Fiat and Chrysler are continuing to strengthen cross-company ties to take advantage of the cost-saving synergies that the partnership has created. Although a United Auto Workers (UAW) healthcare trust is threatening to derail Fiat’s plan to hold a 100% share in the US OEM, the two carmakers are continuing to incorporate technologies taken from each company into their respective product ranges that will result in the two being inextricably linked for the foreseeable future, whether or not Fiat is able to take complete control of Chrysler.
The first cross-company collaboration between Fiat and Chrysler was based around a programme of basic cross-brand model sharing. The result of this is that most Lancia models now offered in Europe are based on vehicles manufactured by Chrysler. But beyond this ‘filling out’ of model ranges, the two OEMs have advanced to developing and sharing new vehicle platforms and powertrain technologies for the production of all-new models. This is the case with the Dodge Dart which, launched in 2012, uses a modified version of the platform underpinning the Alfa Romeo Giulietta and also features Fiat’s MultiAir fuel injection technology. A future example of this could see the rear-wheel drive platform now used in production of the Maserati Quattroporte and Ghibli saloons being modified for use across production of Alfa Romeo and Chrysler vehicles in Europe and North America.
In addition to these and other instances of technology sharing, company integration is also progressing on a deeper level. Although the two OEMs still remain separate legal entities, it is claimed that they will be sharing two-thirds of all component and raw material suppliers by the end of 2014. As part of this, both are already taking advantage of the cost savings available through the combined bulk purchase of raw materials, such as steel, where increased total volume in a single buy results in a more favourable delivered cost-per-tonne.
Chrysler is also benefitting from access to technology suppliers within the group. When the US carmaker needed to update its Toledo Supplier Park facility, which produces the Jeep Wrangler and Wrangler Unlimited, the manufacturing equipment supplier was Comau, a Fiat group company. While this keeps the investment spend within the group (with all the related benefits), it means that other areas of production, including underlying software and basic overall processes, are also being shared across Fiat and Chrysler, further binding the two OEMs.
Chrysler has been recently valued at USD10 billion, which translates to the 41.5% portion of company shares owned by the UAW voluntary employees beneficiary association (VEBA) healthcare trust being worth about USD4.15 billion. The trust, which provides healthcare and other benefits to about 800,000 former Chrysler employees, is estimated to have an outstanding future payment shortfall of USD3 billion and so will be intent on fulfilling that obligation and building further cash reserves with the sale. The downside to this is that an over-valued IPO could reduce the number of potential investors, while driving down the stock value and making Chrysler less investable, so a balance must be struck in terms of final value.
Fiat Chrysler CEO Sergio Marchionne would likely prefer to own 100% of Chrysler, but whether this will be possible without the VEBA issuing an IPO will be determined over 2014. Marchionne has already alluded to the idea that it’s not necessary for Fiat to own all of Chrysler for the partnership to be a success and it appears he is being good to his word, as even with only the current 58.5% holding in place, the two OEMs continue to close ranks and move closer in all areas of business.
