Chrysler saving Fiat? Odd, but true

November 14, 2011 - 12:01 am ET


TURIN, Italy -- If someone had told me that Chrysler would rescue Fiat
within two years of their tie-up, I would have said, "Smettila di bere prima
di pranzo" -- stop drinking before lunchtime.
What has happened since 2009, when Fiat took control of Chrysler? Actually,
Chrysler is only marginally ahead of what CEO Sergio Marchionne expected in
his original restructuring plan. The main problems are here in Europe: aging
Fiat vehicles, Europe's faltering economy, and the sovereign debt and euro
crises.

Sales in Italy this year are spiraling down to a 15-year low. Fiat's Alfa
Romeo, Fiat and Lancia brands compound the market's weakness with aging
products. Fiat sales and market share will continue to erode.

A Nov. 3 headline in the Italian daily Libero Quotidiano summed up the view
here of Fiat's and Chrysler's sales: "Fiat on the hand-brake in Italy, but
Chrysler applies the turbo."

A decade ago, an Italian market sinking 11 percent to just 1.75 million
units, as forecast for this year, would have been the kiss of death for
Fiat. But now that Fiat owns Chrysler, car sales (excluding light trucks) in
Italy account for just 10 percent of Fiat's global revenues.

Chrysler accounted for 53 percent of parent Fiat's third-quarter revenues.
Brazil is also a strong market and a huge profit generator for Fiat.

In the third quarter, Fiat tripled its operating profit to 851 million
euros, or about $1.15 billion, and Chrysler provided two-thirds of the total


Oddly, the United States suddenly looks like an island of stability in
the global auto market. First, European automakers never addressed their
overcapacity problems -- as the United States accomplished during the
bankruptcy year of 2009.

And now the sovereign debt crisis is expected to cause a third
consecutive year of sliding sales in Europe. The anticipated new-car volume
for 2012 will be 2.3 million units below the 14.8 million peak seen in 2007,
says market analyst LMC Automotive.

In Europe, nerves are stretched thin by dysfunctional Greek politics
and huge Italian sovereign debts. Events are moving so swiftly that any
prediction is good for no more than, oh, 24 hours.

But one thing is safe to say: Chrysler is now Fiat's life insurance.

Thanks to Chrysler's profits, along with technical and purchasing
synergies from the combined companies, Fiat is in a much better position to
withstand the crisis.

"Fiat, with Chrysler, grew its operating margin to 4.8 percent, not a
great number by itself, but better than 2.5 percent averaged by
PSA/Peugeot-Citroen and Renault," wrote Alessandro Penati in Il Corriere
della Sera, Italy's No.1 daily.

Without Chrysler, I fear the automaker, after numerous brushes with
bankruptcy in its 112-year history, would finally be looking at la fine --
the end.