Fiat Models To Power Chrysler Products

It probably won’t be much of a surprise to Chrysler followers, but come next Wednesday we’re going to learn just what sort of direction the beleaguered automaker will take when it announces its product plans going forward. With Fiat steering the ship, a number of new models based on Italian technology will underpin upcoming Chrysler and Dodge vehicles, particularly its cars.

Dodge Ram

The announcement is coming as some worry that Chrysler needs to move quickly as customers abandon the automaker in favor of competing brands such as Ford, Hyundai, Kia and Volkswagen. Chrysler has already said that for all intents and purposes its Dodge Ram line will be separated from other Dodge products which also means that the Dodge Grand Caravan and other Dodge models will go away. In their place will be a handful of new models resting on Fiat platforms.

Fiat has indicated that the Fiat 500 (pictured), its popular world car, will be sold through select Chrysler dealers beginning in 2011. The Italian automaker has also said that its Alfa Romeo line will be introduced to the US market, perhaps no later than 2012. Fiat owns a 20% stake in Chrysler, but the company has no plans to pour cash into the struggling automaker, just product lines.

UAW Ownership

Chrysler filed for bankruptcy late this past spring, emerging weeks later with most of its toxic assets left behind. With federal government assistance, Chrysler broke free from its previous parent, Cerberus Capital Management, LP and is now owned by the United Auto Workers (UAW), the US and Canadian federal governments and Fiat. The UAW owns the lion’s share of what is now legally called Chrysler Group, LLC at 55%. Over time, Fiat will eventually increase its ownership to 35% and, if successful, gain controlling interest over Chrysler.

A number of Dodge models will go away over the next few years including its midsize sedan, the Avenger, the Nitro SUV and the compact Caliber. Several Jeep models will be dropped including the bulky Commander, as well as the Compass and Patriot. Chrysler will say good-bye to the aged PT Cruiser and its midsize Sebring sedan. New models based on Fiat platforms will replace some of the vehicles being retired, but not all.

Fiat 500

Fiat plans to build its 500 model in Mexico beginning in 2011, importing that car to the United States. Several other Fiat derived model lines will be built at other factories in North America and sold as Chrysler, Jeep and Dodge vehicles. We’ll have to wait until the Chrysler Group makes its announcement next week to see the outline of those plans.

For Chrysler, Fiat Deal Could Be A Lifesaver

You almost hate to put too much in stock in one event. However, news that Chrysler and Fiat have forged a strategic partnership offers more than just a glimmer of hope for the struggling automaker, it could very well open up a number of doors on both sides of the Atlantic.

Three Decades of Struggles

Chrysler has been struggling miserably for years, dating back to the 1970s when the automaker found itself running low on cash and losing market share to Japanese imports. After receiving a federal government loan and paying those monies back early and with interest, Chrysler managed to press on through the 1980s, riding the success of its K car lines and minivans.

In 1987, Chrysler acquired America’s #4 automaker, the American Motors Corporation (AMC) and things looked good for awhile. Even into the early and mid 1990s when the company rolled out an all new Dodge Ram pickup truck, the Dodge Viper sportscar, and a new line of full sized cars, the company’s fortunes appeared to be positive. That was enough to convince Daimler to purchase Chrysler and pay the $37 billion valuation for the company.

A marriage that some had hoped was made in heaven was hatched in hell as the terms of the “merger” clearly demonstrated that Stuttgart, Germany was in charge and that Auburn Hills, MI would do as the Germans said. By 2007 a divorce was in the works, one where Daimler wrote off tens of billions of dollars in equity to sell controlling interest to Cerberus Capital Management, LP — a private equity firm.

Cerberus: Buy, Fix and Flip?

Because Cerberus is a private equity firm with no automotive experience whatsoever, the thought among industry experts was that the company would hold onto Chrysler only long enough to make some changes and then sell it for a handsome profit a year or so later.

Unfortunately for Cerberus, the auto industry began a historic collapse at the beginning of 2008, one that eventually devalued Chrysler, even forcing Daimler AG to write down its 19.9% share in the company to zero by June. When the year ended, Chrysler was out of cash and had seen 30% of its sales disappear.

A federal loan in the amount of four billion dollars has kept Chrysler afloat, one that they received just a few weeks ago. Part of the deal with securing the loan is a requirement that Chrysler come up with a plan to remain solvent for the long term. Though specifics weren’t hammered out, striking a deal with another automaker was considered to be a priority, though Chrysler certainly didn’t see themselves hooking up with a company along the lines of Daimer.

Enter Fiat.

Fiat and Chrysler Equals Opportunity

Fiat, struggling to keep pressing forward itself, is a natural for Chrysler. Fiat at one time sold cars in the US market, pulling out in the early 1980s but has been wanting to re-enter. The cost of entry into the US market is quite high, but with a strong Chrysler, Jeep and Dodge dealer network in place, the obstacle to bringing its Alfa Romeo brand back to America has now been eased.

Chrysler will gain access to something it doesn’t have, but desperately needs to survive: small car platforms. Indeed, the Fiat 500 is the 2008 European Car of the Year, just the sort of model which would fit in nicely for Dodge, for example.  Chrysler LLC would probably take the 500’s platform and build its own car, something it can quickly do thanks to Fiat.

Fiat’s part in the deal will also include the company gaining a 35% equity stake in Chrysler will the option to take another 20%. That 20% could end up coming from Daimler, especially as they are eager to divest themselves of their 19.9% stake.

The Fiat-Chrysler deal would benefit both companies and has already received tacit UAW approval. With both companies needing a partnership in a bid to survive long term, the Fiat-Chrysler alliance could be the best deal that either company can expect to make in a highly competitive global car market.