Shifting Gears in the Auto Industry

Question One
Prior to taking over Chrysler, Fiat was an international business – exporting cars out of Italy to other countries and engaging in joint ventures around the world, including an extremely unprofitable partnership with GM in 2005. The brand had a negative reputation in the United States, and it was senseless for the brand to invest resources in the American car market. By 2006, however, Fiat was turning a profit, and in 2009, the company was named one of Fortune magazine’s most admired companies and became Europe’s third-largest car company and the ninth largest in the world. As Fiat experienced this massive success, transforming into a true multinational business became a viable option.
Purchasing the struggling Chrysler brand was a logical way for Fiat to truly become a part of the American automobile market and become a multinational company. Instead of merely exporting cars to the US or entering a joint venture with a US automobile maker, Fiat is able to have full operations in the United States using Chrysler’s existing resources. The merger was practical for both brands, as Chrysler desperately needed resources, and by buying out Chrysler, Fiat gained access to Chrysler’s network of distribution channels in the United States and the brand recognition of Chrysler. As a multinational business, Fiat will still be able to adapt product offerings and strategy for each country, but will have better access to the markets of each country and more efficient operations.
Question Two
The merger between Fiat and Chrysler has many benefits for both parties. Most importantly for Chrysler, they were able to avoid going bankrupt. Without the aid of Fiat, Chrysler would not have received both government aid and the access to additional resources held by Fiat, and would have ultimately been dissolved. With these new assets Chrysler was able to completely revamp their product line and remain relevant in the US auto market. In the merger, Chrysler was able to keep their company name, which will help drastically with brand recognition and loyalty. The drawbacks Chrysler faces from this merger are also significant. As Chrysler is now owned by a foreign company, it could potentially lose many US consumers who prefer to “buy American” to support the local economy and keep resources in the United States. The revamping of Chryslers product line can also be seen as a drawback. The company does not know how consumers will respond to the new vehicles, and Chrysler had to end production of current vehicles while the changes were taking place, forfeiting a large amount of potential revenue from their old products. Finally, Chrysler will be building seven Fiat models in their production facilities as a term of the merger. This will crowd out the production of their own vehicles as they focus more on the interests of Fiat. Fiat stands to make dramatic gains from this merger. They now have access to all of Chrysler’s US assembly facilities, making it cost effective to sell to the North American market. The new Fiat models reached the US market at a very opportune time, as more Americans want a fuel-efficient vehicle rather than a gas-guzzling, traditional American car. Fiat’s access to this new market has potential to cause exponential growth, as the American auto market is factors bigger than their home market in Western Europe. The main drawback for Fiat in this merger is the large investment they made in Chrysler’s current brand. By completely changing Chrysler’s product line, they bet billions on the sale of new Chryslers. If the US market does not respond favorably, Fiat stands to take a substantial hit. They also gambled on the American market with their own cars, as Americans historically have not looked at Fiat as a “cool” or reliable carmaker. If the additional marketing does not change this perspective, Fiat will be forced to shift all American efforts to South America, where the brand is more valued. This merger can be seen as a strategic alliance for a couple of reasons. Firstly, both Fiat and Chrysler will continue production of their own vehicles. Chrysler will gain the liquid assets of Fiat to be able to resume production, and Fiat will gain access to Chrysler’s production facilities in America. This mutually beneficial agreement can be seen as a strategic alliance as these companies are pooling their resources to increase the profitability of both Fiat and Chrysler. This merger can also be seen as a direct investment in Chrysler by Fiat, as Fiat now owns Chrysler and all its assets. Although Chrysler benefits hugely from the merger, their interests come secondary to that of Fiats, as they are now a division of the Fiat Company. The purchase of Chrysler was mainly to gain production facilities in America, although Fiat has invested heavily in the Chrysler brand. Fiat now has access to the gigantic American market, and hopes to carve out a significant piece for its new Fiat models. In these ways, the merger between Fiat and Chrysler resembles a direct investment by Fiat.

Question Three

The primary cultural challenges that Fiat may face as it merges with and leverages the Chrysler brand to compete in the US car market are simply the difference between Italian and American culture, and encouraging the US population to embrace the merger of an American brand with a foreign one. As two cultures merge at the corporate level, communication styles will need to be well understood as the two brands begin to be managed as one and as Marchionne assumes responsibility for thousands of US workers. Fiat may also face a US auto market may not be receptive to the foreign brand, as it has not traditionally been successful in the US. The brand will also have to be conscious of designs and model names that are successful in Europe, but may not necessarily be the best fit in the American market.
Marchionne will face management challenges internally as well as externally. Internally, Marchionne will most likely deal with difficult organization issues. If his takeover of Chrysler resembles his takeover of Fiat, Marchionne is likely to lay off employees, especially in the management level, to clear out positions for younger managers who can successfully reposition both brands in the market. To manage that much human capital will be difficult and require careful effort from Marchionne and his leadership team. Also within the company, Marchionne will have to lead thousands of Chrysler employees to believe in this new partnership, new leadership, and new product lines. In the midst of all this change, Marchionne will have to be very intentional to earn the trust of rank-and-file Chrysler employees while leading the company to financial stability. To succeed in the auto market, Marchionne and his managers will have to carefully plan how to reposition Chrysler from a maker of “clunky gas guzzlers” to a manufacturer of stylish and energy-efficient vehicles, as well as redeem the brand in the eyes of consumers who view the entire US auto industry negatively following the government bailouts. The company will also have to plan how to market the new Fiat models that will be brought into the US market. The American public’s perception of Fiat in the past was not extremely positive, so despite Fiat’s success globally, it may be challenging to get US consumers to buy in to a previously undesirable foreign auto brand.