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Chrysler's Makeover Aids Fiat

October 15, 2011
3 min to read


Sergio Marchionne had what he called a "once in a lifetime" moment in 2009 when President Barack Obama selected Fiat SpA to save Chrysler Group LLC. The head of both automakers may be having flashbacks as the tables turn.


The previously bankrupt U.S. company, which became majority owned by Fiat this year, is now shoring up its Turin, Italy-based parent, as the European debt crisis depresses sales, according to The Detroit News. Chrysler is due to outpace Fiat's operating profit by 87 percent in the second half, and the gap will likely continue in 2012, says a Bloomberg News survey of analysts.

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"Fiat would be very vulnerable now without Chrysler, with few industrial and financial options on its hands," said Emanuele Vizzini, chief investment officer at Investitori Sgr in Milan, who sold Fiat shares in August.


While Chrysler's revitalization offers Fiat a cushion for Italy's downturn, Marchionne's turnaround of the Auburn Hills company has deepened its woes in Europe. With the U.S. unit hogging development and management resources, Fiat has been left with aging models and eroding market share, putting Italy's largest manufacturer at the mercy of volatile Chrysler earnings.


"Long-term, neither Fiat nor Chrysler would have made it on their own," Marchionne said this month. "Fiat was too small and too handicapped by an inadequate business model in Europe to have any hope of a future."


Chrysler may post earnings before interest, taxes and one- time items, of 864 million euros ($1.18 billion) in the second half of 2011, compared with 462 million euros from Fiat's traditional operations, according to the average estimates of six analysts. Trading profit for the U.S. automaker, which was consolidated into Fiat results from June, may reach 1.91 billion euros next year, 77 percent more than Fiat's 1.08 billion euros.


The turnaround at Chrysler hasn't helped Marchionne win over investors to his plan to create a global auto group to rival Volkswagen AG. The shares have fallen 40 percent in the last three months, the second-worst performer in the Bloomberg European autos index after France's PSA Peugeot Citroen.

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"If Fiat is depending upon Chrysler, that's a bad bet because Chrysler is still a question mark," said Gerald Meyers, a business professor at the University of Michigan. "It will be two to three years before we know whether Chrysler is going to even be successful, much less sustainable."


Chrysler, under three different owners in four years, recorded net losses totaling $34 billion from 2006 through 2010, according to the automaker's filings with the U.S. Securities and Exchange Commission.


Moody's downgraded Fiat to two notches below investment grade last month on concern about the financial stability of the combination with Chrysler. The rating company also cited infrequent model renewals in Europe and increasing competition in Brazil, where Fiat is profitable.


Marchionne, who acknowledged in an April interview that he neglected European operations in favor of a U.S. turnaround, postponed the launch of new Fiat models when the 2008 financial crisis hit the car market and is doing the same again.


Aside from a rebadged version of the Dodge Journey, the overhauled Panda subcompact, which was unveiled last month, was the first all-new model for the Fiat brand since the retro- styled 500 in 2007. In the U.S., 75 percent of Chrysler's lineup has been updated since the executive took control in June 2009.

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That product strategy has resulted in Fiat's European market share shrinking to 7.3 percent through August from 8.2 percent a year earlier as deliveries tumbled 13 percent, according to the European Automobile Manufacturers' Association.


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