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Chrysler will feel unfulfilled in its Italian romance

Fiat figures to benefit more from its marriage with the struggling U.S. automaker.

May 01, 2009|DAN NEIL

After an abusive affair with Germany's Daimler ending in 2007 and a dysfunctional relationship with former owner Cerberus Capital Management that ended with the company in bankruptcy Thursday, can Chrysler learn to love again?

The alliance between Chrysler and Italy's Fiat -- in which the Turin automaker takes a 20% stake in Chrysler and Chrysler gains access to Fiat's small-vehicle and fuel-efficient technology -- is plainly a terrific deal for Fiat and maintains Chief Executive Sergio Marchionne's reputation as super-fixer and corporate Midas.

Fiat pays next to nothing and now has instant access to U.S. markets through Chrysler's dealers. For at least a year, Marchionne had been casting about for a partner to help bring Fiat to America, approaching GM, Ford, BMW and Nissan along the way. A plan to reintroduce Alfa Romeo was abandoned suddenly last year after the economy softened.

In Marchionne's view, Fiat is too small to survive on its own in an era of rapid consolidation. It needs annual global sales of 5.5 million or more to remain viable (last year's total: about 2.1 million vehicles). That kind of volume is possible only if Fiat sells cars in the U.S.

The immediate benefit of the alliance with Chrysler is, obviously, the $8 billion in government loans that would help it weather the painful reorganization to come.

In the longer term, the theory runs, Chrysler will be able to re-badge successful Fiat products -- imagine a Chrysler-badged version of the Fiat's Bravo sedan -- and build other vehicles based on Fiat global platforms.

But in this new Italian romance, the relationship is distinctly one-sided.

What happens to Chrysler in NASCAR? What happens to Mopar? What happens to Dodge-badged cars? All likely to be swept into whatever museum there is left to memorialize Chrysler.

There are other risks for Chrysler. American buyers, for whatever reason, may not warm up to the Fiat products, which are generally small, lightweight and very modern and stylish in a way that Chrysler's core audience, it's safe to say, isn't.

It's also not clear how quickly Fiat products could be adapted to pass federal emissions and safety standards. Such a process of "homologating" vehicles is costly, and Marchionne has made clear he doesn't want to put a lot of money into the Chrysler deal. Also, there's the question of how fast and at what cost Chrysler will be able to retool its 30 assembly plants in North America. You can't simply throw a big switch that says "Fiat."

The key variable in this deal is the price of gasoline. If gas should remain around $2.50 a gallon, it would negate the advantage to Chrysler of sharing cars with Fiat, and punish Fiat too. Americans have shown, again and again, utter amnesia when it comes to fuel costs. As soon as fuel costs go down, so too does interest in fuel-efficient cars.

Ironically, California's pending waiver request to the U.S. Environmental Protection Agency that would allow the state to regulate greenhouse-gas auto emissions would actually play in the new company's favor.

The state's request would in effect raise fuel efficiency for new cars by 30% by 2016. A dozen other states and the District of Columbia have said they would hew to the new California standards.

If California succeeds in imposing its own auto emissions/fuel economy rules, the Chrysler-Fiat alliance would be well positioned to quickly deliver smaller, more fuel-efficient vehicles to market.

After years of fighting California's clean-air rules, Chrysler may in the end depend on them for its survival.




Coming to America ?

One of the rationales for the Fiat alliance with Chrysler is that the American company could benefit from a line of cars with "Italian style," Fiat Chief Executive Sergio Marchionne said in a recent interview. "Small, drivable, cheap and ecologically sustainable cars." Hard to imagine? Here's a look at three of Fiat's most popular models in Europe.

-- Dan Neil

Alfa Romeo MiTo

Price: $22,000-$30,000

Engines: Naturally aspirated 1.4-liter and turbocharged 1.4- liter gas; 1.3-liter and 1.6-liter turbodiesel

Fuel economy: 36-50 mpg, depending on the engine

The MiTo -- pronounced "Me-Toe," a hip mash-up of the city names Milan and Turin (Torino) -- is aimed like a tiny cruise missile at the BMW Mini. Styled by Alfa designer Juan Manuel Diaz, the hatchback MiTo is an ecstatic shape, full of consonant lines and completed ideas, like a good piece of music. Alfa explicitly invokes the Mini as a market bogie and plans to offer the same degree of personalization. The MiTo is loaded with standard and optional tech features, including Alfa's DNA system -- a three-way switch that sharpens the car's handling and responses, a la Ferrari.


Fiat Grande Punto

Price: $14,000-$25,000

Engines: Naturally aspirated 1.4-liter and turbocharged 1.4- liter gas; 1.3-liter and 1.6-liter turbodiesel

Fuel economy: 35-55 mpg, depending on engine

Fiat's one-size-fits-all "supermini" global car, the Grande Punto is sold from Europe to Australia. Styled with a quiet modernism by ItalDesign, the Grande Punto is available with a dizzying variety of engines, body styles and modifications. The Grande Punto makes the most sense as a car that could be easily re-badged for American audiences.


Fiat Nuova 500

Price: $16,000-$20,000

Engines: 1.2- and 1.4-liter gas and 1.3-liter turbodiesel

Fuel economy: 36-53 mpg, depending on engine

A loving and faithful riff on the classic rear-engine Nuova 500 of postwar Italy, the 500 yanks the same heartstrings as Volkswagen's New Beetle. The 500 is based on the Fiat Panda platform and is, mechanically, an unremarkable front-drive subcompact with remarkable fuel economy. The platform is shared with Ford's Euro-built Ka. The bubble-like cabin is spacious, with loads of room in front and room for two in back.

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