The complete merge between Fiat and Chrysler is right in the corner. Fiat is about to control the totality of Chrysler in the next months, and this will mean several changes for both companies, Fiat and Chrysler groups. Even if there has been a positive cooperation between them, their business isn’t 100% integrated yet, and they continue to be 2 different societies with separate assets and financial results. Fiat owns 58,5% of Chrysler Group LLC, but it can’t access to its capital resources or take them out of the US. Contrary to what any one would have thought 4 years ago, Chrysler is the group bringing cash and not burning it anymore, while Fiat Group (at least in Europe) became a money burning machine without any clear solution in the coming years. One of the first guys to see this situation was Sergio Marchionne, who went to America to buy a bankrupted company to save Fiat from its extinction. If it wasn’t because of Chrysler, Fiat would have been already part of an Asian car group, as the profits coming from Brazil wouldn’t be enough to offset the big loses coming from Italy.
Fiat is getting ready to buy the remaining part of Chrysler, which is controlled by former employees of the company. Negotiations with VEBA fund are taking place at the same time a Delaware court takes time to decide on the right price Fiat should pay. However, Fiat is also considering to refinance its current debt in a global loan that would include the amount to buy the remaining 41,5%. Sooner or later Fiat and Chrysler will completely integrate their operations and business, and Chrysler profits will be finally available. Once the merge is complete there will be immediate effects. The first one is related to the headquarters location of the new giant, as Chrysler is operated in Auburn Hills, MI, and Fiat’s main offices are located in Turin, Italy. The second big impact will arrive from Financial Statements and the cash that Chrysler is producing. Fiat would access to it without any problem, and therefore it could use it as it should consider.
All of this will take place when Fiat struggles to survive in the worst auto industry crisis Europe has faced in the last decades. Fiat isn’t only having problems with its low production levels and over capacity of its European factories, but it is dramatically losing market share in many European markets. The lack of new models, and the big competition coming from Germany has a worse effect in upper segment brands, such as Lancia and Alfa Romeo, which had terrible results in 2012. Fiat brand has managed to maintain its levels thanks to the success of the Panda/500 and the new 500L. In my opinion, one of the first effects of the merge Fiat-Chrysler will be the rescue of Alfa Romeo. As I wrote before, Fiat brand is doing quite good with its latest launches. Lancia is now part of Chrysler brand plans, and the arrival of new models it’s a matter of time (months). Ferrari and Maserati are always in good shape. But Alfa Romeo is in a very complicated situation, and Chrysler’s good results could become the source of its resurrection. It’s simple: Chrysler earns lots of money, is working on new products (the next Chrysler 100 and 200, the Jeep Cherokee, the new Dodge Challenger). Meanwhile Alfa Romeo needs to update its poor range of products and bring new models if it really wants to compete in premium segments. The future of the whole group will strongly depend on Alfa Romeo’s. In other words, part of the money Chrysler earns could come to Italy to be invested in the development of the new Giulia D-Segment, the E-Segment sedan, and the SUV. Fiat and Chrysler are close to their final engagement. Alfa can’t wait for to long.