Shifting Gears in the Auto Industry
Prior to taking over Chrysler, Fiat was an international business – exporting cars out of Italy to other countries and engaging in joint ventures around the world, including an extremely unprofitable partnership with GM in 2005. The brand had a negative reputation in the United States, and it was senseless for the brand to invest resources in the American car market. By 2006, however, Fiat was turning a profit, and in 2009, the company was named one of Fortune magazine’s most admired companies and became Europe’s third-largest car company and the ninth largest in the world. As Fiat experienced this massive success, transforming into a true ...view middle of the document...
In the merger, Chrysler was able to keep their company name, which will help drastically with brand recognition and loyalty.
The drawbacks Chrysler faces from this merger are also significant. As Chrysler is now owned by a foreign company, it could potentially lose many US consumers who prefer to “buy American” to support the local economy and keep resources in the United States. The revamping of Chryslers product line can also be seen as a drawback. The company does not know how consumers will respond to the new vehicles, and Chrysler had to end production of current vehicles while the changes were taking place, forfeiting a large amount of potential revenue from their old products. Finally, Chrysler will be building seven Fiat models in their production facilities as a term of the merger. This will crowd out the production of their own vehicles as they focus more on the interests of Fiat.
Fiat stands to make dramatic gains from this merger. They now have access to all of Chrysler’s US assembly facilities, making it cost effective to sell to the North American market. The new Fiat models reached the US market at a very opportune time, as more Americans want a fuel-efficient vehicle rather than a gas-guzzling, traditional American car. Fiat’s access to this new market has potential to cause exponential growth, as the American auto market is factors bigger than their home market in Western Europe.
The main drawback for Fiat in this merger is the large investment they made in Chrysler’s current brand. By completely changing Chrysler’s product line, they bet billions on the sale of new Chryslers. If the US market does not respond favorably, Fiat stands to take a substantial hit. They also gambled on the American market with their own cars, as Americans historically have not looked at Fiat as a “cool” or reliable carmaker. If the additional marketing does not change this perspective, Fiat will be forced to shift all American efforts to South America, where the brand is more valued.
This merger can be seen as a strategic alliance for a couple of reasons. Firstly, both Fiat and Chrysler will continue production of their own vehicles. Chrysler will gain the liquid assets of Fiat to be able to resume production, and Fiat will gain access to Chrysler’s production facilities in America. This mutually beneficial agreement can be seen as a strategic alliance as these companies are pooling their resources to increase the profitability of both Fiat and Chrysler.
This merger can also be seen as a direct investment in Chrysler by Fiat, as Fiat now owns Chrysler and all its assets. Although Chrysler benefits hugely from the merger, their interests come secondary to that of Fiats, as they are now a...