Chrysler, Fiat Not Merging (For Now)

January 3, 2011
Fiat's Sergio Marchionne

Fiat's Sergio Marchionne

Earlier today, Sergio Marchionne told reporters that he has no intention to merge the operations of Fiat and Chrysler. To some, that will signal trouble in paradise; others will see it as evidence of the CEO's caution and forethought as he retools a troubled company. We tend to side with the latter.

Merging the two companies might seem like the logical thing to do at this point -- after all, Fiat already holds a 20% stake in Chrysler, and Marchionne has said that he may seek to increase that number to more than 50% when Chrysler goes public. (He and others have hinted that the Chrysler could shoot for an IPO in the second half of 2011.) Marchionne has repeatedly shown his determination to turn Chrysler around, and he shows no sign of backing down, so why not put his money where his mouth is and pool the resources of the two companies?

We can think of at least three reasons:

For one, Chrysler is still on the rebound. We've seen good things from Chrysler in recent months, especially well-received products like the 2011 Jeep Grand Cherokee, but the road to recovery is full of potholes. Should something go wrong -- should Marchionne's plans not pan out, or should lingering litigation from former Chrysler dealers prove too costly and consuming -- it will be much easier for Fiat to extract itself from Chrysler if the two are just living in sin. (We're guessing Marchionne recalls Chrysler's recent divorce from another European automaker.) Down the road, if Fiat and Alfa Romeo do well in America, Marchionne may conquer his fear of commitment.

For two, Fiat just split itself in half: as of today, Fiat Industrial SpA handles the company's truck and tractor products, and Fiat SpA sells consumer cars and trucks. The idea behind the split was to simplify operations for Fiat, allowing each unit to deal with its own suppliers and consumers. That philosophy of focus -- one we've seen at other automakers, too -- shows Marchionne's interest in drawing clear lines between divisions. Merging Chrysler and Fiat runs counter to that.

For three, a merger could cause a PR nightmare at a crucial time in Chrysler's comeback. It's no secret that many Americans were frustrated by the federal government's bailout of Chrysler and General Motors in 2009. The two companies are just beginning to recover from that publicity crisis, so the last thing Chrysler needs is a bunch of media pundits touting the fact that the feds poured billions into the company just so it could be bought up by foreign interests.

We can't predict how things will shake out for Chrysler in the long-term, but we have to admit: it's nice to see a smart, thoughtful leader like Marchionne at the helm.


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