Car-maker Fiat to rescue Chrysler - or is it the other way round?

Fiat has reportedly taken a 35% stake in crisis-hit Chrysler. Can it secure both firms' futures?

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Last Updated: 06 Nov 2012

On the face of it, the deal (in which no cash was involved) looks like two drowning people trying to stay afloat by clinging to one another. Chrysler is in dire straits after the recent collapse of US car sales compounded damage already caused by the 2007 unravelling of its disastrous merger with Daimler. Now owned by private equity turnaround specialist Cerberus, only last week Chrysler was granted a $4bn handout from the US TARP program to keep it going for a while longer. The fact that it is willing to effectively give 35% of itself away – and to Fiat, of all companies - shows you just how desperate Chrysler is to be rescued.

For although, thanks to hit new models like the latest 500, the Italian manufacturer is looking in its best shape for years under boss Sergio Marchionne, that’s not saying all that much in an industry where even the most productive companies in the world have been left reeling by the worst trading conditions for decades. Marchionne himself admitted as much back in December, saying that Fiat would have to ‘aggregate’ to remain viable. ‘You need at least 5.5 to 6 million cars a year to have a chance of making money’ he told one national newspaper at the time. ‘Fiat is not even halfway there.’

So the auguries are not too promising. Can Fiat really fix what neither Daimler nor Cerberus have managed to, and in the teeth of a recession, to boot?

Well, there’s a chance it just might. In return for its 35% giveaway, Chrysler will gain valuable access to Fiat’s low cost, energy efficient engines, transmissions and platforms. Cars like the Panda and the aforementioned 500 – frugal yet stylish, and cheap to buy – are some of the most recession-friendly models on the global market. They could be just what cash-strapped US punters are looking for. They certainly don’t want what Chrysler is offering them now – the firm’s domestic sales are in freefall, down 50% in December alone.

Fiat, on the other hand, would get Chrysler’s comprehensive North American dealer network, and a ready-made manufacturing base there, too. Both of which it could seriously do with - a lack of grown-up dealerships has dogged Fiat’s previous unsuccessful assaults on the USA: with the exception of its Ferrari and Maserati supercars, none of the firm's brands have been sold there since 1995.

Elsewhere in what is rapidly becoming the world’s most credit-crunched industry, Toyota has announced that its next chief exec will be its founder’s grandson, 53-year-old Akio Toyoda. He will be the first family member to have taken the wheel for 14 years, and will have his work cut out – Toyota is expected to post its inaugural annual loss in March. And BMW is cutting hours for workers in its German factories at Dingolfing and Regensburg for the first time in the current crisis. No-one is immune.

The French government, meanwhile, has announced its intention to take stakes in French car companies in order to protect them from the worst ravages of the global economic crisis. Big government, it seems, is alive and well on both sides of the channel. Only they nationalise their manufacturing industry, while we nationalise our banks - time will tell which approach works best.


In today's bulletin:

Nationalisation calls mount as banks hammered again
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Sick told to get packing (their suitcases)
Fiat to rescue Chrysler - or is it the other way round?

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