Strategic Alliance: Marriage of Fiat and Chrysler

Jervin Angelo D. Vinculado

Holy Angel University

 In the automotive world, Chrysler and Fiat are two automaker giants that have made their

brands known in the US and Europe respectively. One of the significant events that started

Chrysler’s progress was its partnership with the German-based Daimler-Benz AG in 1998. Such

event made Chrysler to be considered as one of the more successful carmakers that managed to

survive during the early 1990s’ US recession. However, it was evident that Daimler was

overshadowing Chrysler by means of adopting its own methods in engineering and purchasing

which were said to be completely different from Chrysler’s. Such dominance was also due to the

large difference of stock valuation of Daimler versus Chrysler (Balcet, Calabrese, & Comisso,

2013). For the next two years, Chrysler had fallen into crisis “as a result of fierce domestic and

foreign competition in the light truck and SUV market on which it was overly dependent, a

situation that was not helped by heavy price discounting (Begley and Donnelly, 2011). The crisis

happened due to the disparity of Chrysler’s and Daimler’s goals. The former was volume-

oriented and wanted to focus on the quick and straightforward development of products that are

within cost targets, whilst the latter directed its efforts on product sophistication and luxury

(Belzowski, 2009). In 2007, Daimler sold Chrysler to Cerberus Capital. However, even under the

new management, Chrysler was still failing to produce profit. This financial crisis led Chrysler

into bankruptcy and was forced to form an alliance with the Italian carmaker Fiat under the

management of Sergio Marchionne.

Fiat as well has a history of crises. For almost 15 years, it has continuously shown poor

performance. In a span of 6 years, it was only in 2006 that it had actually gained profit. Analysts

and scholars appropriately credit this success to Fiat’s new CEO Sergio Marchionne.

Marchionne streamlined the organization through his job-cutting strategy. The existing managers

and administrative personnel who were experts in engineering were replaced by younger
generations of managers who specialize in brand marketing. This decision re-aligns the

company’s vision into a market-driven automaker that will cater to the mass. Such strategy had

also been implemented to Chrysler when Marchionne took over. He knew that the merger

opened the doors to the US market and his mission was to introduce a fresh, new line of products

such as the Fiat Nuovo 500 to the North American market. Finally, the “New Chrysler” has

successfully launched new products that are projected to hit financial targets in the next few

years.

Despite the merger, it seems however that Fiat-Chrysler might still face both internal and

external problems that already exist as well as those that will arise eventually. “Fiat-Chrysler

Merger Brings Birth of a New Auto Giant” (2011) states that “Frost & Sullivan’s research

reveals that about 55% of executives state that mergers fail primarily due to internal challenges.”

Nonetheless, every company are susceptible to external difficulties especially in marketing,

cultural environment, and in meeting the demands of consumers.

Internally, the merger might impose complications in the company’s management; more

specifically in its executive sector. This was not the case however when Marchionne took over.

According to Riley (2015), he practiced unconventional approach as he challenged the

“traditionally bureaucratic nature of management in car manufacturing in the US and Italy” as he

“flattened the organizational structure, improve production quality, drive innovation and enable

the business to become much more agile”. Marchionne moved to change even the top-

management of the company. As Lueneburger (2014) stated in his article in The Guardian, it was

seen by Bob Kidder, chairman of Chrysler in 2009, the one bone to pick was the bureaucracy

inside Chrysler. Additionally, Kidder specified that “anyone proposing something new had to go

through four layers of management with a PowerPoint presentation that was different at each
level. By the time it went up and came back to the level of the person who was making the

proposal, the idea was watered down. Not only that, it took a long time. Bureaucracy had just

sapped the energy out of the organization” (Lueneburger, 2014). Due to this counter-

productivity, Marchionne shortlisted the workforce. In “Fiat-Chrysler Merger Brings Birth of a

New Auto Giant” (2011), it was identified that “Marchionne publicly stated that 25 executives

will be managing the two brands at the C-level, eliminating redundancies in heading the

functions of purchasing, engineering, quality and manufacturing among others. The new ling of

commanc, apparently, is to be shortlisted purely based on the individual’s leadership skills and

performance, without discriminating on grounds of ethnic origin.” Moreover, he employed

younger generations and promoted employees from the middle ranks in order to hopefully bring

out fresh ideas for development. He was a leader that pushed managers to be leaders as well. He

wanted his executives to be open in taking risks and let them make decisions on their own as

long as such decisions are done with purpose (Escoda, 2018). Furthermore, Marchionne was

sympathetic, attentive, and considerate to his subordinates. He personally visited sites, and

thoughtfully listened to employees in order to improve communications. As Demir (2018)

argued, “personal engagement with people beyond formal hierarchies and across functions

brought him invaluable insights, which eventually led to new models brought to market by both

Fiat and Chrysler. Marchionne listened to people with a constant eye on the future; building from

people’s specific perspective of the business, analysing their ideas and how these could improve

and challenge prevailing norms.”

Externally, before the marriage of Fiat with Chrysler, the former was having difficulties

in making their brand be trusted globally and become a multinational business, while the latter

encountered problems in their management and struggled to produce profit due to their focus on
luxury over volume. It seems however that one stone will hit two birds. The merger makes sense

because both automakers will benefit from it. Chrysler, evidently, managed to survive with Fiat’s

help, and since their failure was due to poor management, it had the opportunity to be revived

through Marchionne’s leadership. Additionally, Chrysler was able to introduce new products that

are attractive to the mass. Concurrently, the merger gave Fiat the access to Chrysler’s existing

market in the US. Ultimately, at first glance the merger may be considered as a strategic alliance.

Firstly, Chrysler’s problem can be solved by Fiat’s expertise in making and marketing diesel

vehicles. “Fiat can transfer this expertise to the light pick-ups and SUVs, so as to find favour

among American consumers. The challenge is all about making the diesel vehicle marketable in

America, where new vehicle buyers are still averse towards diesel powered vehicles. Chrysler, as

a native brands with a strong image, can help the group launch diesel vehicles in North America”

(“Fiat-Chrysler Merger Brings Birth of a New Auto Giant”, 2011).

However, Fiat-Chrysler’s near absence in emerging countries is still a major issue that is

hindering it from becoming a multinational or global business. Its objective now is to gain access

and increase its production to more countries especially in Asia and Middle-East. According to

the article “Fiat-Chrysler Merger Brings Birth of a New Auto Giant” (2011), production

forecasts indicates that the group will reduce production volumes in America and subsequently

upsurge production in Asia, as well as in Iran and India. Further, the article discovers that

“platform sharing could result in economies of scale for systems such as transmissions, steering,

braking, etc. Such savings will be reflected directly in the cost-cutting”. This in turn shall make

their vehicles more competitive and more attractive to the middle-class consumers resulting to

becoming more competitive in terms of selling more volumes globally.

 Conversely, the entering of an unfamiliar product to any culture might seem problematic.

In Europe, smaller and diesel-powered cars are common, while on the other hand, heavier, and

gasoline-powered engines are dominates the auto market in North America. Thus, one cultural

challenge that Fiat may encounter during its merger with Chrysler is basically the cultural tastes,

demands, and needs that are present in the US car market. It will face as well the difficulty of

earning the trust of consumers towards a foreign product. Fiat shall also be aware of the

consumers’ needs based on the geography of their country.

Finally, the synergy between Fiat and Chrysler will be valuable to both the European and

American automotive market. Fiat will be able to introduce small, fuel-efficient cars to the North

American consumers while benefitting from the reliability and sense of loyalty that Chrysler

amassed from their local customers. In a sense, the merger is a great investment for Fiat in order

to be recognized into a multinational or global business.

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cultures-of-fiat-and-chrysler

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