Fiat has pulled off a remarkable coup with the help of the US government. In exchange for non-cash bits and bobs, it has secured a path to control Chrysler after it emerges from bankruptcy. But running a sprawling car maker is difficult – just ask Renault’s Carlos Ghosn.
In exchange for allowing Chrysler to use its distribution network, licenses for its small cars and engine technology, Fiat will receive 20% of the company. Once certain benchmarks are hit, Fiat gets another 15%. Finally, there's an option to buy another 16% by June 2016. Moreover, the US government is kicking in up to $8bn in loans to help Chrysler exit bankruptcy.
Fiat should be happy if everything goes smoothly. The subscale manufacturer gets size, which will help it reduce purchasing costs. It gets a dealer network in the US. And if the US auto market rebounds, it will have bought in at the bottom.
Of course, things may not go according to plan. Daimler already tried to run Chrysler and failed. Of course, Fiat has a big advantage – bankruptcy will allow Chrysler to shed lots of unwanted assets such as its cash-sucking dealership network. And dowdy Chrysler probably makes a better match for econocar specialist Fiat than it did for glamorous Daimler, which should facilitate integration.
But running a sprawling car group is difficult. Renault’s Ghosn, for example, is widely regarded as one of the most talented managers in the car business. He did wonders when he parachuted into troubled Nissan. And he turned in good results managing Renault at the same time, by combining the two groups’ purchasing and production – at least for a while. Eventually running two groups caught up with him and Renault was forced to seek aid from the French state. Fiat boss Sergio Marchionne should take note. Pouncing on Chrysler is an impressive feat. Turning it around will be harder.