles in 2003-2004 before new CEO Sergio Marchionne led the Italian automotive manufacturer back to respectability (Gluckman & Kurczewski). Still, after watching European car sales fall to a 17 year low and needing a boost to his company’s revenue, Marchionne saw the Chrysler situation as a way to get into the American market (The Economist, 2013).
Objectives Sought by Each Partner:
Chrysler’s objectives in the partnership with Fiat were pretty simple: it needed a financial boost to maintain its place in the industry and new technology if it wanted to grow and advance (Marrs, 2009). After egregiously unsuccessful partnerships with Daimler-Benz and Cerberus Management Group and a multi-billion dollar loan from the American Government ended with Chrysler filing for bankruptcy, the company was in desperate need of a method to regain viability (Marrs; Krisher & Strumpf, 2009; Gluckman & Kurczewski, 2009).
Although Chrysler received no money in the deal, it will emerge as a new, leaner group minus billions in debt, 789 underperforming dealerships, and burdensome labor costs, not to mention gaining Fiat’s technology to build new environmentally friendly, fuel efficient, high-quality vehicles (Krisher & Strumpf). Fiat’s objective in the partnership was to provide a financial boost to its own company without accumulating additional debt (Ebhardt, 2013).
Fiat, Italy’s largest auto manufacturer, would like to expand its market to become a global competitor. Fiat CEO Sergio Marchionne believes that to compete with General Motors, Volkswagen, and Toyota, the merged Fiat-Chrysler will need to produce 5.5-6 million cars a year, compared to its current output of 4.1 million (The Economist, 2013).
Basis of Dialogue Leading to the Partnership:
The basis of a dialogue leading to a potential partnership was the concept of a mutually beneficial situation for all parties involved (Cox, 2013). Fiat has the capital, new technologies to develop high-efficiency cars, and reverence from Ferrari and Maserati fans that will allow Chrysler to regain its place among top domestic auto manufacturers in the United States (Groth, 2013). Fiat will share with Chrysler its platforms and powertrain technology, including engines, transmissions, and fuel-saving technology (Gluckman & Kurczewski, 2009).
Through Fiat, Chrysler will also get better distribution of its products in Europe, India, Brazil and China (Gluckman & Kurczewski). Chrysler is the 3rd-largest U.S. auto company and is a trusted brand with the international appeal, customer base, and facilities that will allow Fiat to become a serious competitor in the global automotive manufacturing market (Groth). Chrysler was also in no position to be patient for an extended period of time. While its factories sat idled during the bankruptcy process, the automaker reportedly lost 100 million per day (Krisher & Strumpf, 2009).
Steps Taken by Each Company:
The partnership between Fiat and Chrysler, which is still an ongoing process, is being approached in phases. Initially Chrysler agreed to give Fiat a 35% holding in return for an influx of new engines and platforms, research and development, and help retooling its plants (Marrs, 2009). This approach allowed both organizations to ease into the partnership, without either side immediately taking on too much debt or risk (Cox, 2013). Analysts were not able to exactly predict the partnership between Fiat and Chrysler.
In fact, Chrysler was in talks with General Motors before both companies began to experience serious financial hardships (Gluckman & Kurczewski, 2009). Looking to avoid the management mistakes that doomed Chrysler’s partnerships with Daimler and Cerberus, Fiat CEO Sergio Marchionne has made it clear that Fiat/Chrysler will run as one company (Trujillo, 2013). As Mr. Marchionne announced at a media briefing, “This management team spends their time traveling and making decisions, but this thing runs as one house. There is no question about who runs what; I run one company” (Vlasic, 2013, pp. 4).