A Merger Once Scoffed At Bears Fruit in Detroit

Posted on January 10, 2012

Industry analysts have been skeptical of the combined potential of the two automakers since Fiat took control of Chrysler after it emerged from its government-sponsored bankruptcy in 2009. Memories are strong of another overseas partnership — the German automaker Daimler-Benz’s merger with Chrysler — that ended unhappily in 2007.

But the integration of Fiat and Chrysler is nearly complete and some analysts now say it could become a model for trans-Atlantic cooperation in the auto industry. Sergio Marchionne, the chief executive of both Fiat and Chrysler, spoke enthusiastically of the combined company at the auto show in Detroit on Monday.

“We are making all the decisions together as one management team,” Mr. Marchionne said at a media briefing. “There is no question about who runs what. I run one company.”

The first fruits of the integration are on display here, and promise to help Mr. Marchionne achieve his long-term goal of increasing global sales of the two companies to six million vehicles by 2014. Together, Fiat and Chrysler sold about 4.2 million cars and trucks last year.

On Monday, Chrysler took the wraps off the new Dodge Dart, a compact car derived from the chassis and technology of an Alfa Romeo, one of Fiat’s European car brands.

But the bigger introduction comes Tuesday, when Mr. Marchionne will show the Maserati Kubang, an upscale sport utility vehicle based on Chrysler’s popular Jeep Grand Cherokee.

The Kubang is expected to be built alongside the Grand Cherokee in an assembly plant on Detroit’s east side.

The marriage of an all-American Jeep with the Italian luxury heritage of a Maserati is the best evidence yet that Chrysler and Fiat can create products together that they could not afford to make independently, auto analysts said.

“This merger is the closest thing to a truly symbiotic relationship that the industry has ever seen,” said Jim Hall, managing director of the automotive consulting firm 2953 Analytics.

Ever since Fiat took control of Chrysler, Mr. Marchionne has said he planned to leverage the strengths of both companies and operate them as co-equals.

But that goal was questioned by industry analysts who saw how Daimler-Benz dominated Chrysler during their nine-year merger.

“Daimler could never figure out what to do with Chrysler because they had no interest in integrating it into their business,” Mr. Hall said. “But Fiat actually believes it needs Chrysler for mass purchasing of parts.”

In Mr. Marchionne, Fiat and Chrysler have a strong leader who divides his time equally between the two companies. He has also promoted executives from both sides and assigned responsibilities that cut across geographic and corporate lines.

“This management team spends their time traveling and making decisions in the operating regions,” Mr. Marchionne said. “But this thing runs as one house.”

The final step in the integration process will be to increase Fiat’s ownership of Chrysler from 58 percent to 100 percent. That will require either a public stock offering to cash out the remaining stake held by the United Automobile Workers’ health care trust, or a direct purchase of the trust’s stake by Fiat.

“We need to find a way to bring these two businesses together completely,” he said.

Once Fiat takes full ownership, Mr. Marchionne will be faced with the delicate decision of whether to locate its corporate headquarters in Italy, the United States or possibly a neutral location.

The possibility that Fiat might move its corporate offices out of Italy has churned emotions there about the potential loss of an industrial icon. But Mr. Marchionne was coy on Monday on where the combined companies would be headquartered. “All options are open,” he said.

The corporate issues, however, have not slowed down his prime task of bringing profitable new products to market.

The Dart gives Chrysler a competitive product in the important small-car segment of the American market, where the company has had little success.

Production of the car at an assembly plant in Illinois also allowed Fiat to gain another 5 percent stake in Chrysler as part of the overall rescue plan Mr. Marchionne agreed to with the Obama administration in 2009.

The Dart will be Chrysler’s most fuel-efficient model, getting an estimated 40 miles per gallon, and will sell at a base price of about $16,000.

From a marketing standpoint, the Dart should be a big boost to Chrysler’s dealers, who have been hard-pressed to attract younger, first-time car buyers.

“We weren’t competing in this segment,” said Reid Bigland, head of the Dodge brand.

The Maserati S.U.V. is the first of several vehicles with Fiat brands that could be produced in the United States. Mr. Marchionne said that three Chrysler assembly plants could potentially build Alfa Romeo vehicles in the future.

By Bill Vlasic, New York Times