Trade You a Dodge Ram for a Fiat 500?
Yesterday Chrysler and Fiat announced a “strategic alliance” wherein Fiat would take a big stake, cost-free, in the American company. Bells rang, whistles blew, cheers went up—mainly from the Cerberus boardroom. That company happily is giving away 35% of Chrysler, which it bought (80%) for $7.4 billion from Daimler Benz less than two years ago. And everyone loves the deal.
But enough of high finance. Most of us hope the deal works out. Chrysler would gain access to a range of excellent FWD, low-emission small cars that, rebadged and rebodied, it could begin selling relatively quickly. The company would finally have access to the European and South American markets. It would get critical help rebuilding and, maybe, succeed in convincing the Feds to cough up the conditional $3 billion in March that it needs.
Fiat gets a heckuva deal. Mainly it gets access to the U.S. market, both for manufacturing and distribution. Here’s how The Economist put it:
Fiat has little to lose. If Chrysler stages a miraculous recovery with its help, Mr Marchionne [Fiat’s CEO] would have pulled off something similar to Carlos Ghosn’s Renault-Nissan alliance at almost no cost other than diverted management time. With a rumoured option to increase its stake in Chrysler to 55%, the deal is potentially transformative for Fiat. And if things do not work out and Chrysler slides into bankruptcy, Fiat has no liability exposure but would be in pole position to pick up the assets it needs to implement its North American strategy at fire-sale prices.
What do you, the buyer, get? The potential to buy everything from the successful Fiat 500 to an Alfa Romeo. With Chrysler’s production capabilities, costs would be reduced. That could create real economies of scale, so that the Alfa might finally be priced within our reach—and have a sales and service network to boot. I want one.
The big question is whether there is time enough for Chrysler and Fiat to put this all together before the money runs out. Do you think they can do it?