News Column

Fiat Financial Savvy Snags All of Chrysler

January 3, 2014

By James R. Healey, USA TODAY

Fiat/Chrysler CEO Sergio Marchionne is being praised for his financial savvy.
Fiat/Chrysler CEO Sergio Marchionne is being praised for his financial savvy.

Fiat's agreement to buy the remaining 41.5% to own all of Chrysler reeks of financial savvy.

Fiat/Chrysler CEO Sergio Marchionne has engineered "a bit of a coup," said Max Warburton, industry analyst at Bernstein Research.

"He's being called 'Maestro,'" noted Bernard Swiecki, industry analyst at the not-for-profit Center for Automotive Research.

The deal for Fiat North America to buy the rest of Chrysler for $4.35 billion from the United Auto Workers retiree health trust, was disclosed in an announcement Wednesday.

Triggering the praise for Marchionne:

•Fiat will have bought an entire car company -- a healthy, profitable one -- for about $6.3 billion, including money it's already paid. That's relative peanuts. Daimler-Benz paid $37 billion for Chrysler in 1998. Cerberus Capital and a group of investors paid Daimler $7.4 billion for 80% of Chrysler in 2007.

•Among the Chrysler assets Fiat acquires is $12 billion cash.

•By using Chrysler's own cash for some of the purchase price, Fiat avoids borrowing.

•Chrysler also said it got promises of union cooperation in the ongoing rollout to all company plants of Fiat-Chrysler World Class Manufacturing programs and benchmarking.

That appears to mean Chrysler's North American plants will have to meet global quality and efficiency standards, Swiecki says. But "it should not be that big a challenge. Restructuring ... has driven North American manufacturing facilities to being very efficient."

It also probably means standardized processes so that Fiat and Chrysler models could be built at any of the company's plants worldwide. That's a big part of Ford Motor's successful "One Ford" strategy. "Standardized practices at every manufacturing facility allow you to be more efficient, have better quality," says Swiecki.

Getting 100% ownership of Chrysler is "a significant, full victory for Sergio Marchionne," says Stephanie Brinley, analyst at IHS Automotive. She calls him "a tough negotiator."

She cautions against overenthusiasm, pointing out hurdles ahead for the newly merged companies. "Fiat and Chrysler independently were both weaker, smaller players. Combining two weak companies may not result in one strong company, even with the opportunities for better efficiencies of scale, plant utilization, and purchasing power."



Source: Copyright 2014 USA TODAY


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