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US carmaker Chrysler
LLC is made up of three brands: Chrysler
(top, 300C), Jeep (middle, Cherokee) and
Dodge (bottom, RAM). |
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In the 24
hours since the proposed alliance between Fiat Group and
US carmaker Chrysler LLC was announced, the automotive
and business world has pondered the potential of this
dramatic deal, with the media, financial analysts,
rating's agencies, automotive research agencies and car
dealers all offering their opinions.
IHS Global Insight
described themselves as "very encouraged by this
development." In a briefing note they said: "Chrysler and Fiat are similar-sized
companies that each have something to gain from this
proposed partnership. There is minimal overlap between
the two companies geographically and in their product
portfolios, so the opportunity for synergies is very
bright.
"This agreement, if enacted, could allow Chrysler
to achieve long-term success and will greatly facilitate
Fiat's re-entry into the U.S. market with the Alfa Romeo
brand. Unlike some recent auto industry mergers that
have not lasted, this agreement stands a good chance of
succeeding because it fulfils strong needs for both
parties," added a buoyant IHS Global Insight.
Financial
analysts were mixed in their opinions of the alliance.
"Maybe the future for the industry consists in a series
of alliances,"
Thomas Klier, who, a former senior economist at the Federal
Reserve Bank of Chicago, told LA
Times. "It has potential, but will they be able to
pull it off?"
"The initial market read is that Marchionne has struck a
'free call option' on Chrysler’s future, with little or
no downside," Morgan Stanley London analyst Jonas
commented in a note.
“However, we would encourage investors to consider Fiat
management’s time and attention and indirect expenditures it
will likely incur." Jonas was however concerned with the
length of it would take for the joint products to appear
in the showrooms, expected around 2012, and he added
that "this could be an eternity to Chrysler, given its current
financial state."
The "terms of the alliance imply some option
value but minimal operating benefits," London-based UBS analyst
Philippe Houchois detailed in a briefing note. The
alliance included a high "execution risk" for Fiat
in a period of "gloomy sales" in Italy,
added Paris-based Societe Generale credit analyst
Pierre Bergeron in his summary.
"Fiat has little to lose," reckons the
Economist. "If Chrysler stages a
miraculous recovery with its help, Mr
Marchionne would have pulled off something
similar to Carlos Ghosn’s Renault-Nissan
alliance at almost no cost other than
diverted management time. With a rumoured
option to increase its stake in Chrysler to
55 pct, the deal is potentially
transformative for Fiat. And if things do
not work out and Chrysler slides into
bankruptcy, Fiat has no liability exposure
but would be in pole position to pick up the
assets it needs to implement its North
American strategy at fire-sale prices." The
Economist believes that the biggest
upside for Chrysler is that, "it gets
something it has not had for a long time—a
narrative not entirely devoid of hope."
However the Economist sounds a
cautious note over the timescale of the
integration. "There is also the question of
time. It is highly unlikely that even with
exemplary execution those American
manufactured “Chrysler-Fiats” can hit the
market before late 2011. Fiat may have
thrown Chrysler a lifeline, but the American
firm may be too far gone, and the storm too
fierce for it to make much difference."
US rating's
agency Moody's has said that the alliance won't change
its negative outlook on Chrysler. In a statement the
agency said it ratings would "continue to reflect the likelihood that
the company will face either some form of debt exchange
that Moody's would view as a default or a bankruptcy
filing." The agnecy was impressed by the product
portfolio that Chrysler would have access to but was
concerned at the length of time it would take to filter
through, stressing that it "is
unlikely to provide any near-term relief
from Chrysler's most pressing near-term
challenges. These include the
company's sizable pace of cash
consumption, a liquidity position that
can not cover cash requirements during
2009 without government bailout loans,
and the steep decline in the US
automotive market." Moody's added
further concern that "Chrysler has "not specifically
identified the mechanism for
implementing the balance sheet
restructuring, nor has it disclosed any
specific proposals to debt holders."
Chrysler's
dealers are also optimistic. "I would love to sell Alfa Romeos or Fiats or
Fiats badged as Dodges," said
Jon Gray, owner of Orange Coast Chrysler Jeep Dodge in
Costa Mesa, to the LA
Times. "Neither has what the other one does," Gray
added, "the whole
is greater than the sum of its parts."
Chuck Eddy,
owner of Bob and Chuck Eddy Chrysler-Dodge-Jeep in Austintown, Ohio, told
Automotive News Europe that the Chrysler-Fiat alliance
would be good news for dealers. "We don't build a little
car, and they don't build a big car," said Eddy, who was an
Alfa Romeo dealer for several years the last time that brand
sold vehicles in the United States. Alfa Romeo stopped
exporting cars to the United States in 1995 .Meanwhile Wes Lutz,
the owner of Extreme Dodge in Jackson, Michigan told ANE: "I
go to Europe and I see thousands and thousands of Fiats
running around. They've got diesel technology and small-car
platforms. I don't know what it costs to develop a platform,
but I think it's very expensive. If you've gotten a proven
platform, why not share?" More positive opinion came
from Jerry Golinvaux, the President of Roseville
Chrysler-Jeep-Dodge in Roseville, a Minneapolis suburb. "I think it's a great strategic move,"
he told ANE, "Chrysler's partnership can show
lawmakers in Washington that the company has a real plan."
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