The 2009 CHRYSLER-Fabbrica Italiana Automobili Torino (Fiat)

STRATEGIC ALLIANCE

http://www.youtube.com/watch?feature=endscreen&v=cpi2IAec9Ho&NR=1

Case Questions

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

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

3. Compare and contrast Chrysler and Fiat in the area of global operations and manufacturing?

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 and long term?

5. What did you learn from Chrysler-Fiat Strategic Alliance regarding managing multinationals in the changing global business? What role did the US gov’t play in the formation of this alliance?

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.

History of Chrysler• Founded in 1924 by former exec of Buick Motor Co. Walter Chrysler

• 1928: intro Plymouth and DeSoto

• 1940’s: domestic car production was banned; made trucks, tanks and armaments WWII

• 1960’s : entered Euro mkt

• 1970’s: focused on ‘gas guzzlers’; saw 26% fall in production

• 1978: Lee Iacocca becomes CEO; “Lead, follow or get out of the way”

• 1980: received $1.5 bil loan from US gov’t

Con’t• 1996: gained 16.2% mkt share; but still ranked 3rd. US auto industry

• 1998: Merged with Daimler-Benz, became DaimlerChrysler, HQ moved to Stuttgard. Cost $36bil

• 2001: cut 26,000 jobs due to competition, quality issues, changing mkts

• 2005: good sales of Ram, Sedan and Magnium brought $2bil in profits

• 2006: net loss of $1.5bil due to competition and changing mkts

• 2007 Feb: cut 13,000 jobs (16% of workers)

• 2007 May: de-merger; Chrysler sold to Cerberus Capital Mgmt sold for $7.4bil

Con’t

• 2009 Apr: recession and high gas prices forced Chrysler into Chapter 11 bankruptcy

• 2009 Sept: Fiat obtained 20%

History of Fiat• 1899: Fiat formed by Giovanni Agnelli (fam still owns 35%)

• 1969: acquires Lancia and 50% of Ferrari (now 85%)

• 1970-80’s: operating loss due to labor strikes and oil shocks

• 1976: Libyan gov’t bought 10%; protest to deal by Italian businesses

• 1980-85: cut 100,000 jobs

• 1986: obtained Alfa Romero, becomes largest Euro automaker

• 2000: GM purchases 20% for $2.4bil

Con’t

• 2004: Sergio Marchionne becomes CEO

• 2005: GM pays $2bil in cash to end 5 yr partnership

• 2009 Feb: Fiat gained 20% in Chrysler (non cash, should provide tech and markets)

• 2009 Sept: merger concluded, Fiat owns 20%.

Ownership Structure of Chrysler before and after 2009

Features of Global Auto Industry

• One of the largest industries

• Socio-political element (local politics, regulation, national pride, part of military industrial complex esp war time)

• Relationship with unions

• Hundreds of alliances, joint ventures, collaboration, consolidations over past 20yrs

• Change in demographics, demand in emerging mkts and high costs lead to

estab. plants in low cost economies (seeking max. return on investment)

Future Trends

• Global consolidation and mergers (may result in closure of plants, dealers, jobs)

• Restructuring and efficiencies due to flexible manufacturing, product dev, and supply / value chain

• “A painful realignment made tougher by falling sales..Change in coming, and it’s coming with gut-wrenching speed..This time no one is calling a downturn, but a permanent change in direction of the North American industry.” ~ The Harbour Report ’08

• Classic example of competition, evolution and creative destruction

Chrysler and Fiat strengths and weaknesses Chrysler Strengths

Estab. brand and distribution in North America

Major maker of utility trucks

Jeep and minivans very popular

Fiat StrengthsStrong leadership under Sergio Marchionne; resulting in successful turnaround strategy, improved business practices and culture.

Reinvigorated in Europe

Popular in small car segment, with many new models

Improved quality

Pay –off of alliances (eg. Tata, Ford, GM)

WeaknessesDe-merger created problems

Quality issues

Financial Losses (-4% sales growth, ‘08)

Alliances with Mitsubishi & Hyundai unproductive

Weaknesses

Lacks charisma in global mkt

Limited product portfolio in global mkt

Corporate Tie-up

Aim is to create optimality from R&D, product dev, distribution, knowledge sharing, i.e. economies of scale

Fiat to provide tech-related expertise and assembly platforms to Chrysler for it to dev small, fuel efficient autos in North Am (e.g. 2013 Dodge Dart) http://bcove.me/xm22gffp

Non-cash deal; initially 20% stake, could increase to 35%, after 2013 up to 51%...must meet conditions, i.e. fuel efficient cars and small auto engines in North Am.

Part of US gov’t bailout and bankruptcy proceedings; Obama admin provided $4 bil to Chrysler with conditions

Fiat to receive access to lucrative North Am mkt (quick market penetration strategy)

Opportunities to target small / compact car and hybrid segments where Fiat is strong

Possible weaknesses: poor corporate integration (differences in corporate culture), mismatch of brand portfolio, R&D priorities, control issues, regulation & antitrust issues, distribution & ownership problems

Outlook

• “…he will create a new company consisting of Fiat Auto (without Ferrari, Maserati or the rest of Fiat group), Chrysler and GM Europe…stakeholders would be Agnelli family, UAW union health-care fund and GM..In a normal year that could expect revenues of $100bil from sales of 6mil cars-just above Mr. Marchionne’s viability threshold.” ~ The Economist.

Your Take

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

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

3. Compare and contrast Chrysler and Fiat in the area of global operations and manufacturing?

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 and long term?

5. What did you learn from Chrysler-Fiat Strategic Alliance regarding managing multinationals in the changing global business? What role did the US gov’t play in the formation of this alliance?

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.

My Take

Alliance may have drawbacks, but seem to be good fit for both. Chrysler needed the alliance due to bankruptcy and conditions of bailout and a partner to bring innovation, R&D, low-cost tech and access to EU mkt; Fiat will have access to North Am market and distribution.

Synergies may not all work due to issues of culture and integration, however opportunities exist to reduce costs, and provide low-priced fuel -efficient automobiles.

In short run Chrysler will have gain new platform for fuel efficient vehicles, a segment it is not presently competitive in and access to EU; Fiat will gain entry to Am mkt. In Long run, new technologies may result from partnership.

Opportunities can result from a crisis. Chrysler can increase mkt share in mid and low size segments and Fiat entry to the North Am market.

The Dodge Dart introduced but very slow sales.

Negotiations with unions in Italy have been ongoing; Fiat set to cut jobs due to losses of 700 billion euros.