Fiat and Chrysler Merger: An Analysis of the alliance of Fiat and Chrysler

Taneka Littlejohn Sonya Merrill August 29, 2011

1

Table of Contents
Project Outline I. Executive Summary II. Introduction III. Company Profile and Environment (Context) IV. Strategic Issues and Reverence V. Stakeholder Impact VI. Conclusions and Recommendations VII. Bibliography 3-4 5-6 7 8-9 10-12 12-13 13-14 15

2

Project Outline
I. Discuss history of Chrysler Group A. Discuss Chrysler’s start within the automotive industry B. Discuss some of the automobiles that Chrysler makes C. Discuss Chrysler’s position within the automotive market II. Discuss history of Fiat SPA A. Discuss Fiat’s start within the automotive industry B. Discuss some of the automobiles that Fiat makes C. Discuss Fiat’s position within the automotive industry III. Discuss how both automobile firms have had past reputations in America. A. Discuss when Fiat first came to the United States B. Discuss why Fiat suddenly left the United States C. Discuss Chrysler impact within the American market and how America’s past look on their automobiles shaped its future. IV. Discuss some of the competitors of Chrysler and Fiat A. Discuss how competition affected both firms B. Discuss how Chrysler and Fiat at one point were competition for one another V. Cultural Context A. Culture aspects of the Chrysler- Fiat alliance B. Discuss how society and positioning have affected both automobile firms C. Discuss some recent news about the alliance between the two firms VI. Strategic Issues A. Discuss why was this case so prominent in the news B. Discuss Global Management C. Business Ethics VII. Global Environment A. Discuss the automobile environment B. How is this market sustaining its position globally
3

VIII. Discuss Chrysler’s bankruptcy A. When did Chrysler file for bankruptcy B. Why did Chrysler have to file for bankruptcy C. Discuss Chrysler lack of competitive advantage within the automobile market that led to a decrease in sales. D. Discuss the methods Chrysler considered taking to overcome bankruptcy. IX. Do an overview of how the discussion for an alliance between Chrysler and Fiat came to be. A. Discuss the benefit of having an alliance between the two automotive firms. B. Do a SWOT Analysis which takes a look at the strengths, weaknesses, threats, and opportunities of this alliance. X. Discuss how this alliance could be beneficial in giving both firms a second chance to change their reputation. A. Discuss how the alliance could benefit both firms’ reputations B. Discuss will a second chance be beneficial in increasing both firms’ revenue XI. Discuss what the plans are for the future product lines for Chrysler and Fiat A. Look at the newest car models that are going to be released post alliance B. Look at how these new cars could increase business for both firms XII. Stakeholder Analysis A. Discuss who are the stakeholders in the Chrysler- Fiat alliance B. How does this alliance affect the stakeholders’ position C. Do a SWOT (Strengths, Weaknesses, Opportunities, Threats) Analysis of the Stakeholder’s situation. XIII. Strategic Approach A. Business Level Approach B. Recommendation for strategic, sustainable positioning

4

Executive Summary The automobile market is one of the most lucrative markets in the world. They have focused on international expansion since the late 1900s. This market has very successful international companies such as Mercedes-Benz, Lexis, Hyundai, Chrysler, Camry, Fiat, etc. All of these firms have held a position in the automobile industry. Even in economic hardships when demand for automobiles was decreased, the market did not faze them. Two firms prominent in this industry are Chrysler and Fiat which have both held successful positions in the late 1900s. Due to decreased market demand and lackluster products both firms have drastically diminished their market appeal. This has led to decreased profits which have led to European based company Fiat leaving the United States in the 1980s. American based firm Chrysler had to deal with sales drops and lack of demand. An alliance between both firms could potentially increase their customer base and future profits. This could be a very lucrative business venture for both firms if successful. I started off examining the environment that the firms were in. The American market for automobiles is compiled of highly successful firms that are both stationed in the U.S. and internationally. Chrysler an American corporation has held a strong position in the automobile industry in the earlier 1900s. Fiat an Italian corporation has one of the strongest corporations in Italy. Among the three most substantial United States automobile makers, Chrysler is the smallest one. This means that Chrysler’s stand in the automobile market needs much improvement. With the vast growing nature of the United States and international automakers, Chrysler has to improve their performance and appeal to even compete at their level. I will take

5

a look at how Chrysler plans to increase their portfolio and compete in the fast moving and advancing automobile market. Fiat needs to bring back its position within the American market that could increase their presence internationally. It is important to know the environment of the firm that you could be attempting to form an alliance with. It would be beneficial for both Chrysler and Fiat to know how each other’s position in their respective automobile environments. If you do not know the culture of the firm in which you intend to do business with how will you become successful in the environment? It would be strategically important to get to know the vital information before leaping into any potential merger. I am going to review why this potential alliance between Chrysler and Fiat was so prominent in the news. Chrysler and Fiat alliance had the attention of some of the best world publications such as the Wall Street Journal, Business Week, etc. Chrysler has already been the focus in the news due to their corporations’ financial issues and measures taken to overcome the financial hardships. Fiat has been lacking media presence in the U.S. and the news coverage of their alliance with Chrysler will increase presence and potential profit for Fiat. A change in potential management could be another reason why this alliance has gained so much attention from the media. CEO of Fiat Sergio Marchionne will take over as presidency of Chrysler as well. People want to know how the new management will not only affect the corporation but also the stakeholders that have invested in both companies. Also, I will look at the strategic standpoint that each firm holds. Potentially what could each firm bring to the table to help benefit the other firm? Why would a second chance help to change the past reputations of disgraced automobile firms? These are all questions that will be examined when I look in detail

6

as to why this alliance is occurring. The Chrysler Fiat alliance will be a power global alliance that will have a strong impact on the world and will change the future of the U.S. market. Introduction Global expansion has been in the mindset of all automobile makers looking to increase their profits and clientele. Chrysler and Fiat are two prominent automobile makers looking to expand internationally. Chrysler is an American multinational company that was founded in 1925 by a man named Walter Chrysler. Their location was initially started in the headquarters in Auburn Hills, Michigan. The Chrysler Corporation was a reorganization of a failing automobile named Maxwell Motor Company. This was an effort to help improve the company’s troubled operations. Walter Chrysler introduced the first Chrysler automobile to make its appearance within the same time period. This company started from a rough background and has emerged within history as a multinational company that has made its presence within the world. Fiat is an Italian multinational firm that was founded in 1899 by a man named Giovanni Agnelli. The headquarters for this corporation is located in Turin, Italy. This firm is known for not only making automobiles but also aircraft and engine manufacturer. They are one of the largest automobile firms in the world, placing ninth in rank. This gives Fiat a good position within the automobile industry. With an impending alliance both firms could find beneficial use at combing their resources. Since Fiat already has a very strong world position, they could still use better American appeal. When Fiat combines with Chrysler, they would be bringing their line of cars to America, increasing their portfolio and strategic advantage. Chrysler in return could use a new initiative to increase their lackluster past profits and potentially increase their market share.
7

Next, we will take a look at the company profile and economic environment that both Chrysler and Fiat are experiencing. Company Profile and Environment Since Chrysler’s start in the early 1900s, they have held a substantial amount of respect and leverage within the automobile industry. Some of the car brands that Chrysler makes are Dodge Ram, Chrysler 300, Dodge Avenger, Grand Caravan, Charger, Sebring, and Ram. Some of these vehicles have given Chrysler success within the auto market. Of the three largest United States carmakers, Chrysler ranks the smallest. This is compared to more prominent firms such as General Motors and Ford Motor Company. Chrysler lacked the superior technology and the required financial stability that their competitors had which led them into financial trouble. Without the needed funds to create new projects and gain more customer appeal this led them to decreased profits and their mainstream customer base and led them to debt. Another reason that led Chrysler’s customer appeal decrease is the bad reputation that Chrysler received for the quality of some of their car brands. This has led to a decrease in customer loyalty because they could not depend on the dependability of the brand’s cars. Chrysler needs to improve their vehicles in order to get the support of their biggest revenue, the customers. The difficulties that Chrysler has experienced as far as decreased customer appeal, Fiat has experienced them as well. Fiat has gone through decreased sales and loyalty in the US. Some of the brands Fiat is highly known for are the Fiat 500, Fiat Punto, Lancia Delta, Maserati Gran Turismo, and Ferrari 458. Fiat first made its appearance in the United States in 1908. They were the first year that they started exporting their vehicles within the American market. Years later Fiat was given the proper licensing to start creating their line of cars in New York. Within
8

this time frame Fiat was a successful carmaker in America. Shortly after problems arose and led to Fiat discontinuing its marketing in America. Fiat hasn’t had an appearance in the U.S. since the 1980s. The reason for Fiat’s dismissal from the US is because the public was having problems with the quality of Fiat’s cars. Due to these quality problems and lacked customer loyalty, Fiat felt it was best to leave their presence from the U.S. Even though they were still marketed their Maserati and Fiat brands in the U.S., their once popular lines still left. Thus has given them time to refocus their efforts to improve the quality and stability of their car lines which would help their reinvention into the American market. Chrysler and Fiat both share some of the same competitors. Automotive international heavyweight firms consist of Mercedes- Benz, Lexus, Toyota, Hyundai, etc. Even though Fiat had removed itself from the U.S., two of its successful brands still are prominent in the U.S. This contributes to Fiat and Chrysler having some of the same competitors that affect potential profits. Chrysler has held a low position in the market due to the overall increased funds and technology that its competitors has available to them. Chrysler and Fiat were competitors to each other at one point within the automobile market. Both firms were vying for the appeal of the American customer base. They competed with car brands and mass appeal. Chrysler and Fiat which were once competing in the same market are not an alliance which could increase both the position of both firms in the automobile industry. With the American market, consumers are looking for a reliable car that they can get their everyday errands done and am able to travel around in. Society values their opinion on automobiles by how there reliability and sustainability are. If quality problems of any sort are occur consumers are quick to lose loyalty in the brand. Ethically that should make the
9

corporation want to reevaluate their brands if there keeps having an occurrence of quality problems. This can significantly hurt the automobile firm because no one is going to want to invest money into a car that is known for having malfunctions. This is the reason that Chrysler and Fiat were ridiculed in the American market at one point. This meant that both brands didn’t have the capabilities to meet the culture’s needs. With the new alliance of Chrysler and Fiat, you can expect car models to be designed to meet the needs of the current culture and the people. Society wants a car that will be exactly what they expect it to be. Chrysler and Fiat are given the opportunity to show the world that there past poor reputation does not have to influence their future reputations. Strategic Issues and Reverence Before the news of the potential alliance between Chrysler and Fiat was made public, Chrysler had been the topic within the news. Due to their financial trouble and debt Chrysler experienced bankruptcy. Chrysler had been within bankruptcy for an estimated 40 days. This meant that the company had to sell majority of its assets to make for their debt. The fate of their corporation was held on the potential for someone to buy shares of the company. There were not many options Chrysler could have taken to forgo bankruptcy because they needed to repay the money they owed to their bondholders. Fiat was the company to help Chrysler exit bankruptcy by buying significant portions to the already failing company. Fiat sought a 5% stake in Chrysler in the beginning to help the company reduce its debt and pay bondholders what they were owed. In 2011, Fiat increased its stake in Chrysler from 5% to about 52%, which gives Fiat controlling interest over Chrysler. With this amount of influence over Chrysler, Fiat could help them formulate an effective long-term business plan. Chrysler has made past mergers with
10

international companies that have been drastically bad and left Chrysler worse off than they started with. This alliance with Fiat looks to bring a potentially bright future for Chrysler. The alliance of Chrysler and Fiat has been the topic within popular news. Every prominent literary publication has given their opinion and standpoint as to how beneficial the alliance between the two automobile firms would be. Some of the prominent literary publications are Wall Street Journal, Investing Daily, The New York Times, and Washington Post. Both firms were once ridiculed by the American market could stand for a profitable alliance. Wall Street Journal has publicized the announcement of the alliance between Chrysler and Fiat. With the help of Fiat, Chrysler would get the technology, long-term financial support, manufacturing capabilities, and vehicle manpower. The new and improved “Chrysler Group LLC” will become a force to be admired within the automobile industry. This alliance gives two automobile firms that once have had some of the same problems with their cars join forces to ultimately combat those problems and how the automobile market that they are better than what they once were. The idea of an alliance came to be because Fiat strategically thought they were the perfect candidate to help bring Chrysler out of bankruptcy. Fiat could benefit by bringing their name brand entirely back to the United States. The Chrysler and Fiat alliance would be beneficial in giving both firms dynamic distribution networks, cost saving opportunities, and the ability to elevate each other’s global supplier base. This alliance would from one powerful global competitor that could strategically advance in the market further than each firm could separately. Fiat would plan to help Chrysler by giving them key strategic methods that could increase their portfolio, technology necessary to advance the capabilities of their vehicles, and
11

access to new markets available at their leisure. These are all the strengths as why this alliance is profitable. The potential weaknesses of this alliance would be that Chrysler would not increase its customer appeal furthermore not increasing their sales and production. This would lead Chrysler right back into the turmoil they had just exited. This could lead Fiat to back away from the alliance they had made with Chrysler like the past international firms have done. This would also hurt the investments Fiat has put into Chrysler. The threat to this alliance would be the dominating automobile firms increasing and perfecting their strategic advantage and taking any potential profits from Chrysler and Fiat. The opportunities existent are that Fiat can begin producing cars in the United States again and Chrysler could potentially get a profit again by reworking and rejuvenating their plan for future product lines. Stakeholders Impact The stakeholders could potentially gain or lose from the alliance of Chrysler and Fiat. The stake holders that would benefit from this alliance would be the credit holders and everyone that invests or is involved with the new company under Fiat which is the Chrysler Group LLC. The stakeholders are the economy, owners, customers, employees, unions, suppliers, distributors, strategic allies, community, economy, and government. The stakeholders that each firm had separately would have to choose if they wanted to continue having a stake within the alliance. The potential dominance this alliance could create in the automobile industry could attract a new breed of stakeholders. This alliance would be in the best interest of Chrysler and Fiat’s stakeholders. It would be strategic for an alliance to help gain strong stakeholders who will support the firm in their good and bad times. With the potential progress that the alliance looks to achieve it would be successful for current
12

stakeholders to try to increase their stake. When looking at the stakeholder SWOT analysis, the strengths would be the revenue that the stakeholders stand to make with the success of the Chrysler-Fiat alliance. Weaknesses for the stakeholder’s within the alliance would be lack of loyalty or confidence in the alliance which could promote departure of some of the stakeholders. The opportunities would be along with increased profits but with a stronger global conglomerate new advantages are given with success in the market. The threats include any competitor’s advantage that could hinder the profits and success that the alliance tends to make. Chrysler and Fiat have future plans for both of their car lines that would make the public want to become stakeholders within this company. With the alliance taking place, Fiat plans to not only bring their corporation back to the United States but also to produce completely new car lines here. Some of the new product lines that Fiat plans to contribute to the American market are the Fiat 500, Alfa Romeo brand, and more of Fiat’s highest grossing brands such as Maserati and Ferrari. Fiat will gain access to some of Chrysler’s plants located in North America to manufacture more of their brands than they could have. With the help from Fiat, Chrysler plans to continue with their successful brands such as Dodge, Jeep, and Chrysler. These brands have been modified to include Fiat’s expertise and will be ready to make a new appearance in the U.S. market. CEO of Fiat and Chrysler Sergio Marchionne says that the future of this alliance will bring new and improved cars into the automobile market that increase consumer confidence and enhance future sales. Recommendation

13

After extensively looking at the details of this alliance I would say that it is a very lucrative deal. I feel as though is the perfect strategic business plan for Chrysler to reinvent themselves and show the world that this automobile firm can go through rough times and are still able to triumph above their problems. They are showing the public that they can reinvent themselves and become profitable in the process.

14

Bibliography Bennett. Jeff. (2011, June 25). Corporate News: Dodge Will Test Fiat Alliance. The Wall Street Journal. Retrieved July 1st, from Factiva database. Burgess. Scott. (2011, June 24). Chrysler’s rebirth shifts into next gear with new flexibility. The Detroit News. Retrieved July 1st, from Factiva database. Ciferri, Luca & Wernle, Bradford. (2009, November 23). How Chrysler, Fiat design teams splits the world. Crain Communications, Inc. Retrieved June 30, 2011. David, Kiley & Matlack, Carol. (2009, April 20). Fiat: On the road back to America. BusinessWeek. Retrieved July 1st 2011, from Business Source Complete database. Datamonitor. (2010 April). Fiat SPA. SWOT analysis. Retrieved July 1st 2011, from Business Source Complete. Hoover’s Inc. (2011, June 28). Chrysler Group LLC: In-depth record. Retrieved from LexisNexis Academic database. Johnson, Dale. (2009, February 13). Chrysler and Fiat rekindle an old flame; The Makers go way back together, to a rarely remembered conjugal arrangement in the early 60’s. Toronto Star. Retrieved July 1st 2011, from LexisNexis database. McDonald, Neil. (January 29, 2010). Chrysler deal is a Fiat accompli. Harold Sun Newspaper. Retrieved June 28, 2011, from LexisNexis Academic database. Shapiro, Adam, Flock, Jeff & Ossinger, Joanna. (2009, June 10). Chrysler- Fiat Deal Signed, Company Exits Ch.1. FOXBusiness. Retrieved June 29, 2011, from http://www.foxbusiness.com/story/markets/fiat-ceo-deal-worked/ Stoll, John D. & Meichtry, Stacy. (2009, January 21). Chrysler-Fiat Deal Needs U.S. Loans. Wall Street Journal, B1. Retrieved June 30, 2011, from Wall Street Journal database. Welch, David. (2009, November 9). Fiat’s Cars May Not Save Chrysler. BusinessWeek. Retrieved July 1st 2011, from Business Source Complete database.

15