Chrysler Suicide Watch 43: Reality Check on the Fiat Deal

According to Automotive News, Chrysler plans to sell up to seven Fiat/Alfa Romeo-designed models in America. Under this scheme, Chrysler dealers would flog the Fiat 500, Alfa MiTo, and Alfa 147 replacement. There’ll also be up to four Fiat-based cars in the A, B, C, and D segments. Some American car fans are thrilled at the idea of inexpensive, fuel efficient, fun-to-drive Italian cars — even if the machines in question end up as Dodges built in Mexico to Italian blueprints. But that’s exactly what it is: an idea. And a bad one at that.

The Chrysler – Fiat deal is a lot less than meets the eye. Most importantly, Fiat isn’t putting a dime on the table. All the costs of converting any given Fiat/Alfa to a Chyrsler and/or Dodge product would be borne — again, in theory– by Chrysler. Given Chrysler’s cash position (i.e. none), given the complexity and expense of creating even ONE car for the U.S. market, given the cultural and corporate communications hurdles involved, Chrysler’s promise to deliver the fruits of this alliance in two years is as optimistic as their electric car “program.”

But let’s say Chrysler and Fiat could wave a magic wand and place these American-Italian cars into Chrysler/Dodge showrooms tomorrow. Would they sell?

The U.S. economy is in a deep recession. By many accounts, it’s going to be worse still. Any sort of recovery is at least 12 months away. With the rest of the world in a similar position, gas prices are likely to stay low. And that means sales of small cars and fuel misers will continue to sink– relative to a sinking market. If you look at the sales of Honda’s well-established Fit for example, it’s not a pretty picture.

Even if California’s new fuel economy standards suddenly arrived in the same fantastic manner to force consumers into smaller cars, the poster child for this new alliance– the Fiat 500– would be a modest flag-bearer at best.

Sure, the 500 could become a relatively inexpensive version of the iconic MINI. But to help Chrysler out of its deep hole, the 500 would have to sell over 100k units per year, at a significant profit.

Lest we forget the U.S. market is choked with new cars. Prices are down and going lower. Ford’s upcoming, less-expensive Fiesta faces an uphill battle for sales, and Ford doesn’t face the same problems of collaboration. And that’s without considering the long, slow process of resurrecting Chrysler’s brand. With a Fiat no less.

Even if Chrysler gets around to finishing design work on these new cars, what happens after the enthusiasm/sales from Italiaphiles and car fans dries up? I repeat: Italian cars have a terrible reputation for quality and reliability in the U.S., regardless of the present-day reality. Fiats may last for 250k miles in Brazil, but it won’t matter to American consumers that can only hear “Fix It Again Tony.”

It also is worth noting that even in Europe, Fiat and Alfa Romeo residual values are among the worst on the market. While the 500 and Panda have been solid, the bulk of Fiat’s cars’ resale values are absolutely atrocious. Poor residual cars in Chrysler dealers? Not exactly a new news story. But neither is it a road to redemption.

The worst part of all this: Chrysler expects the American taxpayer to pay for this so-called strategy. Since the moment Chrysler felt the need to hit-up the U.S. taxpayer for $7b, the company’s owners have refused to invest any additional money into the failed enterprise. So we can assume they’ll give this brilliant plan, this awesome alliance, a similar amount of financial backing. If it’s not good enough for them, it’s good enough for you? Fool me once…

The news coming out of New Orleans today: Chrysler promised dealers it’ll still be around in April. The only way that’s “good” news is if the presumption among Chrysler dealers is that the company actually has less than three months to live. Is Chrysler-on-federal-IV-fluids going to be around to produce Fiat-designed cars that, well, haven’t yet been designed? I’m thinking no.

The Chrysler – Fiat deal only makes sense on a superficial, 24-hour-news level of analysis. Chrysler is in bad shape, Fiat has been touted (prematurely) as a European success story. Chrysler has no small cars, Fiat does. Fuel economy regulations are set to increase, and President Obama has just scared the heck out of car manufacturers by, ironically, applying a States’ Rights approach to future fuel and emissions policies.

From a product standpoint, media pundits can be forgiven for thinking that the pieces fit together. Unfortunately, they don’t. Since so many of these collaborative automotive projects end before or when the first product hits the showroom floor, it’s unlikely to matter.

[TTAC’s reviews of the Fiat Panda 4×4, Alfa 147 and Fiat Grande Punto]