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UK: Fiat-Chrysler alliance 'of little benefit to Fiat'

By just-auto.com editorial team | 11 June 2009

The Fiat-Chrysler alliance yields little potential strategic benefit for the Fiat Group, according to an equities analyst who spoke to just-auto today.

Sabine Blümel, analyst with Creative Global Investments (LLC), told just-auto that the alliance brings together two fundamentally weak companies. She described Fiat's automotive unit (Fiat Group Automobile - FGA) as by far the weakest OEM in Europe and Chrysler as the weakest US OEM.

Fiat will get 20% of the new Chrysler without injecting cash, but has committed to transfer technology and provide services to its US partner.

"We see little potential strategic benefit for the Fiat and our concerns regarding the benefits for Fiat from the alliance have, if anything, increased since the alliance plan was first announced," she said.

Blümel believes that the failure to secure an alliance with GM Europe has left Fiat CEO Marchionne's grand, though high risk, strategy to create one of the largest global players selling 6m vehicles a year 'in tatters'.

"A three-way alliance, also including GM Europe, and even better, also GM Latin America, would have given FGA a full-range product portfolio and an extended and strengthened geographic footprint," she says.

"But a two-way FGA-Chrysler alliance leaves the extreme ends in terms of product and geography with little overlap".

While the link-up with Chysler gives Fiat potential access to the US market through its distribution network and plants, Blümel sees obstacles ahead.

"Fiat has the wrong model portfolio and expertise to succeed in the US. Fiat's centre of gravity, both in expertise and market positioning is in the A- and B- segment, i.e. the 'compact basic class' that currently accounts for less than 4% in the US light vehicle market," she maintains.

"And the Alfa Romeo brand is ill-equipped to succeed in the cut-throat US premium market," she adds.

Fiat would also have to commit to producing in the US, which would involve additional investment and creating new capacity.

"Moreover, the alliance does not help Fiat address its own structural problems, including streamlining the production network, extending its geographic foot-print beyond Italy and the Latin markets and extending the product line-up above its mainstay of A-B-segment," Blümel says.

She also believes that the deal with Chrysler could place additional pressure on Fiat's 'already strained finances' as well as its management team.

"This is the more the case as CEO Marchionne is also becoming CEO of Chrysler," she adds.

Dave Leggett