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The Fiat-Chrysler Alliance Is Finally a Reality—What Comes Next?

Published: 10 June 2009
The Fiat-Chrysler Alliance became a reality today, and it announced a new brand-focused organizational structure. But the company will have to find a way to survive until the auto market improves and its new products are launched.

The U.S. Supreme Court decided late yesterday evening to not hear the case brought against Chrysler and Fiat by a trio of Indiana state pension and construction funds. This allowed the sale of Chrysler's assets to Fiat to be completed this morning. Chrysler also won approval from a bankruptcy court judge to terminate 25% of its dealer body as part of the bankruptcy process. The 789 dealers had appealed to Judge Arthur Gonzalez to block the termination, but after four hours of testimony from creditors and lawyers representing some 300 dealers, Judge Gonzalez ruled that closing the dealers was "an exercise of sound business judgment by [Chrysler], made in good faith and for legitimate commercial reasons... and is appropriate and necessary." Dealers argued that the process was hardly fair, and was draconian in its abrupt approach, not giving dealers enough time to wind down operations and sell off inventory. But lawyers for Chrysler argued that just 2% of the 44,000 units originally in inventory at the 789 dealers remained unsold or unallocated to a surviving dealer. The company extended the deadline to transfer unsold inventory to surviving dealers to June 15.

The deal is a good one for Fiat, and has become increasingly important for the Italian automaker now that its bid for Opel has come up short. CEO Sergio Marchionne contends that Fiat needs a production volume of 6-million units per year to be viable; it currently has around 2 million a year, and was hoping that the additions of Chrysler and Opel would boost those economies of scale to help Fiat secure its future viability.

As regards the General Motors (GM) bankruptcy, be assured that everyone in the Renaissance Center headquarters is breathing easier today after the ruling by the Supreme Court. GM is attempting to use the same process for its bankruptcy that Chrysler used for its filing, separating the company into "good" and "bad" assets, and a legal complication from the Supreme Court would have likely caused it to re-examine its approach. This is not to say that a legal challenge will not appear for the GM case, as GM has even more numerous contentious creditors than Chrysler does. But it would seem that for now, Chrysler has pulled off an extraordinary feat by signing its deal with Fiat and exiting bankruptcy within the 30–60 day window that the company and the U.S. government promised that it could.

In anticipation of the joining of Chrysler and Fiat, we have added products at U.S. Chrysler facilities and forecasted additional sales of Alfa Romeo products in North America.

  • The Alfa 169 will be built at the Bramalea Production facility in Brampton, Ontario on the LX platform that also underpins the Chrysler 300 and Dodge Charger. Production will begin in November 2011 for model year (MY) 2012.
  • The start of production of the Dodge Charger '11 has been delayed to November 2010, and the Chrysler 300 '11 is delayed until January 2011 because of the plant closures in 2009 resulting from the bankruptcy of Chrysler LLC.
  • The Fiat 500 will be produced in Toluca, Mexico for sale in the United States beginning in July 2011. The Fiat 500 is built on the 169 platform and is expected to reach a sales volume of 25,000 units in 2015. The Fiat 500 will be the only Fiat-badged model sold in the United States. It is a subcompact that competes with the MINI.
  • Also being produced in Toluca on the 169 platform will be the Jeep Panda. Production will begin in July 2011, with expected volumes of 35,000 units per year. The Jeep Panda will be based on the Fiat Panda Cross that is sold worldwide with annual volume of 200,000 units in 2009.
  • The next-generation Dodge Journey will be built on the Fiat C-EVO platform at the Toluca Assembly Plant beginning in April 2011.
  • In addition to the Dodge Journey, the replacement for the Chrysler Sebring, known as the Chrysler Mid-Sedan, will begin production in Toluca in June 2011 on the Fiat C-EVO platform.
  • The Alfa Romeo GTX will be built at the Jefferson North Assembly Plant beginning in July 2011. It will be built on the WL platform that also underpins the Jeep Grand Cherokee. The Alfa GTX will be sold worldwide with expected sales volumes of 30,000 units per year.
  • The next-generation Dodge Caliber will be built on the Fiat C-EVO platform at the Belvidere Assembly Plant. Production will begin in July 2012.
  • Production and sales of the Jeep Compass and Jeep Patriot will end in 2012.
  • Production of the Dodge Hornet (Fiat based) will begin at the Belvidere Assembly Plant in March 2011. It will be built on the Fiat 199 platform. The Hornet is a subcompact that was to be supplied by Nissan, but the relationship between Chrysler and Fiat places the agreement with Nissan in jeopardy.
  • Production of the Alfa Romeo MiTo for sales in North America will begin in July 2011 at the Belvidere Assembly Plant. The Alfa MiTo will be built on the Fiat 199 platform that will also underpin the Dodge Hornet. The Alfa MiTo is a three-door hatchback with sporty styling.
  • The next-generation Jeep Liberty will begin production in Toledo, Ohio during July 2012. The Liberty will be built on the Fiat-based C-EVO platform.
  • The Alfa SUV-C also will be produced in Toledo on the C-EVO platform.

Shortly after the Fiat-Chrysler merger was announced, Chrysler Group LLC announced a new organizational structure that focuses on the Chrysler, Jeep, Dodge, and Mopar brands. The new organization is based on a global brand-focused structure made up of Chrysler's four brands (referenced above), each with full profit and loss accountability. Chrysler describes the new structure as a flattened organization designed to give leaders broad spans of control. Chrysler appointed a president and chief executive officer for each of the four brands, reporting to Fiat-Chrysler CEO Marchionne. In addition, Jim Press was named as deputy CEO and special advisor reporting to Sergio Marchionne. Press will assist in the restructuring of Chrysler Group LLC.

The road ahead for the Fiat-Chrysler Alliance will not be an easy one. Chrysler's brand image has been damaged by the bankruptcy, and Fiat faces a difficult task in establishing its Alfa Romeo brand against established premium brands like BMW, Mercedes-Benz, and Lexus. Ultimately, it will be the American consumer who will decide the success or failure of this alliance through their purchase of Fiat-Chrysler vehicles. Marchionne's dynamic management style coupled with Fiat's ability to create dramatically styled cars are assets. But the American consumer has many alternative choices in a crowded automotive marketplace. Fiat-Chrysler must ensure that their products stand out from the crowd sufficiently to attract customers, while ensuring that quality is sufficient to hold them. However, since the new Fiat-platformed vehicles will not arrive on the market until mid-2011, at the earliest, the new alliance must figure out how to stay afloat until the vehicle market improves and its new products arrive. Not an easy task.

by Aaron Bragman, Christopher Hopson, and John Wolkonowicz
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