Fiat-Chrysler: A true melting pot in Europe

The alliance between Fiat and Chrysler is now two years old, and financial markets are cheering CEO Sergio Marchionne's strategic moves.

But Fiat dealers are not so easily impressed. They want to see better products in their showrooms, and they are not yet convinced that Chrysler and Fiat can provide them as quickly as they would like.

In the short run, the financial markets will determine whether the Fiat-Chrysler alliance is a success. But in the long term, customers and dealers determine whether the partnership thrives.

So let's pay a visit to Fiat-Chrysler's European showrooms, which are starting to resemble an automotive United Nations.

On June 1, 580 Lancia-Jeep dealerships -- roughly two-thirds from Lancia's existing network and a third from the previous Chrysler-Dodge-Jeep organization -- opened for business in continental Europe, while 46 colleagues in the UK and Ireland remained under the old Chrysler-Jeep logos.

These dealerships are getting a truly international portfolio. Lancia's new Ypsilon subcompact is built in Poland, while the Delta compact hatchback comes from Italy.

Two models made in Canada, the Lancia Thema large sedan (a rebadged Chrysler 300) and the Grand Voyager minivan, will arrive in the autumn.

And next spring, the dealerships may get a U.S.-built model, the Chrysler 200 cabriolet rebadged as the Lancia Flavia.

And then there's the Fiat Freemont, a rebadged Dodge Journey crossover built in Mexico.

The Freemont appears to be a bargain. With a starting price under 25,000 euros in Italy, the Freemont costs 5,500 euros less than the slow-selling Fiat Ulysse that it replaces.

'Our turf is minicars'

With all these products on the way, one might think Fiat dealers are happy about the alliance with Chrysler. But not if you talk to them off the record.

To be sure, Chrysler is providing a range of large sedans, crossovers and minivans that Fiat dealers lacked. But now, dealers fear that Fiat is starting to neglect its strengths -- stylish small cars.

"We will sell more Freemonts than Ulysses," said one Fiat dealer in northern Italy, "but our turf is minicars and subcompact cars, where our product line is aging quickly."

Another dealer in southern Italy says Fiat's small cars aren't doing well. "The Bravo is in perennial intensive care," he said. "If you stop its huge incentives, it would die the same day."

Lancia dealers feel more positive about the alliance than their Fiat brethren. Perhaps that's not surprising, since the long-neglected Lancia brand will get some long-awaited new models as well as some of Chrysler's most competitive products.

In June, the Jeep franchise was added to Lancia dealerships in Europe. And Lancia dealers are happy about that, as Jeep is a brand with huge potential.

In Europe, Marchionne wants to boost Jeep sales to 125,000 units by 2014, up from 25,000 forecasted this year.

And what about Alfa? The Chrysler alliance hasn't given those dealerships anything to brag about, yet.

Dealers say the Giulietta compact car is doing well, and the MiTo subcompact just decently, but it is hard to fight the competition with just two models in your lineup.

"The price list still says we have the 159 mid-sized sedan and wagon in our range, but they are dead models," a dealer in Milan said.

Their replacement, the Giulia -- a model that Alfa Romeo will co-develop with Chrysler -- has been delayed until 2013.

Bold financial moves

In the showrooms, you find more skepticism than enthusiasm as dealers await Chrysler's new models. But the financial markets are happy with Marchionne's bold business moves.

Since Fiat announced the spinoff of the heavy-truck and farm equipment businesses from the auto sector in April 2010, the new companies' combined share value has almost tripled.

Before the spinoff, the old Fiat S.p.A. conglomerate was trading at 6.5 euros a share. On January 1, shareholders received as many Fiat Industrial shares as they owned in Fiat -- for free. Now the new all-automotive Fiat trades at 7 euros, while Fiat Industrial S.p.A., which produces heavy trucks and farm equipment, trades at 10 euros.

So Fiat shareholders are very happy indeed. Marchionne's other financial gambits appear likely to pay off, too.

When Fiat received an initial 20 percent stake in Chrysler in 2009, the U.S. government issued several conditions for Fiat to add to its stake.

So far, Fiat has fulfilled its end of the deal. As requested, the company fit Chrysler vehicles with fuel-efficient engines, expanded Chrysler sales overseas and paid off loans from the U.S. and Canadian governments.

In return, Fiat has been allowed to raise its stake in Chrysler to a controlling 52 percent, up from 30 percent. Fiat has the option to add another 5 percent of Chrysler this year.

Financial analysts are right to hail these moves, but Chrysler and Fiat still face big problems.

  • Although Chrysler repaid its loans to the U.S. and Canada ahead of schedule, the automaker still is convalescing in the U.S. market. Overseas, Chrysler is virtually invisible.
  • Brazilian operations keep Fiat alive, but the company continues to lose money in Europe and India.
  • Fiat and Chrysler are not players in China, the world's largest auto market, and the partners have little presence in Russia, Europe's most promising market.

There is some good news: Ferrari has never been so profitable. Last year, Ferrari enjoyed a 15.8 percent operating margin, and Marchionne has promised that 2011 will be even better. After 14 years of losses, Maserati has been in the black since 2007. Marchionne wants to boost the supercar maker's annual sales to 50,000 units from 5,675 last year.

But the two trans-Atlantic partners -- Fiat Auto and Chrysler -- still have weaknesses in their product portfolios, and they must fix those weaknesses soon because product is still the king in the auto industry.

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