It has been a bit overshadowed by Ford's
It wasn't long ago that Chrysler's products were an industry joke, languishing at the bottom of sales charts and comparison tests. Now, those same products -- refreshed, restyled, and refined in an absurdly short time and on an absurdly small budget -- are impressing critics and consumers alike.
Sales results have been impressive, too: Chrysler's U.S. retail sales were up a whopping 50% in September, even as the company's spending on incentives fell sharply. For the year to date, the company's U.S. sales are up 23%, well above the overall market's 10% growth rate. But despite those impressive results, the Chrysler-Fiat mash-up remains a very troubled company.
In fact, its continued viability is still an open question.
Global reach, global troubles
Fiat, you will recall, got Chrysler for essentially nothing -- while a big chunk of Chrysler is still owned by a United Auto Workers health-care trust, the Obama administration awarded control of the broke Detroit automaker to Fiat as part of the auto-industry bailouts in 2009. While Fiat CEO Sergio Marchionne's grandiose plans to turn Chrysler around initially drew raised eyebrows and even a few snickers, his team was able to quickly integrate Chrysler into Fiat's global operations, cut costs dramatically, and execute that remarkable overhaul of the product line. Strong sales and a surprising return to profitability (at least on an EBIT basis) have followed.
But now it appears to be Chrysler's turn to save Fiat. Fiat's all-out effort to revamp Chrysler's products pulled resources away from the Italian parent's own product-development efforts, and now the company's aging product line is losing market share in its all-important European market. Through August, Fiat's market share in Europe was down to 7.3% from 8.2% in the year-ago period, with sales down 13% over that span.
That's a difficult position for Fiat to find itself in, with an economic crisis looming and Europe facing the possibility of another deep recession. Analysts surveyed by Bloomberg still expect Fiat's Turin-based operations to be profitable in the second half of 2011, despite significant ongoing losses in Europe, but Chrysler's pre-tax profits are expected to be nearly double those of its parent's pre-existing operations.
Fiat needs those profits to help fund its own product-line overhaul. But will Chrysler continue to generate them?
Chrysler's alive, but not well
Compared with where it was in 2008, Chrysler's looking pretty good -- but it's a long way from fixed. The company still lacks small cars in the U.S. market, aside from the slow-selling Fiat 500, a critical product omission as Americans continue to downsize their rides. Ford and GM were able to leverage their global operations to develop small cars such as the Ford Fiesta and Chevy Sonic that are competitive with rivals from Toyota
New Dodge and Chrysler models one size up -- compacts, like the Ford Focus and Chevy Cruze -- are expected next year, sharing a platform with a new Lancia model that will be sold in Europe. Meanwhile, Marchionne has revamped Chrysler's retail strategy, pushing all of its brands into a single showroom, and is eliminating models such as the Dodge Caravan minivan to reduce product overlap.
Is this really going to work?
Is this a strategy for sustainable profitability? That's still an open question. Chrysler's brands, particularly Jeep, still have a smallish but loyal following that should sustain sales as long as the products remain reasonably competitive. Like its Detroit rivals, Chrysler's fixed costs (and, thus, its breakeven point) have been cut dramatically -- and as with those of its rivals, its new UAW contract looks unlikely to reverse that trend.
Fiat is depending on Chrysler to get the company through the next few years. Fiat, as Italy's largest industrial company, has its own unique domestic pressures -- and a labor situation that makes even the most tense UAW negotiations look like a stroll in the proverbial park. The company has long needed a global presence, or a partner, to achieve the scale and stability necessary to be competitive with global giants like GM, Toyota, and Volkswagen.
Fiat's stock has fallen roughly 40% over the past three months. If Marchionne's minions can make this marriage work -- and while daunting problems remain, their progress to date has been impressive -- then current prices may look like quite a bargain in a couple of years. Stay tuned.
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