Fiat’s Marchionne Probably to Head Chrysler, U.S. Hopes Pinned on European Technology     Print Email
Thursday, 30 April 2009

The man tipped to head a restructured, post-bankruptcy Chrysler car-maker is Sergio Marchionne, current CEO of Italy’s Fiat. It would be the first time that one of Detroit’s “Big 3? will be managed by a foreigner.

On the verge of collapse, Chrysler is looking to Marchionne, and the strategies that made him successful in Europe, for salvation.Marchionne has earned a reputation as an expert at “saving” ailing companies, including Fiat, which has made an impressive turnaround under his leadership. A partnership has been agreed between Fiat and Chrysler in order for Chrysler to receive $8 billion more in government financial aid. This partnership includes sharing engines, vehicles and sales networks between the two companies and will give Chrysler the expertise in small, efficient vehicles that are a Fiat specialty.

Even with the partnership and the aid, Chrysler is set to go through a brief period of technical bankruptcy that will allow a court to help impose reorganization plans. This could make the deal sweeter for Fiat by eliminating some parts of Chrysler that the Italian firm does not want, according to people familiar with the matter.

Marchionne, who lived in Canada most of his life, was an accountant and lawyer before relocating to Europe to head a Swiss chemical company. When he came to Fiat, the company was facing more than $12 billion in losses and was on the brink of financial collapse.

At Fiat, Marchionne – a rare choice of CEO from outside the Agnelli family dynasty – made drastic changes and took big gambles. He brought in outside help to create a more flexible management structure, hired a new car designer, scrapped unpopular car models and overhauled the dealer network.

To overcome the debt Fiat faced when he took office, Marchionne persuaded the company’s major lenders to accept common stock in lieu of debt repayment - an important step for returning Fiat to profitability. Recently he attempted a similar strategy to persuade Chrysler’s American and Canadian auto unions to accept a 20% stake in Chrysler as payment for half of their pension fund. The final negotiation has turned out more favorably for the United Auto Workers union which will receive a 55% stake in the company.

Marchionne demanded that wages of Chrysler employees be reduced to a level comparable to those of foreign competitors located in the U.S., such as Honda or Toyota. Auto unions have already had to accept wage and benefit cuts as well as having many of their members laid off.

Marchionne’s approach at Fiat has been a focus on mass-market vehicles as the driving force for the auto market and, under the new partnership, he plans to build cheap, “green” cars in the U.S.

Chrysler stands to benefit from Fiat’s advanced technologies in cutting gas consumption and CO2 emissions as well as access to the European and South American auto markets where Fiat already has a strong foothold – a feat which Chrysler has never had much success with.

For Fiat, the benefits of the partnership will be to reenter the U.S. market after a 23-year absence and to gain access to Chrysler’s factories and assembly lines, some of which would be retooled to produce the Fiat 500 and popular Alfa Romeo in the U.S.

 

Get updates from EI@UMD