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1
FIAT / Chrysler Alliance
The
Baob
ab G
roup CARPENTIER Rodolphe
CURIEL FRANCO José CarlosMAURIN MatthieuORIEULX DE LA PORTE MatthieuOULION Anne-SophieRONVAUX PhilippeROUX Vincent
The Fiat/Chrysler Alliance Groupe Baobab – 12-01-2009
2
PLAN
1. What is an Automotive merger
2. Presentation of the two protagonists
3. The Fiat/Chrysler merger
The Fiat/Chrysler Alliance Groupe Baobab – 12-01-2009
3The Fiat/Chrysler Alliance Groupe Baobab – 12-01-2009
1. What is an Automotive merger ?
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• Vef•Zefe
What is a fusion?:
• When companies share or transfer their capital and create a single company
Strategy of the fusion:
• Economical or production:• Vertical : with a client or a supplier• Horizontal : with a competitor on a same market
• Financial:• conglomerate
4The Fiat/Chrysler Alliance Groupe Baobab – 12-01-2009
1. What is an Automotive merger ?
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• Vef•Zefe
Kinds of fusion:
• fusion absorption :
• All the shares are bought by the absorbing company
• Simple fusion:
• A new share is created proportionally to the degree of absorption
• For each share, share holders are given a part of the share of the absorbing company
5The Fiat/Chrysler Alliance Groupe Baobab – 12-01-2009
2. Presentation of the two protagonists
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FIAT• “Fabrique Italienne Automobile de Turin”
• the brand of Fiat Group : fiat Auto, Fiat Professional, Alfa Romeo, Lancia,
Maserati and Ferrari
6The Fiat/Chrysler Alliance Groupe Baobab – 12-01-2009
2. Presentation of the two protagonists
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FIAT
• Large series of product : 23 models in 2010 + 3 models of vehicles
running on natural gas (Evo Punto, Grande Punto and Panda)
• production policy based on ecology
7The Fiat/Chrysler Alliance Groupe Baobab – 12-01-2009
2. Presentation of the two protagonists
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FIAT
• located in different areas of the world like Brazil, Argentina, Turkey,
China, Vietnam, Russia, Venezuela, Egypt and Iran recently
8The Fiat/Chrysler Alliance Groupe Baobab – 12-01-2009
2. Presentation of the two protagonists
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FIAT• strengths of fiat:
• The strongest in term of petrol engine (but not in term of diesel engine)
• The best bodybuilders in the world: for example Pininfarina
• Diversification: Fiat GroupAutomobiles
materials foragriculture and publicworksindustrial vehiclesand buses
metallurgy
automotivecomponents
production system
49%
20%
17%
12%
• weaknesses of fiat :
• Average treasury
• Average brand image : reliability problem
9The Fiat/Chrysler Alliance Groupe Baobab – 12-01-2009
2. Presentation of the two protagonists
CHRYSLER
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• 4 major Brands: RAM, Dodge, Jeep and Chrysler
• 90% of its revenue made in the US
• Owned at 80 % by a private equity firm named Cerberus
• 3rd largest of the “big three” (with GM and Ford)
10The Fiat/Chrysler Alliance Groupe Baobab – 12-01-2009
2. Presentation of the two protagonists
CHRYSLER
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Situation just before the alliance:
• High dependancy on gas-guzzling vehicules (SUV and Trucks)• High dependancy on the US market• Too few experimented managers
• 65% drop in sales in Decembre 2008 compared to 2007• No new products to be released• Very poor client satisfaction• A 6,9 Billion $ dept
Threat to be put under the protection of chaptre 11 regarding bankruptcy
11The Fiat/Chrysler Alliance Groupe Baobab – 12-01-2009
3. The Fiat/Chrysler merger
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Complementary in term of range of products
What can Fiat acquire What can Chrysler acquire
advantage Big cars Little cars
risk
/
problem of credibility with small cars under the Chrysler name
Significance : +
12The Fiat/Chrysler Alliance Groupe Baobab – 12-01-2009
3. The Fiat/Chrysler merger
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• Vef•Zefe
What can Fiat acquire What can Chrysler acquire
advantage USA market
(Alfa Romeo and Fiat 500)
European and south American market
(Jeep)
risk Too late arrival on the US market
Significance : +
Enter a new market / distribution network
13The Fiat/Chrysler Alliance Groupe Baobab – 12-01-2009
3. The Fiat/Chrysler merger
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• Vef•Zefe
What can Fiat acquire What can Chrysler acquire
advantage Production facilities in US
• fiat’s gasoline multi air engines
• Production facilities
• new sedan platforms
• central electric car system
risk
Significance : ++
Sharing of technology
14The Fiat/Chrysler Alliance Groupe Baobab – 12-01-2009
3. The Fiat/Chrysler merger
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• Vef•Zefe
What can Fiat acquire What can Chrysler acquire
advantage Will reach a production capability of 4.5 millions of cars
Purpose : to reach 5 to 6 millions of cars
risk Product range complementary : no risk of internal competition
Significance : +++
Minimum production volume
15The Fiat/Chrysler Alliance Groupe Baobab – 12-01-2009
3. The Fiat/Chrysler merger
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• Vef•Zefe
What can Fiat acquire What can Chrysler acquire
advantage To compete with Mercedes and BMW on the US market
risk No sell of Fiat’s cars on the US market
Significance : +
To eliminate a competitor
16The Fiat/Chrysler Alliance Groupe Baobab – 12-01-2009
3. The Fiat/Chrysler merger
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• Vef•Zefe
What can Fiat acquire What can Chrysler acquire
advantage • ecological cars
• little and middle cars Platforms
• restructure organizational frame
risk
Significance : +++
Know-how
“The single most important thing was to dismantle the organisational structure,” he recalls. “We tore it apart in 60 days, removing a large number of leaders who had been there a long time and who represented an operating style that lay outside any proper understanding of market dynamics.”
Sergio MarchionneIn their place he promoted a group of younger executives, many with a background in consumer marketing, who understood and could provide what he wanted: accountability, openness, rapid communication and impatience with hierarchy and internal politics.
17The Fiat/Chrysler Alliance Groupe Baobab – 12-01-2009
3. The Fiat/Chrysler merger
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• Vef•Zefe
What can Fiat acquire What can Chrysler acquire
advantage Neither company has a good brand image to benefit from
risk To merge too much
Significance : -
Brand image
18The Fiat/Chrysler Alliance Groupe Baobab – 12-01-2009
3. The Fiat/Chrysler merger
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• Vef•Zefe
What can Fiat acquire What can Chrysler acquire
advantage • R&D in new technologies (electric cars)
• infrastructure costs
risk
Significance : ++
Sharing of investment costs
19The Fiat/Chrysler Alliance Groupe Baobab – 12-01-2009
3. The Fiat/Chrysler merger
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• Vef•Zefe
What can Fiat acquire What can Chrysler acquire
advantage • 20% of Chrysler’s shares (plus and option for 35%)
• No cash but long term profits
risk Needs to renew with profitability to reimburse loans and to be listed on the stock exchange market
Significance : +
Financial situation
20The Fiat/Chrysler Alliance Groupe Baobab – 12-01-2009
4. Conclusion
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• Vef•Zefe
• good idea but : • experience proves that automotive mergers are difficult ... Especially with Chrysler• human aspects• don’t merge too much
• new type of alliance : no exchange of cashMight become common in the near future in the auto industry