In the continuing saga that is the U.S. automobile industry, we got introduced to a new character in the Chrysler soap opera. Just 15 months after Chrysler’s bitter divorce from Teutonic spouse Daimler AG, it has taken on a new partner: the tall, dark and very Italian automaker Fiat SpA.
Fresh with $4 billion in federal loans and in line to receive another $3 billion, Chrysler has the critics wagging their fingers at this new union like a group of English church ladies passing judgment on the town widow dating just after her spouse expired and her life insurance kicked in. (For a picture of what an English church lady looks like, Google U.S. Sen. Robert Menendez, D-N.J.)
I disagree with Sen. Menedez and his clucking brood. While the federal loans are coming directly out of the tax bucket, they also came with stipulations. Chief among them was that Chrysler fashions a recovery plan that would keep the company viable. Any analyst worth their hefty hourly fees will tell you that Chrysler needed some partnership or merger with another company – its cupboards nearly bare with no products in the pipeline.
Clearly Ford and General Motors are in no position to take on Chrysler’s liabilities, and nearly every automaker is trimming back its U.S. operations. So the last thing anyone already trying to sell cars in the U.S. needs is, you know, more cars. Not having an MBA personally, perhaps someone with more secondary education than me can make a more compound argument to the contrary, but I would imagine that already having more of something no one wants makes getting even more of it a bad business move.
Luckily, Fiat has no sales in the U.S. after limping out of the market in the ’80s due to low volume and a reputation for some of the most high maintenance automobiles on the road.
Make no mistake. If Fiat, or another car company was coming to America with the promise of new hope and new jobs, the federal and state governments would be ripping open their wallets promising billions of dollars in tax abatements (not loans but outright cash) just to get those companies in the door, as they have done in Alabama, Tennessee, South Carolina and in nearly every occasion where automakers have set up shop in the last five years. Fiat just is getting their stipend a different way. When major industries come into a market, the first thing you will see is an outstretched hand, palm up.
Fiat may not be generating brand new jobs south of the Mason-Dixon line, but by offering Chrysler a lifeline, and looking towards retooling existing Chrysler facilities, they are preserving quite a few manufacturing jobs here up North already on the bubble. These days, that is about as good a deal as the American taxpayer is going to get – better than our TARP funds being used to buy “commodes” with gold inlay at Merrill Lynch. (As a side note, if GM’s CEO Rick Wagoner spent $35,000 to buy a toilet by another name for his office, he’d be in jail right now. Count on it.)
With this tie in, Chrysler has immediate access to Fiat’s engines, transmissions and vehicle platforms, giving Chrysler a battery of new cars to bring to the U.S. without spending billions in R&D, design and development costs. Recent press says that as many as seven new vehicles could hit showrooms in two years, with a combination of Fiat and Chrysler-badged products.
Of course Fiat gets something too: access to a U.S. dealer network. Right now Fiat sells about 450,000 units worldwide – they need to sell over 550,000 to stay in the game long term. The deal opens up Chrysler’s dealerships to Fiat and its Alfa Romeo division, creating a nearly instant new market for Fiat for the stroke of a pen.
And that’s where the real value lies – both to the U.S. economy and to the American public.
Few people are sympathetic to car dealerships, largely perhaps due to the oftentimes heavy handed tactics used to sell cars. Or perhaps your experience was an inept warranty repair. In any case, car salesmen, and the dealerships they work for are well down on the list of people we think about when times are tough.
But dealers nationwide are a key component for local economies. They pay sizeable taxes to municipalities, employ not just salespeople, but also the technicians, accountants and support staff that keeps the place going. And many of them have active philanthropic programs inside of the community. I know, the tears still aren’t flowing profusely, but if all of Chrysler’s 3,300 dealerships were to fail nationwide, the impact would be as severe as any of the layoffs announced to date, with as many as 60,000 people going out of work. And it would affect far more towns and cities than any other collapse.
More selfishly, consumers will have more choice, not less. Granted there are plenty of car companies already out there, and we’re in little danger of seeing an automotive monopoly, but new competition, and new options keeps all of the manufacturers hungry. That drives down cost, and guarantees innovation not just for luxury cars, but across the price spectrum. Just compare any ’09 model with an ’05 in terms of infotainment, safety and performance, and the change is dramatic. That’s not the automakers being nice guys. That’s competition.
And finally, to all of those Fiat owners of days gone by, “fix it again Tony (Fiat)” is probably a well-known jab and stories about pushing a Fiat 124 Sport Spyder to the repair shop are worn like a badge of honor.
Fiat’s quality has reportedly improved as they embrace the same quality control tactics now used universally around the world. But if they can’t get it right, no one will be faster, or more vocal, in pointing it out to them than the American consumer.
In terms of product itself, Fiat’s lineup features several small vehicles – a segment that is in high demand (or were when gas prices hit $4 a gallon). The Punto and Bravo both are great looking cars, in my opinion. And Fiat’s 500, a retro design rolled out in 1957 and reintroduced again in 2007 is rumored to be on the “fast track” at Chrysler, with a possible introduction in as few as 18 months.
So dust off the “Learn Italian in 30 days” tapes, get out your Walkman, put on your parachute pants and start tuning up your linguistic skills. It just might get you a discount at the local Chrysler dealership sometime soon.