IE 11 is not supported. For an optimal experience visit our site on another browser.

Crunch time for Chrysler-Fiat partnership

This year’s Geneva show highlights the dramatic global restructuring Chrysler and Fiat are undertaking, as they begin to blend their operations with jointly-developed products.
Visitors gather at the Lancia booth during this year’s Geneva Motor Show. Chrysler is using the show to display the vehicles they it is developing with Fiat as both automakers blend their operations with jointly-developed products.Martial Trezzini / AP

Visitors to this week’s 2011 Geneva Motor Show are getting their first glimpse of the all-new Thema, the long-awaited replacement for the Lancia brand’s flagship sedan.

The look is bold and elegant, but there’s something about it that doesn’t quite fit in with the rest of the line-up for Fiat’s long-struggling mid-luxury brand. That’s not surprising, since the Thema, minus the Lancia badge, is also making its debut in the United States as the new Chrysler 300.

This year’s Geneva show highlights the dramatic global restructuring Chrysler and Fiat are undertaking, as they begin to blend their operations with jointly-developed products sold under both of their various brand names. It’s a vital step for both makers, but if either gets it wrong it could consign both Chrysler and Fiat to oblivion.

After Chrysler emerged from Chapter 11 bankruptcy protection in June 2010 under the guidance of Italian automaker Fiat — the only automaker that appeared interested in saving the Detroit manufacturer — its future still appeared uncertain.

Indeed, going into the 2011 model-year conventional wisdom held that Chrysler had little in the way of new product to brag about. However, the automaker has won praise for the all-new version of the 300 sedan, which will reach showrooms in the coming weeks, and the 200 sedan has received unexpectedly positive reviews.

Then there’s the Fiat 500, the microcar Chrysler’s Italian parent is shortly to launch in the U.S. Known in Europe as the “Cinquecento,” the car will be one of the smallest on U.S. highways and a distinct alternative to the big trucks, SUVs and crossovers Chrysler is best known for.

Speaking at the Geneva show, Sergio Marchionne, who serves as CEO for both Chrysler and Fiat, suggested that the new Chrysler 300 sedan “combines the best of both worlds,” and could appeal to car buyers on both sides of the Atlantic.

Marchionne hopes the same is true for a number of other new products.

At Geneva the Fiat stands were filled with Chrysler products that will soon be wearing European nameplates, like the new Fiat Freemont, a rebadged version of the Dodge Journey crossover vehicle. The Lancia stand, meanwhile, featured both the Journey, a version of the Chrysler Town & Country minivan, and the Flavia, a concept vehicle based on Chrysler’s new 200.

Still more models are coming, including a Maserati sport-utility vehicle based on the 2011 Jeep Grand Cherokee.

That’s a big switch from the approach Chrysler took two decades ago, when it joined forces with the Italian luxury car manufacturer Maserati to develop the TC by Maserati, a poorly-reviewed luxury sports coupe that was quickly pulled from the market.

Chrysler and its new trans-Atlantic partner Fiat have to hope that their new global offerings fare better this time around, stresses automotive analyst Joe Phillippi of AutoTrends Consulting.

“Without a doubt,” if the strategy doesn’t work, he warned, it will raise serious questions about the future of both Fiat and Chrysler.

Fiat emerged as the white knight for Chrysler when the U.S. automaker plunged into bankruptcy in 2009. The U.S. government agreed to give the Italian automaker a 20 percent stake in Chrysler as part of a multi-billion-dollar bailout plan. Fiat was also given a series of goals to meet that could eventually increase its stake to 35 percent. Those tasks include improving Chrysler’s corporate average fuel economy and increasing its sales overseas, where it has long lagged its Detroit competitors.

But there’s another potential payoff for Fiat. Marchionne is convinced that, as global competition heats up, mainstream manufacturers must sell at least three million vehicles annually to achieve the necessary economies of scale. In fact, during the recent Detroit auto show, Marchionne suggested he “might have to revise that figure” to something closer to five million.

To get there, however, Marchionne is taking his lead from competitors like Toyota, Honda and Ford.

Japanese automakers have traditionally focused on developing global products that can be sold in a variety of markets around the world with only minimal changes made to reflect local tastes and regulations.

Ford has adopted that strategy with products like the new Focus, which will share 80 percent of its components between the U.S. and European markets.

At first glance, Chrysler is following the same strategy with the Freemont, Thema and Voyager models. There are subtle differences, such as the side marker lights required by European regulators, and more notably, an assortment of engines, such as the 3.0-liter turbodiesel offered on the Lancia Thema, designed to cater to the demands of fuel-conscious drivers.

The strategy will ultimately work for both automakers. Chrysler and Fiat product development teams are already working on an assortment of projects that will bring European products to the American carmaker’s line-up, including a Fiat-based replacement for the 200 sedan.

The Italian automaker recently re-launched its own distribution network in the States, choosing that route to sell the distinctive Fiat 500 microcar. But going forward, most of the jointly-developed products will appear in the U.S. under Chrysler or Dodge — and possibly Jeep — badges.

The timing of the launch could prove critical if the current run-up in fuel prices continues. No Detroit automaker is more dependent on selling fuel-hungry trucks than Chrysler. With federal mileage standards heading to 35.5 mpg by 2016 — and possibly 62 mpg by 2025 — the long-troubled U.S. carmaker will need an assortment of smaller products that it likely couldn’t afford to develop on its own, said analyst Phillippi.

Fiat, meanwhile, needs to expand its offerings in other markets.

The Thema, for example, Lancia’s flagship sedan, was originally developed as a joint venture with Fiat’s partners, including Saab. However, the model has been out of production since 1994, and Fiat has been unable to pull together a replacement on its own.

Will Europeans accept American vehicles, whatever badge they carry? Initial reviews of what some have dubbed “Chrysliats” and “Lanchlers” have been mixed. It will take some aggressive marketing to make the strategy work, European observers warn.

Fiat will be pressing hard to convince American consumers to buy its products too. The automaker’s advertising budget, an estimated $1.72 billion last year, will be bumped to $2.9 billion in 2011, according to the Detroit News.

“They have a heck of a lot of work” ahead, notes analyst Phillippi, adding that it will require brand building for both Fiat and Chrysler to convince skeptical buyers to purchase their new global offerings.