Chrysler pins its survival hopes on Fiat

This isn't the first time another car manufacturer has had a stake in Chrysler. German manufacturer Daimler purchased a large part of the company in 1998, but found the challenges of operating the U.S. manufacturer too daunting and abandoned that investment in 2007. This time the stakes are even higher.

Fiat has a strong incentive to succeed. The company has the option to own an additional 15 percent of Chrysler by meeting certain targets and could acquire a majority holding after money loaned to the company by the U.S. government is repaid. A successful pairing is even more critical to Chrysler, which likely will perish without it. (The part of the reorganized company not owned by Fiat or the U.S. Treasury Department is owned by the United Auto Workers and the Canadian government.)

And when the Chrysler/Fiat deal was finalized on June 10, Marchionne said, "We intend to build on Chrysler's culture of innovation and Fiat's complementary technology and expertise to expand Chrysler's product portfolio both in North America and overseas. Work is already underway on developing new environmentally friendly, fuel-efficient, high-quality vehicles that we intend to become Chrysler's hallmark going forward."

What Chrysler will gain first and foremost from the deal is new products, notes James Bell, executive market analyst for kbb.com, an online resource of automotive information created by Kelley Blue Book, best known as a source for used car values.

One of the most positive aspects of the new pairing is that there is not a great deal of overlap between the two companies' current product lineups. Fiat has an emphasis on small cars where Chrysler is not strong, while Chrysler's expertise is in larger vehicles and trucks, including its Jeep line, which has an exceptionally strong brand name. Fiat also gains an instant North American dealer network for its vehicles. The end goal for Chrysler/Fiat is the same one that nearly all auto manufacturers have their eye on today —to share research and development platforms across different brands and models to create cars that can be sold worldwide with few variations from market to market.

The challenge with bringing Fiat-branded automobiles into the U.S. today, however, is that because the brand has been absent so long, it is largely unknown among people under 35 or 40. And those who do remember the name may associate it primarily with quality problems. According to a 1980s-era joke, the name FIAT was an acronym for "Fix it again, Tony."

"Sergio Marchionne embarked on something based on the idea that at the end of the day, it all comes down to the product, not deals or rebates. Fiat has always been innovative but suffered from quality problems and wrong moves. But the current lineup is quite remarkable. The technology has advanced a lot, especially in the engine department."

The first Fiat model to hit the United States will likely be the 500, a small car similar to the Mini Cooper that has been well received in Europe. Although Rayner expects Fiat to continue to emphasize traditional Chrysler brands in the United States, he says, "This car, very wisely, will be badged as a Fiat. It will get a lot of buzz and showroom traffic." The product is expected to sell for about $18,000 and to be available for the 2011 model year, Rayner says.

Another model originally launched in Europe that is expected to make its way here is the MiTo from Fiat's Alfa Romeo unit, another brand that hasn't been available in the United States for many years. Alfa Romeo products, which have higher price tags than Fiats, also will have higher profit margins and will be the Chrysler/Fiat offerings to compete against Lexus and BMW, Rayner says.

Rayner believes that Fiat will sell the Alfa Romeo brand through Chrysler dealers but may require dealers to dedicate a free-standing building to the Alfa Romeo line – an approach that worked well for Toyota when it introduced the Lexus by helping to differentiate the Lexus line.

Despite many synergies, some industry analysts still see a gap in the Chrysler/Fiat line. "Chrysler can't compete if they don't have a high-volume mid-size sedan a la the Ford Fusion, and Fiat is not great at a mid-size version of an American car either," comments Karl Brauer, editor-in-chief for Edmunds.com, an online resource for consumer automotive information.

Although Chrysler's lineup includes several models that target the middle range of the market, including the Avenger and Sebring, those models have not been well received, and Chrysler's new management seems to recognize that deficiency. The New York Times has reported, apparently based on an interview with an unnamed Chrysler executive, that the Sebring is among the models that Fiat engineers will redesign using technology from the Alfa Romeo Milano.

It normally takes four or five years to redesign a vehicle, a timeline that Chrysler's new management will try to reduce dramatically by leveraging technology already developed by Fiat. But even if the company can get new products to market in 18 to 24 months, Brauer argues that it will take another two years after the cars start appearing before public opinion of Chrysler or Fiat will shift.

"It will take a while and they may not have awhile," he says. "Fiat has sworn not to invest its own money and it could be tough to turn the company around before Chrysler cash runs out."

Others disagree. "There is a lot more upside than downside," argues Van Conway, president of Conway MacKenzie, a turnaround management and restructuring firm. If the economy recovers, he believes Chrysler could be profitable again, even if it is not able to sell substantial quantities of Fiat vehicles.

"The biggest challenge will be melding two different cultures," Conway says.

Most observers expect that challenge to be better addressed under Fiat than it was during the Daimler era when, according to Brauer, there was a "persistent clash."

Noting that Marchionne has lived in several parts of the world and has an international perspective, Brauer says, "He'll be more adept at managing variations between the Fiat and Chrysler cultures because of his more varied experience."

As Fiat and Alfa Romeo brands re-enter the U.S. market and as technology originating within those companies makes its way into Chrysler brands, collision repair technicians could face a learning curve. "They'll be looking at new materials and new ways of screwing vehicles together," observes Bell.

Technicians also should expect to see taller hoods on vehicles, at least in the near term, notes Brauer. "Cars developed in the last few years to be sold here and in Europe, such as the Mercedes C-class, have a pug nose and a tall grille and hood," he says.

The tall grilles are required to meet strict European crash test requirements. As Chrysler/Fiat and other manufacturers strive to build more vehicles that can be sold worldwide, they too may need to move more toward that look. Eventually, however, Brauer expects manufacturers to move away from the tall hoods, relying instead on hoods that pop up during a collision.

Still, repairers should expect some interesting challenges as Chrysler introduces a conspicuously unique blend of new automobiles.