Case Brief: The 2009 Chrysler-Fiat Strategic Alliance
Facts of the Case
•Historically, Chrysler has been the number 3 auto manufacturer in North America, behind GM and Ford in market share; maintained number 3 designation after entry of Asian OEMs. •Chrysler:
oFounded 1925 by Walter P. Chrysler
oManufactured cars for the masses
o1980s: saved from the verge of bankruptcy by US government o1990s: starting receiving positive reviews from analysts, but remained behind Ford and GM oMerged with Daimler-Benz in May 1998 for $36 billion
o2007: Cerberus Capital Management, LP acquired 80% of DaimlerChrysler for $7.4 billion oApril 2009: Fiat SpA establishes strategic alliance with Chrysler oMay 2009: Chrysler files Chapter 11 bankruptcy
oFounded 1899 by Giovanni Agnelli with other Italian investors o1910: became largest auto firm in Italy and manufactured military vehicles and machinery for the government during World War II o1960-70s: massive labor strikes and assembly-line disruptions, causing 15 million worker hours lost o1980s: reduced labor force by 100,000 jobs
o1986: acquired Alfa Romeo from Italian government and became largest OEM in Europe oVolatile business and labor relations in the 2000s, GM acquired and sold back 20% oSergio Marchionne became CEO in 2004
oAgnelli family maintained 35% ownership as of 2009
o2009: 24 models and primarily small vehicles, reintroduced Cinquecento 500 in 2007
•Global Auto Industry:
oOne of the largest industries in the world, impacting countries and their socio-political environments oLabor unions continue to pressure governments and OEMs
oHundreds of cross-border strategic alliances, joint ventures and other efforts for the past 20 years oLeaders of North American market: GM, Ford and Chrysler; Japanese market: Toyota, Honda, and Nissan; Europe: Damler, VW, Fiat and Renault-Nissan. oFiat’s 2008 revenues were less than half of any of the top 3 at $80 billion. oChanging demographics and rising costs lead to the moving of assembly lines to low cost economies in emerging markets. oAnalysts believe the future will have only a few firms left after additional consolidations and mergers of existing automotive manufacturers for efficiencies in flexible manufacturing, faster product development and supplier networks.
•2009 Chrysler-Fiat Strategic Alliance and Corporate Tie-Up:
oAimed at improving economies of scale and raising productivity oFiat takes 20% ownership, up to 51% after 2013, but required no significant initial injection of funds from Fiat oChrysler could qualify for more loans from the US government, but with weaknesses in the corporate integration and coordination of the brand portfolios oChrysler was on a downward trend, hoping to be balanced by the steady rising of Fiat oThe alliance was required as a condition of the 2009 auto bailout oTransfer and sharing of technology and product development will benefit both firms oLeadership of Marchionne is expected to significantly help both sides oFiat can break into the North American market
oChrysler expected to sell public shares in 2011.
Issues and Questions
On paper and based on what has been disclosed publicly, the Chrysler-Fiat Strategic Alliance is almost too good to be true. I realize that there is as much benefit opportunity to Fiat as there is to Chrysler, but it still seems like Fiat is not as angelic as some would like to think in this situation. Fiat brings their small car technology to the North American market and Chrysler has its supply chains and dealership networks already established, but will it be enough? There is concern that it is too late for Chrysler to compete with Ford and GM to develop and produce small cars in the US. As this is a relatively new market segment in the US, it is necessary to be the first or at least one of the first in the game, but...