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Chrysler-Fiat Strategic Alliance Case Study

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A strategic alliance links two or more companies operations by combining manufacturing resources and knowledge. These tie-ups combine R&D, product development, distribution networks, and other areas in knowledge allocation. With that said, Chrysler was ordered by the U.S. government to form an alliance and file for Chapter 11 bankruptcy in-order to acquire government bailout. So, in early 2009, Fiat turned out to be the key contender for Chrysler and in April 2009, Chrysler and Fiat announced their strategic alliance and agreed on a new ownership structure.

In May 2009, Chrysler filed for Chapter 11 bankruptcy in a New York court and started the process of a company-wide restructuring.

Chrysler and Fiat, as well as the Obama Administration, announced that the Fiat Group, plans on providing technology-related expertise and assembly platforms to Chrysler. The focal aim of this alliance is to allow Chrysler to survive and develop small and fuel-efficient autos in North America. The initial formation of this alliance allocated Fiat with twenty percent ownership of Chrysler and could raise its stake to thirty-five percent.

After 2013, if Fiat meets certain conditions such as, introducing fuel-efficient cars and manufacturing small auto engines in North America, their shares of Chrysler ownership may rise to fifty-one percent. Therefore, this strategic alliance will benefit both companies and allow Fiat entry to the United States.

Italy Fact Sheet:

* Italy has a diversified industrial economy:
* divided into a developed industrial north, dominated by private companies, and a less developed, welfare-dependent, agricultural south, with high unemployment. * The Italian economy is driven in large part by the manufacture of high-quality consumer goods * produced by small and medium-sized enterprises, many of them family owned.

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* Italy also has a sizable underground economy: (accounts for 15% of GDP) * most common within the agriculture, construction, and service sectors. * Italy has moved slowly on implementing needed structural reforms such as: * reducing graft, overhauling costly entitlement programs, and increasing employment opportunities

* The Italian government has struggled to limit government spending * public debt remains above 115% of GDP, and its fiscal deficit – just 1.5% of GDP in 2007 – exceeded 5% in 2009 as the costs of servicing the country’s debt rose. * A tax amnesty program implemented in late 2009 to repatriate untaxed assets held abroad has netted the federal government more than $135 billion. * The Automotive industry in Italy is a large employer in the country, with a labor force of over 196,000 (2004) working in the industry. * Italy is the 5th largest automobile producer in Europe (2006) * Today the Italian automotive industry is almost totally dominated by Fiat Group * 2001 over 90% of vehicles were produced by Fiat

* Italian automotive part industry covered over 2,131 firms and employed almost 250,000 people in 2006 * Italy’s automotive industry is best known of its automobile designs and small city cars, sports and supercars * automotive industry makes a significant contribution of 8.5% to Italian GDP

United States of America Fact Sheet:

* The US has the largest and most technologically powerful economy in the world
* per capita GDP of $46,400.
* The US is a market-oriented economy
* US business firms enjoy greater flexibility than their counterparts in Western Europe and Japan * decisions to expand capital plant, to lay off surplus workers, and to develop new products * At the same time, they face higher barriers to enter their rivals’ home markets than foreign firms face entering US markets. * US firms are at or near the forefront in technological advances * especially in computers and in medical, aerospace, and military equipment * their advantage has narrowed since the end of World War II. * Technology largely explains the gradual development of a “two-tier labor market” in which:

* those at the bottom lack the education and the professional/technical skills of those at the top and, more and more, fail to get comparable pay raises, health insurance coverage, and other benefits. * War in March-April 2003 between US-led coalition and Iraq, and the subsequent occupation of Iraq, required major shifts in national resources to the military. * Soaring oil prices between 2005 and the first half of 2008 threatened inflation and unemployment, as higher gasoline prices ate into consumers’ budgets. * Imported oil: about two-thirds of US consumption.

* Long-term problems include:
* inadequate investment in economic infrastructure, rapidly rising medical and pension costs of an aging population, sizable trade and budget deficits, and stagnation of family income in the lower economic groups. * The merchandise trade deficit reached a record $840 billion in 2008 before shrinking to $450 billion in 2009. * The global economic downturn, the sub-prime mortgage crisis, investment bank failures, falling home prices, and tight credit pushed the United States into a recession by mid-2008. * To help stabilize financial markets, the US Congress established a $700 billion Troubled Asset Relief Program (TARP) in October 2008. * government used some of these funds to purchase equity in US banks and other industrial corporations. * In January 2009 the US Congress passed and President Barack Obama signed a bill providing an additional $787 billion fiscal stimulus to be used over 10 years:

* two-thirds on additional spending and one-third on tax cuts – to create jobs and to help the economy recover. * March 2010, President Obama signed a health insurance reform bill into law * extend coverage to an additional 32 million American citizens by 2016, through private health insurance for the general population and Medicaid for the impoverished. * In July 2010, the president signed the DODD-FRANK Wall Street Reform and Consumer Protection Act * The automotive industry crisis of 2008–2010 was a part of a global financial downturn * The automotive industry was weakened by a substantial increase in the prices of automotive fuels linked to the 2003-2008 energy crisis which discouraged purchases of sport utility vehicles (SUVs) and pickup trucks which have low fuel economy

* The American “Big Three” automakers, General Motors, Ford, and Chrysler to make them the US primary focus (government bailout – Ford declined) * With fewer fuel-efficient models to offer to consumers, sales began to slide * 2008, the situation had turned critical as the credit crunch placed pressure on the prices of raw materials. * Facing financial losses, the Big Three have idled many factories and drastically reduced employment levels

Chrysler Fact Sheet:
* 1925 — Company founded by Walter P. Chrysler on June 6 when the Maxwell Motor Company was reorganized into the Chrysler Corporation. * 1928 – Plymouth introduced, as well as the DeSoto. Chrysler bought the Dodge Brothers auto and Truck Company. * 1930s – MoPar created, a formal vehicle parts division of Chrysler. * 1934 – Chrysler introduces AirFlow models, designed using aerodynamic principles. Buyers rejected them. * 1936 – Chrysler becomes the #2 US automaker. Remains #2 through 1949. * 1942 – Hidden headlights introduced on DeSoto for a brief time. * 1951 – Hemi V8s introduced.

* 1955 – Imperial spun off from Chrysler to a marquee of its own. * 1957 – Torsion-Aire suspension introduced, produced a smoother ride and improved handling. * 1960 – Chrysler built all their passenger cars with uni-body construction, the only automaker to do so at the time. * Valiant spun off from Chrysler, became a model in the Plymouth line in 1961. Valiant is the first production car with an alternator. * 1961 – DeSoto discontinued.

* 1964 — Chrysler Europe formed
* Plymouth Barracuda introduced, weeks before the Ford Mustang. The Mustang outsold it 10-1. * 1970s – The muscle cars Plymouth GTX, Plymouth Road Runner and Dodge Charger introduced, all featuring a street version of the Hemi engine. * 1971 – Chrysler buys 15% stake of Japan’s Mitsubishi Motors * 1974 – Plymouth Barracuda and Dodge Challenger discontinued. * 1975 – Chrysler Cordoba introduced.

* 1977 – Chrysler Europe collapsed, offloaded to Peugeot the next year. * 1978 – Chrysler Australia sold to Mitsubishi Motors.
* 1979 – Chrysler asks US government for $1.5 billion in loans, brings in Lee Iacocca as CEO. Congress gave them the loan on December 20. * 1982 – Chrysler sold Chrysler Defense to General Dynamics. * 1983 – Chrysler finishes repaying US government.

* 1987 – Chrysler buys AMC, creates Eagle to be sold at existing AMC-Jeep dealers * 1998 – Chrysler and its subsidiaries became part of German-base Daimler, becoming DaimlerChrysler AG. Chrysler Corporation became DaimlerChrysler Motors Company LLC. * 2001 – Plymouth discontinued.

* 2004 – Chrysler 300 introduced.
* 2007 – DaimlerChrysler sold 80.1% of the Chrysler Group to Cerberus Capital Management * The New Chrysler unveiled a new logo and website, with a variation of the Pentastar logo. * 2008 – February, Chrysler announced its product line would be reduced from 30 models to 15 models. * August, Chrysler reportedly in talks with Fiat.

* December, Chrysler announced the company was almost out of cash. Soon, the company received a portion of the $13.4 billion rescue loan for American automakers, announced by President George W. Bush. * 2009 – At the North American International Auto Show in Detroit, Chrysler unveils the Chrysler 200C EV Concept sports sedan, with an all electric range of 40 miles * April 30, Chrysler to enter bankruptcy, reaches deal with partnership with Fiat.

Fiat Fact Sheet:

* Fiat, established by Giovanni Agnelli in 1899, is an acronym for Fabbrica Italiana Automobili Torino * In the 1980s and early 1990s, it was vying to be the number one car manufacturer in Europe with a market share of about 15 per cent * 1900 Fiat manufactures 24 cars and employees 35 workers * 1966 former cavalry officer Gianni Agnelli becomes Fiat’s chairman * 1969 Fiat acquires Lancia and 50% of Italian icon Ferrari * Fiat encounters massive labor strikes and assembly-line disruption * 1970’s and 1980’s consisted of strikes and layoffs

* 1973 Fiat witnesses first operating loss because of labor strikes and 1970’s oil price shock * 1976 Libyan government buys about 10% of Fiat * strongly opposed by Italian businesses  * 1980-85 Fiat reduces its labor force by cutting 100,000 jobs * 1986 Fiat acquires Alfa Romeo from the Italian government and becomes largest automaker in Europe * Libya unloads its stake in Fiat and sells it to the Agnellis and a consortium headed by Mediobanca * 1996 Agnelli resigns as chairman and receives the position of an honorary chairman * 2000 GM acquires 20% of Fiat Auto for $2.4 billion

* 2002 Fiat puts the company on a crisis status
* asks the Italian government for laying off 8,100 workers
* closes its Sicilian plant
* In January 2003 Gianni Agnelli dies
* His brother Umberto takes over the company holding (a year later Umberto also passes away)
* In June 2004 Fiat hires Sergio Marchionne to become its CEO * Accountant by profession

* Master’s in business administration from the University of Windsor
* February 2005 Fiat and GM dissolve their 5 year partnership
* GM pays Fiat $2 billion in cash to get out of the partnership
* July 2005 Spanish bank BNP Paribas buys 2% of Fiat

* July 2007 Fiat introduces a new version of its iconic Cinquecento 500 model after 32 years
* January – February 2009 Fiat announces a deal to acquire 20% of Chrysler in exchange for technology and overseas markets
* Fiat receives a $1.26 billion line of credit from its bank to pursue the deal
* On April 2009 Chrysler and Fiat announce a global strategic alliance and agree on a new ownership structure
* Chrysler files for Chapter 11 bankruptcy in the US

* May 2009 Marchionne proposes to GM regarding acquiring Opel in Germany and Vauxhall in the UK * September 2009 Fiat owns 20% of Chrysler

Case Questions:
1. What are your views of the 2009 Chrysler-Fiat strategic alliance and its future prospects in the auto industry?

Personally, I believe that Chrysler had its time in the American auto industry. With illustrious market competition occurring worldwide a strategic alliance was imperative in-order to rebrand their name in the auto industry. Chrysler was never a leading player in the North American auto industry, they were called “Number Three” due to the trial they led, of both GM and Ford. All three companies were in the business of developing cars catering to the masses and Chrysler needed to get out of the “Number Three” shadow and find a different way to re-enter into the markets. Therefore, my belief on the formation of this strategic alliance was very beneficial for both Chrysler and Fiat. They can now collaborate ideas and new technologies and maybe someday down the road re-enter with a bang.

There are few auto companies that focus on the development of small-scale cars and I believe that Fiat and Chrysler, can re-enter the markets as a top player. On November 09, 2010, an article named “Chrysler may build SUV’s for Fiat”, pinpoints Chrysler’s soaring successes with its new model of the Jeep Grand Cherokee. Sergio Marchionne, CEO of both companies, announced in a conference with investors that Chrysler’s third-quarter earnings exceeded analysts’ expectations. Chrysler’s projects its operating profit for 2010 to hit $700 million, which is way above original expectations of a break even number of $200 million. The future is uncertain, but with quality work and eminent collaboration I truly believe the Chrysler-Fiat strategic alliance can flourish.

2. Analyze and evaluate Chrysler and Fiat’s strengths and weaknesses before and after their 2009 strategic alliance.


* Attainment of market opportunities
* Humble to openness and new ideas
* Existence of product brand in major consumer societies (United States)
* Finds great opportunity in business ventures
* Willing to accept help and improve from other companies
* Now has the backing of a major overseas car manufacturer Fiat
* Well rounded
* Venturing into various diversified fields in order to maximize revenue
* Expansion of corporate company into other industries and services
* Previously been involved in a strategic alliances with GM
* Greater than12% market share in all of Europe

* Well managed


* Merger combined two different corporate cultures (European and American)
* Image campaign could distract from strong product brands
* Employees have been leaving at a high rate
* Dicey investment
* Smaller shares of markets then both GM & Ford
* Lack of diversification
* Companies has encountered several bailouts both government or private Fiat
* Dicey investment – due to history of company and the history of both contenders in the alliance
* Sales of subsidiaries — sustain market share of the automobile industry
* GM paid Fiat and ended alliance

* Merger opens the doors to many different opportunities
* Collaboration of ideas with Fiat
* Global market presence
* Merger allows company to feel more at ease
* Learn from its mistakes
* Ability to expand beyond more then ever before
* Vast array of markets for them to eventually enter
* Eligibility to now enter North American markets
* Ability to help Chrysler and strengthen its brand simultaneously
*Ability to potentially own 51% share hold in Chrysler
* Sales of different Fiat subsidiaries — they now have the ability to focus on the larger portion of their business – the pinnacle issues become more visible Threats:
* Abundance of competition who hold better brand recognition
* Does not have a corporate brand identity
* Size of company will demand a varied marketing program; a cookie-cutter approach will not succeed
* Behind in the research and marketing of hybrid autos

* History of problems
* Emergence of new auto-makers providing similar products
* Does not consistently develop new cars
* Lost many consumers with its new version of the Fiat 500
* Strict government laws

3. Compare and contrast Chrysler and Fiat with five other global auto manufacturers (GM, Ford, Toyota, Volkswagen, and Daimler) in the areas of global operations and manufacturing issues.

Chrysler and Fiat are brand recognizable companies and have been in the auto-industry for many years. Whether or not they are in the top-tier, like several other car companies, Chrysler and Fiat continue to operate within competitive markets. They have been able to keep a customer base and meet certain needs in technology and innovation to enable them to remain in this competitive industry. The Chrysler-Fiat strategic alliance, has enabled them to be contenders in the global market. On the contrary, GM, Ford, Toyota, Volkswagen, and Daimler are precisely known as the auto-industry giants and have immense power over both Chrysler and Fiat as separate entities. The formation of the Chrysler-Fiat strategic alliance has enabled these two companies to keep its presence within the auto-industry.

Exhibit III of the case study, illustrates the power a strategic alliance can formulate. According to the chart, both Chrysler and Fiat, as separate entities, drastically fall behind the industry leaders such as GM, Ford, Toyota, Volkswagen, and Daimler. Chrysler shows sales of $59 billion while Fiat’s shows sales of $83 billion. Out of the five industry leaders, Volkswagen comes in last ($149 billion in sales), which is enormously higher then both Chrysler and Fiat. If you look at Chrysler and Fiat as an alliance, their combined sales come to $142 billion. Therefore, forming an alliance will keep them in the game; together they can compete globally with industry leaders and collaborate with its culturally diverse partner in order to innovate and keep current with new technologies. The strategic alliance formed by Chrysler and Fiat has given them both the power to gain market share in diversified regions.

Fiat is now able to enter the North American markets while Chrysler enters European markets. With the help of Fiat, Chrysler now has the opportunity to learn first hand the European culture. With their help, Chrysler can learn to emerge and build strong brand recognition within Europe. If Chrysler maintains a humble approach they have the power to become a huge threat to other global automakers such as GM. Entering a new market/region is very intricate. Partnering up with Fiat gives Chrysler an advantage due to the fact that Chrysler can now be highly educated on European corporate culture. With quality teamwork, Chrysler can formulate a strategy for entry that may pose immense threat to industry leaders such as Volkswagen, Toyota, GM, Daimler, and Ford. If Chrysler’s multi-national strategy can create an immediate positive buzz within the European markets, then both Chrysler and Fiat can compete and one day expand into an array of diversified markets.

4. Analyze Chrysler and Fiat’s brand portfolios in the world auto industry. How do you see both companies revamping and overhauling their brands in the short (1-2 years) and long terms (5-6 years)? Chrysler and Fiat have the potential to become a large leader in the auto industry. Sergio Marchionne is both CEO of Chrysler and Fiat, and has recently improved the company beyond analyst’s beliefs. Therefore, great leadership while upholding a plan of strategy can immensely help an existing organization revamp. Table I illustrates financial and market-related data for both Chrysler and Fiat. Fiat’s sales in 2008 ($83,696.1 mil.) are higher then Chrysler ($59,700.0 mil.), but if you look at these two companies as one unit you will find that they are nearing global auto-industry leaders. In 2008, Chrysler’s market share in the U.S. was at 12.5% while Fiat’s market share in Europe was at 8.2%. Chrysler also projected higher sales growth at 4.0% while Fiat has a 2.8% sales growth.

With that said, both Chrysler and Fiat tend to balance one another’s downfalls. Industry leaders may project higher numbers but you must take into account that those giants are not located in just one region. Over the years, industry giants such as GM, Ford, Volkswagen, Toyota, and Daimler have taken their companies global while Chrysler and Fiat are first entering into new multi-national regions. Therefore, I project that the short term1-2 years, both Chrysler and Fiat will “begin” to emerge as threat to industry leaders. I do not believe that they will surpass any one top-tier industry leader yet. On the contrary, if you look at both Chrysler and Fiat long-term 5-6 years, I believe that their threat may turn into reality. I believe that there humble approach and current CEO, Marchionne, has a well-implemented strategy that will enable both Chrysler and Fiat to flourish.

Our globalized economies feed off new developments and innovation and I strongly believe that nothing great, last forever. I feel that with great leadership and collaboration of both Chrysler and Fiat, they can become the new necessitated item in the long run. While industry leaders stay on coarse, Chrysler and Fiat now have the opportunity to develop and innovate differently then previously seen. So far, a year has gone by since the alliance was formed and CEO, Sergio Marchionne has improved both companies immensely.

5. What did you learn from the Chrysler-Fiat Strategic Alliance regarding managing multinationals in the changing global business? What role did the U.S. government play in the formation of this alliance?

I learned a lot from this case study. I believe the pivotal point this case stresses is the power of a strategic alliance in accordance with great leadership. The power of multinational alliances is imperative in today’s global economy. The U.S. government gave bailout money to Chrysler and insisted they form an alliance overseas. In doing so, Chrysler-Fiat became a strategic alliance and formed a win-win situation. Fiat was now able to enter U.S. markets while Chrysler, with the help of Fiat, emerged into the European auto markets.

Culture is very unique to each region of this global economy and by forming this strategic alliance they were able to learn the European culture first hand from Fiat. With their help, Chrysler was able to formulate an entry strategy and form a new humble begging. I believe that the Chrysler story can be summed up by two quotes, “If at first you don’t succeed, try, try again” & “This is not a dress rehearsal, it’s the real thing.” These quotes, structure this strategic alliance and constitute for a hopeful new beginning for both companies to flourish within today’s competitive global markets.

6. What has happened to the company since this case was written as the alliance was being formed? Give an update as of the time of your reading this case.

November, 2010… Chrysler has begun to revamp its brand due to great leadership and drive for a new humble beginning. The all-new Jeep Grand Cherokee, has become a hit. Most sources state that the new 2011 line-up will be the fulcrum for success. They have become increasingly innovative and design friendly. Chrysler now offers the consumer more for their money and is trying to capture the consumer based audience they once had. The Chrysler-Fiat strategic alliance, took a dying company and brought it back to life. Chrysler has begun to develop higher fashioned cars then in previous years that cater to the masses. Accounting for variable change is imperative and until the new 2011 line-up launches, skepticism of their once large consumer base still remains uncertain.

If all goes well within the next year, I truly believe we will witness the emergence of a new Chrysler that’s driven towards success. The only concrete form of current information I can portray, is the Chrysler stock has been on the rise. I believe this must be attributed to the CEO’s drive and most importantly their new-formed alliance with European based Fiat, who now has interest in expanding operations into different ventures such as SUV’s. With great leadership, comes great responsibility, and so-forth, I believe CEO, Sergio Marchionne, is doing a great job revamping Chrysler and hope he can bring this company to a top-tier auto-industry giant so I can witness such great feats during this economic downturn.


A multinational strategic alliance correlates directly to a powerful global economy. In the case of Chrysler-Fiat, their strategic alliance has empowered both companies to enter into different regions and expand brand recognition. Only time can and will tell, if the U.S. governments decision for bailout money and the formation of a strategic alliance was the correct path for Chrysler. A strategic alliance is a powerful entity that has brought diversified backgrounds together. It enables two or more companies to simultaneously work in accordance to benefit one another in hopes to achieve its final objectives. Therefore, I believe a key factor to success, when working with multinational companies, is to be humble and willing to learn from one another because every culture has an important message to offer.

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Chrysler-Fiat Strategic Alliance Case Study. (2016, Jun 06). Retrieved from

Chrysler-Fiat Strategic Alliance Case Study
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