Fiat Group and Chrysler form new alliance

In January 2009, despite a major crisis in the automotive sector worldwide, the car manufacturers Fiat and Chrysler announced that they had signed a non-binding letter of intent for the creation of a commercial alliance. The Italian sectoral trade unions have therefore reacted with caution, insisting that any alliances should be based on an employment guarantee at existing plants. In another move, the government has announced a plan seeking to support the car industry.

Fiat Group’s previous international agreement

In January 2009, the Italian Fiat Group signed a preliminary agreement with the US car manufacturer Chrysler, expressing their intention to create a commercial alliance. The accord is the second such agreement since a deal was reached nine years ago with General Motors (IT0004151F). In 2000, while still headed by Gianni Agnelli, the Fiat Group entered into a joint venture with General Motors, ceding 20% of its capital to the Detroit company. However, the agreement, established at a time when the group was undergoing a severe crisis (IT0703059I), did not lead to the desired results. Five years later, in 2005, Fiat and General Motors ended their alliance by mutual consent, putting an end to a cooperation that had never effectively got off the ground.

Aims of alliance

The preliminary agreement signed in January 2009 by the management of the two car groups stipulates that Fiat may purchase up to 35% of Chrysler’s shares in exchange for its technologies. Initially, the Fiat headquarters in the Turin district of Lingotto in northern Italy will not pay cash to Chrysler but instead exchange technologies, facilities and vehicle platforms. The Turin group may purchase the equity stake by 2009, but has the option of purchasing a further 55% thereafter.

The alliance would help Chrysler to relaunch and catch up with General Motors and Ford in the production of low-emission small and medium-sized cars. In fact, Chrysler is facing a severe crisis, notably in its cash flow, and needs to switch to the production of cars with low environmental impact to access funds made available by the US government. One of Chrysler’s weaknesses has been its heavy reliance on pick-ups, sports utility vehicles (SUVs) and minivans, which make up about 70% of its sales. For Fiat, by contrast, the deal could open up the US market for its Alfa Romeo and Fiat 500 models.

In 2008, Chrysler sold two million cars, mainly in the American market. In the same year, Fiat sold 2.5 million cars in Europe and Italy. In comparison, large multinational companies like Toyota and General Motors sell about nine million cars each year.

The agreement comes at a difficult financial time for Fiat, despite having reported its best trading performance at the end of 2008, with revenue amounting to €59.4 billion – an increase of 1.5% compared with 2007. Indeed, the group has announced that it will not be paying dividends to its shareholders in 2009, with the exception of those on its savings shares, amounting to €25 million, as established by the company statute.

However, according to the Chief Executive Officer (CEO) of the Fiat Group, Sergio Marchionne, the alliance

will enable both companies to gain access to important automotive markets with innovative and environmentally friendly products, a field in which Fiat is a recognised world leader while benefiting from additional cost synergies. The deal follows a number of targeted alliances and partnerships signed by the Fiat Group with leading car and components manufacturers over the last five years aimed at supporting the growth and volume aspirations of the partners involved.

Reactions of social partners

The trade unions have reacted cautiously to the alliance. According to the National Secretary of the Federazione Impiegati Operai Metallurgici (Fiom-Cgil, Italian Federation of White-Collar and Blue-Collar Metalworkers), Gianni Rinaldini, the trade union has

for months been faced by headlined announcements made in the press, while all that is communicated to us are daily requests for recourse to the Wages Guarantee Fund. Requests which by now mean a maximum of one or two weeks of work in the company’s various plants, with the obvious harmful consequences on the incomes of the Group’s workers, and with the no less obvious impacts on the entire production chain of cars and other vehicles.

Mr Rinaldini argues that the situation highlights the need for talks between Fiat and the metalworkers’ trade unions. He insists that any decision on alliances or mergers must be based on a guarantee to maintain employment levels and develop of all the Fiat Group’s plants in Italy. Moreover, the Group is still waiting for a deal on a company-level supplementary agreement (IT0811019I).

Considering the Italian car sector’s almost total reliance on the Fiat Group, Fiom-Cgil also wants the government to take part in the talks, as is the situation in other European countries, so that financial incentives for the sector are tied to the continued operation of existing car manufacturing plants. On the other hand, the President of Italy’s largest employer organisation, the Confederazione Generale dell’Industria Italiana (Confindustria, Confederation of Italian Industry), Emma Marcegaglia, is calling on the government to invest in social measures to prevent conflicts from arising at the industrial plants.

The Italian government, which has been reluctant to join some of its European counterparts in offering aid to Europe’s struggling car manufacturers, stated that the deal was ‘good news’ and a sign of the industry’s vitality. As Italy’s Minister for Finance, Giulio Tremonti, outlined: ‘It shows the ability of some companies to help themselves while European governments discuss plans to help the industry.’

Government announces plan to support automotive sector

Meanwhile, under pressure from the social partners, the government announced in February 2009 a plan to support the automotive sector, as has been done in other EU countries. To assist the sector through the crisis, the Council of Ministers is planning a series of measures to renew the ‘circulating car fleet’ – an environmentally oriented initiative – and to support innovation. Following a meeting with the social partners, the Minister of Economic Development, Claudio Scajola, stated that the government’s commitment ‘will concentrate on both employment levels and production’. If adopted, the plan for the car industry will flank the so-called ‘anti-crisis’ measures already contained in Decree Law No. 185 approved at the beginning of the year (IT0812029I).

Cristina Tajani, Fondazione Seveso

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