Summary
Chrysler and Fiat are both regional automotive manufacturers. Chrysler has maintained intermediate and full size automobiles and strong Jeep, minivan and Pick-up Truck markets. Fiat pulled out of the US due to small volumes, but is well known in Europe for their Fiat and Alfa small cars. This Alliance has very little product overlap which is good from a Marketing and Sales perspective since both can benefit from a Technology exchange and initial export of units into their respective markets. Re-badging and interior trim changes on units could broaden both of their vehicle lines. The challenge is whether this alliance is intended to create a global company with platform and product integration or is it simply a mutual toll manufacturing agreement. Fiat and Alfa are probably not looking for a Hemi and Chrysler can only use their small gas and diesel engine technology in small cars. So where is the retooling capital, engineering for federalization and other costs?
Analysis
It appears that this is a short term approach to provide Fiat with a US Dealer network and re-introduce Fiat and Alfa into the US Market in a segment that they believe will grow quickly. It provides Chrysler with the hope that there is enough volume between the Fiat, Alfa and Chrysler badged vehicles they can tool an engine, powertrain and assembly plant. It gives Chrysler small car product to compete with Ford and GM in the B and C size market without developing a new platform, powertrain and engine family. It would also give them small diesel engine designs which could be important depending on how CAFE and emissions standards develop over the next few years. The issue I see is that all of this is going to take time. Vehicles can be imported quickly and build some volume in dealerships, rebadging and trim can be changed for Chrysler marketing and some impact may be able to be made on CAFE, but the real challenge is funding the plant retooling, brand differentiation and federalization that will be required to have enough volume to make a difference. The current financial, engineering resources and level of engagement, this may be difficult. So is this an Alliance to build a new competitive global company or simply a Toll Manufacturing arrangement to provide both with Marketing, Sales and CAFE opportunities.
