Fiat eyes GM Europe deal, aims to grow
The CEO of Italian automaker Fiat is in Germany to discuss a possible bid of General Motors' European operations. As John Dimsdale reports, Fiat is taking advantage of the recession to become the world's second largest carmaker.
A logo of German carmaker Opel is photographed in front of a logo of Italian carmaker Fiat in the eastern German town of Borgsdorf. (Michael Urban/AFP/Getty Images)
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TEXT OF STORY
Kai Ryssdal: In bankruptcy court in New York City today Chrysler asked for an early hearing into a sale of billions of dollars worth of its assets. Company lawyers say that would clear the way for Chrysler's proposed alliance with Fiat.
Fiat executives meanwhile were in Germany today. They're trying to figure out how to take over General Motors' European operations. Not too long ago Fiat was a down on its luck Italian car company. But if everything it's working on now comes together, it will wind up as the second largest automaker in the world. Marketplace's John Dimsdale has that story.
JOHN DIMSDALE: Nine years ago, high-flying GM bought a 20 percent stake in struggling Fiat and even made a down payment for an option to buy the whole company. But Brendan Moore, the publisher of Autosavant.com, says the Italian car company's earnings kept falling and soon GM wanted nothing more to do with it.
BRENDAN MOORE: In 2005, Fiat was almost bankrupt and GM paid them $2 billion just to get out of the put option. How times have changed.
Fiat has engineered a dramatic turnaround under its new CEO Sergio Marchionne, with Italian styles and better engineering. He sees an opportunity to market those new cars to Americans says Pierluigi Bellini with IHS Global Insight in Milan.
PIERLUIGI BELLINI: Building a network, a distribution network takes many years. For example there are many Japanese and Koreans that took like 10, 15 years to build a network. In the case of Chrysler you already have 3,000 dealers over there.
Chrysler isn't the end of Fiat's ambition. Keith Crain, the publisher of Automotive News, says there are plenty of international automakers on sale these days.
KEITH CRAIN: The opportunity to buy Chrysler, the opportunity to buy General Motors Europe, and even General Motors Brazil, are unbelievably good because of the poor global economy.
But he says Fiat's effort to become the Roman Empire of the auto industry is also risky since the company is still burdened with plenty of debt from its brush with bankruptcy just two years ago.
In Washington, I'm John Dimsdale for Marketplace.
Comments
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From Brooklyn, NY, 05/05/2009
Thanks, Brendan.
Obviously, these large-scale auto alliances are extraordinarily complicated arrangements fraught on all sides with opportunities for failure.
So I take all your points -- I really do.
I even take back the sarcastic ha-ha's at the end.
My main point is to suggest that, when one looks at what Detroit is -- and, for years, has been -- producing, Rinolfi's lament about GM's apparent foot dragging on fuel efficiency rings more than a little bit true.
Comparing the full range of cars on offer from Chrysler (including Dodge and Jeep) and those from Fiat, it is painfully clear which company is producing cars that are more imaginative and better attuned to the world's environmental demands.
Chrysler's line is a veritable parade of boxy, heavy, gas-guzzling tanks. But having a couple of kids does not mean that a family needs a small bus to wheel around in. And nobody -- nobody -- needs an SUV.
Fiat, meanwhile, is producing a wide range of small-to-barely-midsized-cars that are easy on gas and easy on the eye.
Detroit's talking point, for far too long, has been that fuel-efficient technology is too expensive to be profitable. That's bogus.
Of course, it's difficult to get people to buy enough units of a given fuel-efficient car to keep its price down, when the car itself looks (and performs) like they came out of a cereal box. One of the reasons the Prius has to be so expensive is that it's too ugly to get more people to buy it.
But an auto company CAN make fuel-efficient cars profitable, if it makes them stylish and sporty enough for consumers to fall in love with -- and Americans, in particular, love to fall in love with their cars.
In theory, at least, Fiat and VW have enhanced opportunities on this front, since they can draw on Alfa Romeo and Audi, respectively, as design laboratories for innovations in performance and style that subsequently can be applied at the less-expensive end of the scale.
Indeed, it might well be that Detroit's costliest mistake, in recent decades, was to default on the challenge posed by Lexus. Had Detroit risen to that challenge with a new division dedicated solely to creating and producing performance-oriented sedans, it might, over the last 15 to 20 years, have been able to develop some cars that could compete in the popular small-performance-sedan segment now occupied by the BMW 3 series, Mercedes C-class, Audi A4, and Volvo S40.
That might also have given Detroit the innovative drive to create the kinds of fuel-efficient cars it now is looking to Fiat to provide.
Whichever is the case, neither Chrysler nor GM or Ford should be rewarded for offering to the American people the utter banality that has been coming off of Detroit's assembly lines for years.
JOHN LUMEA
From San Francisco, 05/04/2009
John Lumas - While there is always friction in any merger (and even more so in auto manufacturers), it is almost always brushed aside if there is money to be made or market share to be gained.
There are hundreds of articles listed on Google about Fiat's dire state after 2000. Here is the link to one of those:
http://www.businessweek.com/magazine/content/04_50/b3912079_mz054.htm
GM left Fiat because they thought the company was a sinking ship, and thought this to the extent that they willing to pony up $2 billion in order to wriggle loose.
It was a situation similar to the one that existed when Daimler jettisoned Chrysler.
The height of irony is that Fiat used most of that money to right themselves, and look where they're at today.
So, yes, there was friction, but that's not why GM backed out. The friction between engineering departments was but a sidebar to the massive financial issues.
I read the same piece in the NYTimes and my inference was that the reason the friction was mentioned was the premise that the same friction may potentially happen between Chrysler and Fiat.
I applaud Fiat's work in turning itself around; really, it's an incredible comeback.
But they were in awful shape not so long ago - that cannot be disputed. It really makes you wonder which down-on-its-luck company will be making an amazing comeback in the future.
Maybe it will be Chrysler, with Fiat's guidance. Who knows?
B Moore - www.autosavant.com
From Brooklyn, NY, 05/04/2009
According to a 25 April 2009 article in the New York Times, it appears that Fiat has a very different view of the reasons for its 2005 split from GM than was reported in 4 May 2009 edition of Marketplace.
The Marketplace version (above):
"JOHN DIMSDALE: Nine years ago, high-flying GM bought a 20 percent stake in struggling Fiat and even made a down payment for an option to buy the whole company. But Brendan Moore, the publisher of Autosavant.com, says the Italian car company's earnings kept falling and soon GM wanted nothing more to do with it.
"BRENDAN MOORE: In 2005, Fiat was almost bankrupt and GM paid them $2 billion just to get out of the put option. How times have changed."
The New York Times version (relevant passage at http://www.nytimes.com/2009/04/26/business/global/26fiat.html?pagewanted=2):
"In 2000, G.M., then in the driver’s seat, struck a deal to buy 20 percent of Fiat’s auto unit, which in turn would help Opel and G.M. develop diesel engines while gaining new designs for its product line.
"But in what could be an omen of the challenges ahead for Mr. Marchionne, Fiat’s own executives say that trying to blend the very different cultures of G.M. and Fiat was a disaster. 'We saw them like bureaucrats,' recalls Rinaldo Rinolfi, vice president for power train research and technology. 'It was a mess.'
"Though Opel eventually benefited from Fiat’s expertise with diesel engines, bitterness remains over G.M.’s unwillingness to collaborate on more-efficient gas engines that would pollute less yet have more power. 'It was difficult for them to accept that these Italian guys had good technology,' Mr. Rinolfi said. 'They said it’s too complex, too costly.'
"Eventually, the two companies parted ways, with G.M. handing Fiat $2 billion to extricate itself from the partnership, a payment negotiated by Mr. Marchionne after he became Fiat’s chief executive in 2004.
"The design for the innovative gas engine that Mr. Rinolfi pushed didn’t go to waste. With G.M. gone from the scene and with Mr. Marchionne’s backing, Fiat developed the engine on its own. Known as the Multi-Air engine, it will have its debut in September. It consumes 10 percent less gasoline and emits 20 percent less carbon dioxide than conventional gas engines, according to Fiat.
"Mr. Rinolfi said Fiat’s more recent encounters with Chrysler engineers and executives have been much smoother. Still, his frustration with the cautious Americans five years ago seems as fresh as ever.
“'We had it done then,' he said, pointing out the intricate valves and pistons of the new engine. 'We could have been in production five years ago.'”
I'm inclined to believe the Italians.
Why? Check out Chrysler's corporate Web site, at chryslerllc.com/en/innovation/mpg
Then check out Fiat's Web site for the United Kingdom, at fiat.co.uk
Many of Fiat's car's have standard gasoline engines that get COMBINED city / highway mpg ratings of 40, 50, 60, and more.
Meanwhile, Chrysler cites its current line-up of "great mpg" cars as proof of its "innovation."
Says Chrysler: "We are proud to offer you 13 vehicles with 24 HIGHWAY mpg or better." (emphasis mine)
Ha ha ha ha ha ha ha ha ha ha ha ha ha!!!!!
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