By on March 27, 2010

In June 2009, Fiat was handed 20 percent of a washed and rinsed Chrysler for no cash, and despite protests, the deal was rammed through. The UAW was given 55 percent, the U.S. and Canadian governments controlled 8 and 2 percent, respectively. Often overlooked, or forgotten, the deal came with an option for Fiat to raise its stake to 35 and eventually as high as 51 percent if it meets some rather vague financial and developmental goals, hashed out with the U.S. government.

Sergio Marchionne thinks the goals are met. He plans to increase Fiat’s holdings in Chrysler to 35 percent within two years, says Reuters.

“There are three steps of five percent,” Marchionne told a press conference after the group’s shareholder meeting. “We will add 15 percent within 24 months.”

According to Sergio, the launch of the Fiat 500 in the United States in this year suffices as meeting the goals.

As for Fiat’s own outlook, it’s hazy. After a loss in 2009, they want to be “near breakeven” when the end of 2010 comes around, Marchionne said. In other words: They’ll write another loss.

Fiat is dealing with a difficult 2010 at home and in the near abroad. The Italian government scrapped their cash for clunkers program, which was a shot in the arm of domestic Fiat sales. Fiat was very successful in Germany during the Abwrackprämien heydays, but the party is over and sales are down. Marchionne thinks car sales in Europe will contract by 15 percent this year back to 1994 levels, and will take about four years to get back to their pre-crisis glory. Most market observers will not disagree. Some think, Sergio is an optimist.

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19 Comments on “Fiat Wants Larger Share Of Chrysler Pie, Has Difficulties At Home...”

  • avatar
    johnny ro

    I’m not bashing FIat here (I love many of the cars they made over the years) but i never read anything that put out in plain words why FIat wanted Chrysler.

    And in the meantime who is putting up the cash to pay Chrysler;s bills?

    • 0 avatar

      In addition to giving Fiat presence in America, the price is right: free.

      Another question: does the pie taste any good?

    • 0 avatar

      “…i never read anything that put out in plain words why FIat wanted Chrysler.”

      Fiat didn’t want Chrysler per se. What Fiat wanted is to become the business partner of Washington and the UAW, Washington’s friend.

      That follows the new auto industry paradigm. Think of it as being like American post-secondary education, a system of schools and academics that exists to suck money out of taxpayers. Big Ed lives and dies by what gets decided in Washington and statehouses. Ever wonder how and why the universities became sinkholes of statist thought?

      Washington was desperate to find a political solution to its takeover of the US auto industry, and Fiat agreed to provide the fig leaf. Fiat knows good things happen for Washington’s enablers. Marchionne’s comment “We will add 15 percent within 24 months” is intended to help Washington put a private sector gloss on its payoff to the UAW. Notice Marchionne didn’t say he would pay net cash for it. He won’t have to – he’s on Team DC now. When he “adds” (not “buys”) increased share, it will be trumpeted the way GM’s loan “repayment” to Washington was. And it will mean just as much.

  • avatar

    Why Fiat wants Chrysler?

    Answer simple really : Volume and Presence in America (in order to reach such Volume). According to some analysts global car companies need sales of 6 million to compete. Before crisis Fiat and Chrysler together were almost at that level. If Chrysler makes it the next couple of years, Fiat willl be around as a global maker.

    As to gaining percentage at Chrysler, well if the launch of the 500 satisfies the terms of the contract, they’re entitled to as larger portion of the pie.

    And as to losing money, they lost less than many others. The French, GM, even Toyota lost significantly more. And don’t forget they’re making money hand over fist in Brazil. As per the most of the 80s and 90s, Brazil will keep them afloat (as the GM deal did in the 00s).

  • avatar

    If that’s what it takes for me to get an Abarth Fiat, or a Quadrifoglio Verde Alfa here in Texas (without some crazy expensive hoop jumping), then bring it on. Satisfy those requirements and move this party along.

    my 04 xB is at 100K and I’m getting tired of waiting. :)

    Oh, and Johnny Ro: It is likely that Chrysler is (mostly) paying Chrysler’s bills. If the bankruptcy process did what it is supposed to do, Chrysler should be pretty lean as far as liabilities go, and even with significantly depressed volume should be OK at covering expenses.

  • avatar
    Robert Schwartz

    OK, here it is percentages:

    UAW 55%
    U.S. government 8%
    Canadian government 2%
    Fiat 35%
    Fiat eventually 51%

    Now in Dollars, at Chrysler’s value on December 31, 2010, or any date thereafter:

    UAW $0 (0.55*$0)
    U.S. government $0 (0.08*$0)
    Canadian government $0 (0.02*$0)
    Fiat $0 (0.35*$0)35%
    Fiat eventually $0 (0.51*$0)

    • 0 avatar

      Come on, Robert – as long as the Jeep reputation is reasonably intact, the Chrysler carcass will always be worth something. The only question is how long it takes the Jeep Curse to take down Fiat.

    • 0 avatar
      George B

      The Chrysler Saltillo manufacturing plants are worth something. The Ram pickup is worth something. The Jeep Wrangler and new Grand Cherokee are worth something. The Mopar name and Hemi V8s are worth something. Asset Sales couid liberate good parts from the disfunctional mess.

    • 0 avatar

      Certainly, as bare assets, Jeep as well as other parts of Chrysler is worth something. However, as it stands, all of those come with a lot of UAW deadweight and its associated liabilities of US government expectation.

      Now, if Jeep as a brand and its associated IP was being sold off, no strings attach. And only the necessary factory and workers could be retained relative to capacity. Jeep would have plenty of investors.

      If the government didn’t intervene and Chrysler went under, that is what would have likely happened. A company like Daimler, FIAT or Nissan-Renault would have purchased key Chrysler assets during liquidation. Laid-off unnecessary UAW workers, renegotiated contracts, held on to workers that would be required to maintain capacity to meet demand. And likely brands like Jeep would have been merged into a larger healthier corporation.

      As it stands right now, Chrysler exists for the sake of the UAW and the votes. Its hard to say what is best for America. Allowing the free-market to function and ultimately lose high-cost union jobs may have resulted in more lower cost non-union jobs elsewhere in the US economy. A healthy Jeep/Dodge under Nissan-Renault or Daimler may have been preferable to an unhealthy FIAT-government Chrysler relationship.

      We’ll see as this FIAT relationship plays out. The US government may have successfully negotiated, perhaps ‘scammed’ in some contexts, the Italians out of crucial money and technology.

    • 0 avatar
      Robert Schwartz

      “The US government may have successfully negotiated, perhaps ’scammed’ in some contexts, the Italians out of crucial money and technology.”

      Like how to build cars out of compressed rust and pasta?

    • 0 avatar

      Some people love to live in the past. And repeat old adages as new truths. However, if they’d only wake up and smell the coffee they’d see there’s a whole new, different world out there. If they’d venture into it, who knows, maybe they’d find something to like.

  • avatar

    Chrysler + Fiat = Merger of Equals.

  • avatar
    Geo. Levecque

    Somehow I don’t see FIAT vehicles like the 500 making a big strike in North America, so yes then Chrysler and FIAT will be equal- A big Zero!

    • 0 avatar

      @Geo.Levecque: I would disagree with you about the 500. I think that there is a market in the States at least, for a small fashionable car. Much like the MINI, if it is promoted well, and sold at a competitive price, It could sell very well.

      While the entry level MINI is priced to compete, the nicer editions become very pricey very quickly here in the US. If FIAT were to price it’s higher contented cars at a position to undercut the sportier MINIs, that could be quite the coup.

      As evidenced by cmus’ post, there’s even market for the 500 in pickup truck country – Texas! 

  • avatar
    Geo. Levecque

    I do know that the FIAT 500 in the United Kingdom is a complete mess, from Rusting bodies to bad engines this Car in the UK has a very bad record, at least that’s what I was told on my recent trip there, the MINI here in Canada is not very good either, with all the other small cars available with good records, who in there right mind would take on any FIAT product, just go back to when they where last here in North America, ie Fix it again Tony comes to mind!

    • 0 avatar

      Well, as it bears repeating…My wife (a gal who can’t tell a BMW from a Civic) always says, quite fiercely, whenever she sees the 500, “I’ll have one of those someday”. If it calls the attention of someone like her, it’ll sure as hell call attention to itself. And then you can feel free to hate it. But many will own it and love it.

      BTW, and respectfully, it’s not the 70s anymore sir.

    • 0 avatar

      Seriously? I’m in the UK with a 500 and I’ve not had any issues with it. There’s quite a few 500 owners in my area, and the three that I know haven’t complained either, at least not to my knowledge. I did do my research beforehand and as far as I understood it, Fiat seemed to have one of the best records with small cars.

      Obviously, everyone’s got different expectations but my 500 has always met mine.

  • avatar

    @ Geo. Lecvecque. I don’t know who you were talking to on your trip here sir, perhaps you’re a time traveller and visited 1970s Britain?

    Speaking as a life long UK resident living in 2010 I can tell you the FIAT 500 is a roaring success. The 500 has supplanted the MINI as the “it car” in fashionable urban areas, they’re selling like hot cakes and getting excellent reviews.

    It’s not just a chic thing either, the volume is there too, for example our largest and most prestigious driving school (BSM) just ditched a 20year long exclusive supply deal with GM/Vauxhall in favour of a new all-FIAT fleet – mostly 500s.

    Rust and bad engines? not in decades: Alongside VW, FIAT are leading the curve for clean burning small efficient and reliable engines, and they’re successfully selling that expertise to other manufacturers (for example Ford’s smallest european offering the Ka is developed from the 500’s platform licensed from FIAT). Rust hasn’t been an issue since the early 80s.

    So no, in the United Kingdom FIAT and the 500 are far from a “complete mess”. If you heard otherwise on your trip, you were misinformed.

    • 0 avatar
      Tricky Dicky

      Couldn’t agree more Splateagle. Fiat has experienced a tremendous product revival for such a tiny amount of R&D invested (their Capex per unit dwarfs all other European and US OEMS) but they make products people want to buy.

      And the fact that Marchionne is effectively challenging the crippling labour practices and inefficiencies in italy is quite remarkable. It amazes me how many people on this forum seek to criticise a company because of it’s reputation 20 or 30 years ago, but are unable to see how much a company has changed and is prepared for the future.

      The very fact that Fiat are only likely to make a marginal loss this year (with no accounting tricks), on the back of a disastrous italian market just goes to show what good work has been done on cost management. It’s the same reason that Chrysler can keep ticking away with really depressed sales. But when the market/ product line pick up, the move into profit making could be pretty sharp.

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