With a deal sealed to sell bankrupt Chrysler’s best assets to Italy’s Fiat on Wednesday, the real work can begin to rebuild the storied US automaker after its rescue from certain collapse. It won’t be an easy task, warned analysts, who cautioned that significant challenges remain and that it could be years before the alliance can claim to be successful.
The new Chrysler, which emerged from bankruptcy protection after just 42 days still has to contend with the collapse in global auto sales which led to its demise.
And there is no guarantee that consumers will flock to the Fiat-engineered small cars when they finally reach the US market.
“On paper, it looks great, but when you put them in front of the consumer it’s going to be the real test,” said Rebecca Lindland, an analyst at IHS Global Insight.
“We won’t know the success of this merger until we see the level of consumer acceptance,” she said.
SHARING
Fiat has acquired a 20 percent stake in the new Chrysler in exchange for sharing valuable technology, vehicle platforms and powertrains which will allow the Detroit automaker to meet upcoming emissions and fuel economy standards and expand its product offerings.
The Italian automaker will gain access to the lucrative US market and get closer to the economies of scale which chief executive Sergio Marchionne has said are necessary to compete in the global automotive industry.
Fiat, which did not provide Chrysler with any cash, will be able to increase its stake to a majority position once billions in government loans are repaid. While Fiat is expected to use Chrysler’s dealer network to launch its diminutive two-seater Fiat 500 in the US, new models built with Fiat’s technology will likely bear one of Chrysler’s brands in the coming years.
REPUTATION
The marketing expenses of launching a new brand are simply too high, particularly given the weak level of auto sales and Fiat still has work to do to overcome a reputation for poor quality it developed prior to being forced out of the US market in the 1980s.
But even with the recognized Chrysler brands, it is not clear that US consumers are interested in buying small cars, Lindland said.
“We have a lot of concern about whether the Chrysler, Dodge and Jeep buyers really will embrace Fiat-engineered vehicles,” Lindland said.
“We have a very modest forecast for these vehicles and we have no incremental growth for Chrysler,” she said.
MANAGEMENT
Perhaps an even more valuable asset Fiat brings to Chrysler is its successful management team, said Jeff Schuster, an analyst at JD Power.
“The Fiat side of the business is going to be getting the Chrysler team energized and looking at the brand messages and what that means and how Fiat blends into that,” Schuster said.
Chrysler’s workers have been hit by a painful failed marriage to Germany’s Daimler, years of layoffs and plant closures and months of speculation over possible mergers and a bankruptcy filing.
Now they can finally get back to concentrating on developing new products.
“They’ll be looking for stability and survival in the near term and small wins as they rebuild,” Schuster said. “This is a long process.”
A number of senior executives will be leaving, including the heads of product engineering and sales and marketing, and several Fiat executives have been brought over to fill top posts such as chief financial officer.
Marchionne will lead Chrysler with the help of former Chrysler vice chairman Jim Press, who was appointed deputy chief executive officer.
The real test for the new Chrysler is if they’re able to refocus their brands and improve their product offerings, said Jeremy Anwyl, president of research group Edmunds.com.
“They’ve got the Grand Cherokee launch which is a decent product, but after that it’s a vacuum,” Anywl said. “Obviously they’re going to be more of a niche player than they were in the past. They need to carve out their own space … for each of the brands there has to be some coherent vision — what’s a Dodge going forward? What’s a Chrysler?”
Chrysler is currently on track to lose its number four spot in the US market to Japan’s Honda, with sales were down 46 percent for the first five months of the year. Its share fell to 8.5 percent last month from 9.4 percent in April and 10.6 percent in May last year, Autodata said.
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