Hello, Old Friend: Chrysler-Fiat Deal Reunites Partners

The recently announced deal between Chrysler and Fiat reunites two old friends, dating back to the Iacocca era at Chrysler.

Chrysler and Fiat on Jan. 20 confirmed that Fiat will take a 35-percent share in Chrysler. Automotive News had the scoop on Jan. 19. Chrysler potentially gets access to small, fuel-efficient cars based on platforms developed by Fiat. And Fiat potentially gets access to the U.S. market, via Chrysler’s U.S. distribution.

The proposed Chrysler-Fiat partnership is a better fit in some ways than the former DaimlerChrysler merger, and a much better fit than a proposed Chrysler-GM merger that was bandied about a couple of months ago.

The former DaimlerChrysler product lineups and brand images are too different. Daimler, the parent company of Mercedes-Benz, is a luxury specialist without much interest in the mass market. Chrysler is a mass marketer, without established premium brands. Daimler couldn’t really share much with Chrysler, without jeopardizing its reputation. The need to keep the brands separate limited the opportunities to save money by buying parts in bulk, or to expand Chrysler’s presence in global markets by using Mercedes dealers.

Conversely, a purported Chrysler-GM merger didn’t make sense, because the companies are too similar. Both have truck-heavy lineups. Both are heavily dependent on North America. And both Chrysler and GM are in dire economic straits. It’s hard to see how two companies on the verge of bankruptcy would be better off by merging.

In contrast, a Chrysler-Fiat deal could unite two companies that are alike in the right ways, and different in the right ways. They’re alike in that both companies have mass-market brands that could share parts without jeopardizing their brand images — provided it’s done intelligently. Fiat had a terrible quality reputation when it pulled the plug on U.S. sales of the Fiat brand in the mid-1980s, but today its quality is up to global standards.

They’re different in that Fiat is a small-car specialist, and Chrysler is a truck specialist. Chrysler could offer Fiat-based small cars without having to kill a lot of small cars of its own. At the same time, Chrysler is almost entirely dependent on the U.S. market, and Fiat is absent from the U.S. market, except for Ferrari and Maserati.

Chrysler and Fiat were partners in several unsuccessful ventures in the late 1980s, in the closing years of the Lee Iacocca era (1978-1992) at Chrysler. Notably, the two companies owned Alfa Romeo Distributors of North America, which folded in 1995. Chrysler also owned a share of Maserati, before Fiat bought it out. Fiat re-launched the Maserati brand in the U.S. market in 2002, after a 12-year absence.