labels: M&A, Fiat India, Chrysler
Chrysler - Fiat small car deal reports spark speculation news
20 January 2009

Italian car maker, Fiat SpA is reported to be in talks with Chrysler LLC about taking a stake in the cash-strapped US car maker that private equity firm Cerberus Capital acquired from Daimler in the second half of 2007 (See: DaimlerChrysler, Cerberus complete Chrysler deal)  
 
It is understood that the talks concern forging a partnership between the two that would allow Fiat to build and sell its small cars in the US. The deal would allow Chrysler access to Fiat's engine and transmission technology.

However, both Chrysler and Fiat have declined to comment on the matter, with Chrysler maintaining that it has no new announcements to make on any developments beyond what has already been announced by the company. 

Analysts point out that Chrysler's Detroit-based competitors General Motors and Ford Motor have vast European operations and small-car expertise. Unlike its rivals Chrysler does not have overseas subsidiaries making small cars. The smallest model it currently manufactures is a compact.

They believe that Chrysler is interested in a share of the small car market and has taken several steps in the direction. It tied up with Nissan Motor Co to obtain a subcompact based on the Nissan Versa that it will start selling in South America later this year; another model will go on sale in North America in 2010. Similar deals had been discussed with China's Chery Automobile, but the negotiations failed.

Fiat, they say, is a prime candidate for a tie-up as there is on overlap and a line that would complement Chrysler's current car models.

But some analysts disagree 
Fiat, they say, is not doing particularly well in the home market and it would be committing suicide buying a stake in Chrysler considering the US market that is expected to fall from 17 million vehicles in sales three years ago to 11 million this year. They point out that no car company is making money in the US market.

Long-term prospects, beyond the recession too, do not appear bright due to Chrysler's falling market share. Its unit sales slumped 53 per cent as against 35 per cent in December for the entire US market. Fixing Chrysler's problems on this front will take around two to three years.

But the hurdle that would be extremely challenging to overcome is the domination of the small car market by Toyota, Honda, Nissan and certain Ford and GM models. With the small car segment completely taken up by these players there is little room for a new entrant unless it can take a share from the incumbents. 

Competitors General Motors and Ford Motor have vast European operations and small-car expertise. Unlike its rivals Chrysler does not have overseas subsidiaries making small cars. The smallest model it currently manufactures is a compact.

They believe that Chrysler is interested in a share of the small car market and has taken several steps in the direction. It tied up with Nissan Motor Co to obtain a subcompact based on the Nissan Versa that it will start selling in South America later this year; another model will go on sale in North America in 2010.

Similar deals had been discussed with China's Chery Automobile, but the negotiations failed. Fiat, they say, is a prime candidate for a tie-up as there is no overlap and a line that would complement Chrysler's current car models.

However, not all analysts subscribe to this view
 
Fiat, they say, is not doing particularly well in the home market and it would be committing suicide buying a stake in Chrysler considering the US market that is expected to fall from 17 million vehicles in sales three years ago to 11 million this year. They point out that no car company is making money in the US market.

Long-term prospects, beyond the recession too, do not appear bright due to Chrysler's falling market share. Its unit sales slumped 53 per cent as against 35 per cent in December for the entire US market. Fixing Chrysler's problems on this front will take around two to three years.

But the hurdle that would be extremely challenging to overcome is the domination of the small car market by Toyota, Honda, Nissan and certain Ford and GM models. With the small car segment completely taken up by these players there is little room for a new entrant unless it can take a share from the incumbents. 


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Chrysler - Fiat small car deal reports spark speculation