The 2009 Chrysler-Fiat Strategic Alliance

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Table of Contents

Introduction
Chrysler-Fiat alliance
Global operations and manufacturing issues
Conclusion
References

Introduction

Corporations, firms, and companies implement stringent measures to improve operations during periods of severe financial constraints. Many livelihoods depend on their stability and it would be unethical to fail to take action. In addition, it is necessary to protect the investments and interests of stakeholders who would be affected if the businesses collapsed (Pride et al, 2009). Therefore, it is crucial for organizations and companies to take necessary steps to safeguard interests of stakeholders. The 2009 strategic alliance between Chrysler and Fiat was a bold move towards saving Chrysler, a company that had operated for many years (Reeves, 2012).

The merger was a major setback for Chrysler to a certain degree. Chrysler lost a lot of money when it allowed Daimler to relinquish its portion of the company to Cerberus because the offer price was less than a quarter of the initial capital (Reeves, 2012). However, the merger saved Chrysler because it was in a financial crisis that had pushed it to file for bankruptcy. It was a lose-win deal. The merger was a rescue deal initiated by the Obama administration as part of a plan to bail out companies that were on the verge of collapse.

The strategic alliance was beneficial to Chrysler considering that it had made huge losses during the 2006 financial year. Chrysler dismissed over 13,000 employees because it was on the verge of bankruptcy and could not afford to pay them. The merger was beneficial to Fiat because it was an important strategy to reenter the North American market. Reentry would not have been possible if Chrysler had merged with other automakers such as General Motors, Toyota, Isuzu, or Volkswagen. Fiat exited the car market in North America back in the 1980s after decline in sales. On the other hand, Fiat was highly successful in Europe.

This created an opportunity for Chrysler to create a niche in the European market. The merger combined the forces of two great automobile companies. The merger is currently benefiting both companies. Fiat has capital and advanced technology that supports manufacture of high-efficiency automobiles. On the other hand, Chrysler is a reliable and trusted brand that has international appeal. Chrysler has improved its operations by utilizing Fiat’s advanced technology to manufacture fuel-efficient vehicles (Natarajan, 2011). The merger has a bright future because of Chrysler’s new leadership. In 2003, Fiat was on the verge of bankruptcy.

However, under the leadership of Sergio Marchionne, it made a turnaround and regained financial stability. There is hope for the merger’s success because Marchionne is the current CEO of Chrysler. The future of the auto industry rests on manufacture of fuel-efficient vehicles. With Fiat’s advanced car manufacturing technology, the merger is a good bet for the future prosperity and stability of the auto industry.

Chrysler-Fiat alliance

Before 2009

Chrysler had several strengths before 2009. It was an established brand in the North American market. It had well-structured sales and distribution channels that enhanced its manufacture and sale of utility trucks and sub-contract vehicles (Natarajan, 2011). In addition, its brand of Jeep vehicles was popular in the market (Bartlett, 2009). Despite these strengths, it had weaknesses too. Chrysler lacked diversification in its vehicle portfolio. It had few models of sub-compact cars, which were under high demand in car markets. Losses incurred between 2008 and 2009 decreased its organizational value (Bartlett, 2009). In addition, it had formed alliances with Hyundai and Mitsubishi that failed to meet goals and objectives. These alliances were among factors that led to its failure.

Before 2009, Fiat had several strengths. Its recovery from poor financial management under Marchione’s leadership boosted its organizational value. Financial recovery increased its international appeal and corporate culture (Ciravegna, 2012). Fiat was also an accepted brand in Europe for its small cars and new models. In addition, its turnaround strategy under Marchionne was beneficial. It led to alliances with highly productive companies (Ciravegna, 2012).

Despite these strengths, weaknesses existed too. Fiat lacked competitive advantage in the market against other auto companies such as Toyota. Its marketing strategies were weaker than strategies adopted by other companies. In addition, it lacked diversification in its vehicle portfolio. It had few car brands in the market that decreased its chances of competing effectively with other companies.

After 2009

The merger was beneficial for the Chrysler and Fiat. Chrysler’s strengths after the merger included new leadership, new strategies, and access to Fiat’s advanced technology (Clark, 2011). Chrysler was able to develop new car models using Fiat’s technology thus kick starting its recovery journey. After Marchionne became Chrysler’s CEO, prospects changed. He introduced new plans that comprised short-term and long-term recovery strategies (Clark, 2011).

This contributed towards its recovery and growth into a leading automobile company. Weaknesses included closure of several dealerships and weakening of corporate structure. The merger forced Chrysler to close several dealerships and abdicate some manufacturing plants (Griffin, 2011). Today, prevailing financial constraints have strained Marchione’s leadership and corporate plan. Fiat also benefited greatly from the merger.

After 2009, Fiat’s main strength was ownership of a portion of Chrysler. This presented an opportunity to reenter the North America market (Griffin, 2011). Weaknesses include stiff competition and potential threat to its brand. Fiat and Chrysler need to develop better strategies that will enable them compete with established auto companies such as Toyota and Ford (Clark, 2011). This may be difficult to achieve because of Chrysler’s financial constraints. In addition, the merger structure might lead to changes in Fiat’s vehicle portfolio, causing loss of market share (Vlasic, 2009).

Global operations and manufacturing issues

General Motors, Toyota, Volkswagen, Daimler, Chrysler, and Fiat have a strong global presence in various markets. For example, Chrysler has strong market presence in America while Fiat has strong presence in Europe (Vlasic, 2009). Ford operates mainly in America while Volkswagen operates mainly in Germany. Chrysler is one of the top three automakers in Canada and the United States (Groth 2011). This has given it market advantage over other auto companies excluding Toyota, GM, and Ford. Toyota, GM, and Ford have overshadowed Chrysler’s presence in North America and other markets after its near-collapse in 2009.

In 2012, GM and Ford witnessed a decline in global operations. GM lost 8.2% of its market share while Ford lost 5.3% (Hitt et al, 2012). In 2009, General Motors filed for Chapter 11 restructuring owing to adverse financial constraints. This contributed to decline in global operations. Falling sales have reduced global operations of GM and Ford significantly. For example, the manufacturing capacity of GM facilities decreased by 85% in 2006 (Clark, 2011). This capacity was below that of Toyota, Ford, and Daimler. Toyota has the greatest global presence among all automakers in the world (Groth 2011). Fiat has operations in America, Africa, and Europe. This is in contrast to Toyota’s operations in all seven continents. Daimler’s operations are minimal compared to operations of Chrysler and Fiat.

Manufacturing issues

Chrysler and Fiat have less manufacturing issues compared to the other five companies. The main manufacturing issue that companies face is car design error, which leads to car recalls for repairs (Clark, 2011). Fiat has advanced technology that reduces design errors and other manufacturing issues. The other automakers have experienced several manufacturing issues in the past. For example, Toyota has recalled several models that include Toyota Prius, Lexus HS 250h, and Toyota Sai for various manufacturing problems (Clark, 2011). In 2012, GM recalled more than 473,000 cars that had mechanical problems. They included the Chevrolet, Pontiac, and Satum sedans models. Daimler is planning to recall more than 3500 vans in Europe.

Conclusion

The 2009 Chrysler-Fiat merger was beneficial to both parties. Chrysler stood to benefit by utilizing Fiat’s advanced technology and car platform to manufacture fuel-efficient car models for the American market. On the other hand, Fiat stood to benefit by using Chrysler to reenter the North American market, which it exited in the 1980s. The merger combined strengths of the two companies and as such improved their production capacity and market presence. The merger has a bright future because the companies have a reputation for quality and value. In addition, they are working towards joining their market shares to create a larger market for their cars.

References

Bartlett, J 2009, Chrysler and fiat reliability-merger of equals. Web.

Ciravegna, L 2012, Sustaining Industrial Competitiveness after the Crisis: Lessons from the Automotive Industry, Palgrave Macmillan, New York.

Clark, J 2011, Mondo Agnellli: Fiat, Chrysler, and the Power of a Dynasty, John Wiley & Sons, New York.

Griffin, R 2011, Organizational Behavior, Cengage Learning, New York.

Groth, A 2011, From 2009 to today: more on why the Fiat-Chrysler merger makes sense. Web.

Hitt, M, Ireland, D, & Hoskinsson, R 2012, Strategic Management Cases: Competitiveness and Globalization, Cengage Learning, New York.

Natarajan, P 2011, Fiat-Chrysler merger-birth of a new Auto giant. Web.

Pride, W, Hughes, J, & Kapoor, J 2009, Foundations of Business, Cengage Learning, New York.

Reeves, J 2012, Corporate Mergers Transitioning the American Economy, iUniverse, New York.

Vlasic, B 2009, Chrysler and fiat have hopes for happy relationship. Web.

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