1. Introduction
What is the effect of a third who joins into a negotiation which was initially distributive and bilateral? Can this entry at the table shift the negotiation, which is now multilateral, from distributive to integrative? How? The deepening of the decision-making processes commonly known as "negotiations" has been always dear to scholars in management, within the studies on strategic cooperation between companies(Fisher, Ury, & Patton, 1981; Komorita, 1985; Kramer, 1991; Lax & Sebenius, 1986; Lewicki, Weiss, & Lewin, 1992; Raiffa, 1982; Sheppard, 1984; Walton & McKersie, 1965; Zartman, 1977).Over the years, these studies have contributed to the construction of the so-called negotiation theory, which has assumed the development of techniques and models designed to solve political problems as the primary target of investigation.
Management studies relating to negotiations have mainly focused on negotiation processes between companies, customers, suppliers, and industrial relations. The negotiations involving two companies that design strategic paths of cooperation – or have to implement a designed one – are less investigated, especially those concerning the effect of the intervention of outside (third) parties. I intend to focus on the latter.
Through the analysis of the case studies relating to the negotiation between Fiat and Chrysler to establish a strategic alliance in the automobile sector, the article would like to investigate how the entry of interested third parties can influence the dynamics of a negotiation process. In particular, this work shows how this input has allowed the management of a critical deadlock.
The adopted analytical approach has been drawn from the deliberations of James K. Sebenius (1983, 1992).
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In terms of theory and practice, the observations made from the analysis may be a convenient starting point for developing models of the government‟s dynamics of negotiations, focused on a strategic management of the parties and their interests.
The work is developed with an initial critical review of the literature, aimed at deepening awareness about the research question. The research methodology adopted and the analysis of the case study will follow. The work is concluded with a discussion on the evidence provided from the analysis, with an underlying reflection on the most important implications for future research efforts.
2. The Fiat-Chrysler Negotiation
The international strategy of Fiat has been characteristic of the Italian-based company since the early years of the twentieth century. Since 1908, when Giovanni Agnelli decided to open the U.S. market, Fiat has been facing the strategies of internalization several times with mixed success.
In 2009, Fiat was one of the world's automakers which seemed less affected by the economic crisis. Thanks to the work of its CEO Sergio Marchionne, the company was strong with respect to financial and performance data. Chrysler, on the other hand, after the failure of the merger with Daimler-Benz and the acquisition by the fund Cerberus Capital Management, entered 2009 with a financial and economic instability that led to bankruptcy. The continued decline in sales over the last ten years brought the number of cars sold from 2.6 million in 1999 to 1.4 in 2008 (Chrysler Group LLC Annual Sales Reports, 1999-2008).
To survive and repay maturing debt obligations, Chrysler received some funding from the U.S. government in late 2008. However, the debts were tied to the achievement of a satisfactory turnaround plan, for which it was necessary to find an industrial partner to provide advanced technologies. This was the main reason for the tentative agreement with Fiat.
1
The final agreement was signed on June 10, 2009 . The beginning of the negotiation process, from which this agreement comes, may be traced back to January 20, when Fiat and Chrysler jointly signed a non-binding letter of intent for the creation of a 'global strategic alliance‟. Table 1 presents the chronological reconstruction of the main events.
1 “On 10 June 2009, Chrysler Group LLC and Fiat finalized an agreement to establish a global strategic alliance and the new Chrysler became operational on the same date. The agreement grants the U.S. automaker access to Fiat technology, platforms and powertrains for small and medium-sized cars, which are amongst the most innovative and advanced in the world. This will enable Chrysler to expand its product offering with the addition of low environmental impact models. Chrysler will also have access to Fiat‟s international distribution network. The alliance represents an important step toward positioning both Fiat and Chrysler among the next generation of leaders of the auto industry globally. As consideration, Fiat received an initial equity interest of 20% in the newly-formed Chrysler Group LLC, which could increase up to a total of 35% upon achievement of specific pre-established targets. The agreement does not contemplate any cash investment in Chrysler by Fiat or commitment to fund Chrysler in the future. Fiat will also have the right to acquire a majority interest in Chrysler once all government loans have been fully repaid. The alliance is expected to bring enormous benefits to both companies by giving them the critical mass necessary to compete at a global level. Fiat will also be able to expand its geographical footprint by leveraging new market opportunities such as a return to the US market and introduction of new models in Europe. Fiat‟s presence and experience in the smaller car segments combined with Chrysler‟s presence and experience in the medium and larger segments will enable the Group to offer a full range of products” (Annual Financial Report at 31st December 2009, Fiat Group, page 65).
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International Journal of Business and Social Science Vol. 3 No. 12 [Special Issue – June 2012] Table 1 - Chronological reconstruction of Fiat-Chrysler agreement (20 January 2009 – 10 June 2009).
Events timeline
January 20, 2009
February 17 March 5
March 31
April 25 April 30 May 7 May 31
June 10, 2009
Joint press release of Fiat and Chrysler which announced the agreement on a possible alliance.
Chrysler's restructuring plan presented to the U.S. government, requesting a new loan. Sergio Marchionne at the hearing of the U.S. government Task Force.
U.S. government's ultimatum: agreement has to be perfected within 30 days or start the
2 procedure of Chapter 11 .
Agreement reached with the unions on the restructuring plan for Chrysler.
Green light for the agreement from the U.S. government through the use of Chapter 11. The Bankruptcy Court in New York starts the auction on the assets of Chrysler.
The Bankruptcy Court approved the Fiat-Chrysler plan.
Green light to the agreement by the Supreme Court;Sergio Marchionne was appointed CEO of Chrysler Group LLC.
According to the „January 20‟agreement, Fiat would provide licenses to use platforms for Chrysler‟s fuel-efficient vehicles, engines, transmissions and components, in order to produce in its plants. The two companies would also have access to their distribution networks. As consideration, the letter of intent states that Fiat would receive an initial 35% stake in Chrysler, with an option to purchase an additional 20% after twelve months.
For Fiat, on the one hand, the agreement would mean the availability of selling technologies that have resulted in significant investments, and will have access to markets with great potential, through the launch of brands such as Alfa Romeo and Fiat 500. It would thus resume the path of internationalization in the United States, several times initiated and then stopped by the company in the second half of the twentieth century.
For Chrysler, on the contrary, the agreement with Fiat was a big part of the recovery plan submitted to the U.S. government and is consistent with the terms and conditions for the granting of the received funds: corporate restructuring and conversion of production towards environmental-friendly vehicles.
However, the situation immediately presented an impasse: i) Chrysler needs additional funding to ensure business continuity and the agreement with Fiat is necessary in order to launch a business plan to meet the demands of the U.S. government; ii) Fiat does not intend to invest cash in the transaction; iii) the U.S. government is undergoing internal criticism on the granting of loans combined with the "handover" of Chrysler; iv) the creditors of Chrysler do not intend to give up their claims and, therefore, are willing to face the failure of the company.
In the present context, a great effort of integration was carried out by Sergio Marchionne in a series of meetings with the staff of the President of the United States; he made them understand the need to support the alliance for the survival of Chrysler. And, consequently, , at the end of March, the White House made public the decision to provide Chrysler with the required new loans, conditioned to a more drastic restructuring plan. The company received an ultimatum: 30 days to get into the agreement with Fiat, or there would be the bankruptcy. The U.S. government also required that the entry of Fiat in the stake of Chrysler occurred more gradually than originally planned: instead of immediately having a 35% stake, Fiat would have an initial 20%, which would increase hand in hand with the planned transfer of technologies. These shares did not, however, rise above 49% until the full reimbursement of the public lending by Chrysler. In short, this ultimatum put Fiat in a favorable position for the negotiation.
At this point, the negotiations between Chrysler and the team of creditors and unions opened, also attended by Fiat. In the negotiations entered the government of the United States, in order to ensure the funding for the agreements. There again came an impasse between a minority of creditors and other parties, which could be resolved at the negotiating table only with a unilateral intervention by the government.