The Auto Writer

Europe's 2008 Car of the Year award went to the pictured Fiat 500. Fiat, which hasn't sold a car in the United States in 25 years, could gain entrance to the domestic market by forging a partnership with Chrysler. Whatever you think of this arrangement, I see the federal government backing a Fiat-Chrysler partnership as one way to save jobs at least for the short term.

Fiat & Chrysler — Let’s Get Hitched!

News reverberating throughout the automotive industry yesterday that Fiat and Chrysler are in talks to forge a partnership has received a mixture of responses. Some have applauded the move, others were skeptical, while still others mocked that possibility; the latter group suggesting that taking two troubled automakers and putting them together would never work.

Regardless of the opinions of others, Chrysler and Fiat are in a position where they need outside assistance, as that may be their only chance of surviving for the long haul. Unlike Ford and General Motors who can both tap their vast international resources to bring in fresh products stateside, Chrysler is 90% dependent on the domestic (USA and Canada) markets for its profits.

Fiat, while not currently in as precarious of a position as Chrysler, sees the writing on the wall and knows that it, too, must find ways to work with other car companies.

Not Enough Small Cars

A quick examination of the Chrysler product line shows the automaker top heavy in big trucks, sport/utility vehicles and larger cars, with very few models able to reach a minimum 30 mpg highway. Ford, GM and others have a number of models on their way which will top 40 mpg highway, a number that will likely become of great importance when gas prices rise as expected later this year.

Last month, Fiat CEO Sergio Marchionne opined that the global auto industry was going through a period of consolidation, one where just six car companies and/or partnerships would be left standing. He made it clear that Fiat would not be able to continue business as usual and was seeking alliances or partnerships to help see them through. Marchionne used an annual production benchmark of 5.5 million units as what would be needed to keep a car manufacturer viable.

Fiat, Ferrari, Lancia and Alfa Romeo

Fiat which is an acronym for Fabbrica Italiana Automobili Torino or Italian Automobile Factory of Turin, produces a wide variety of cars from the mass produced Fiat to specialty and sport models including the Ferrari, Lancia and Alfa Romeo. Fiat had said previously that they wanted to re-enter the US market, abandoned a quarter a century ago, to market Alfa Romeos and select Fiat models. By hooking up with Chrysler, those odds increase.

Chrysler’s near absence in the small car segment could present a wonderful opportunity for Fiat to fill that void with its own products. Some have speculated that Fiat would give Chrysler the rights to build their models based on Fiat platforms in exchange for opening up the Chrysler, Jeep and Dodge dealer network to sell Alfa Romeos and other products. Fiat might also take a financial stake in Chrysler, perhaps buying out Daimler AG’s 19.9% minority share.

Fiat could also gain use of under utilized Chrysler factory space to build its popular Fiat 500 subcompact, a vehicle they would be loathe to import given the unfavorable exchange rate between Europe and the United States. With a ready supply of workers available across the Chrysler factory network, the transition for Fiat could be a quick one, especially if the United Auto Workers understands that this will be the only way that worker jobs can be preserved.

Government Aid Would Pull This One Off

Likely, one big supporter of a Fiat-Chrysler liaison would be the federal government of the United States. Fresh off of lending Chrysler four billion dollars in December, the feds are getting ready to extend an additional three billion to Chrysler later this month.

One of the conditions of the loan money is that Chrysler must restructure and prove that they will have a viable operation going forward.  With an agreement in place with Fiat, Chrysler can “prove” to the government that they have a long term plan in place, one that could lead to additional federal support to see it through.

Federal Government Sanctioned Partnership?

In other words, a government sanctioned partnership with Fiat would quickly pave the way for the two automakers to hook up, a deal that could be finalized by the second quarter of 2009.

Do I see this partnership working? Yes, at least for the short term. Fiat would regain access to the US market while Chrysler would suddenly have in its possession the Fiat 500 and other small car platforms which would help the company become competitive again.

In addition, with Fiat’s strong presence in South America, Chrysler could find a market for some of its vehicles there, helping America’s most troubled automaker diversify its business internationally.

Finally, having access to Alfa Romeo models including the 8C Competizione would be a dream come true for Italian car enthusiasts, who have access to Ferrari but might be looking for other cars in the Fiat Group portfolio.