Fiat-Chrysler Merger - Birth of a new Auto Giant

Published: 3 Aug 2011

By PranaTharthiharanNatarajan, Senior Research Analyst

Fiat S.p.A (Fiat) is about to evolve as the world's sixth largest automotive group, in the years to come, benefitting from stakes raised by the Italian automaker in Chrysler Group LLC (Chrysler). From about 2.1 million production volume in 2010, Fiat believes that this merger has the potential to takeits consolidated production volumes to six million vehicles by 2014, tallying €100 billion in terms of revenue. Fiat acquired 35 per cent stake in Chrysler in 2009 and went on to increase the same to 53.5 per cent in July 2011, having bought out the stake from the US and Canadian governments. Fiat aims to further increase its stake in Chrysler to 58.5 per cent by the end of the year. Fiat also has the option of buying 40 per cent of Chrysler's shares from VEBA between Q3 2012 and Q2 2016, abiding by certain conditions. The group intends owning 70 per cent of Chrysler in the near future.

Fiat became one of the owners of Chrysler back in 2009, soon after Daimler AG (Daimler) had decided on its exit from the DaimlerChrysler Motors Company LLC. A "merger of equals", as it was called, melded Daimler with the old Chrysler. But, as George Orwell put it, some of us are more equal than others.In less than a decade's time,Daimler sold 80.1 per cent of its stake in Chrysler, and the remaining 19.9 per cent in 2009. The reason behind the failure of this merger was a cultural misalignment between the German parent and the all-American step-child. If the German line-of-control did not work for the Auburn Hill automaker, how close could the Italian equivalent be? Frost & Sullivan's research reveals that about 55 per cent of executives state that mergers fail primarily due to internal challenges.This article outlines the Fiat-Chrysler deal, touching upon financials and key success factorsof this merger.

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