Skip to main content

The Globe and Mail

Why Marchionne should fold Fiat into Chrysler

ROB Insight is a premium commentary product offering rapid analysis of business and economic news, corporate strategy and policy, published throughout the business day. Visit the ROB Insight homepage for analysis available only to subscribers.

If Sergio Marchionne wanted to give President Obama a bit of a feel-good boost in his second term, it would be hard to find a better present than the IPO of a reborn Chrysler on the New York Stock Exchange. The Canadian boss of Fiat isn't one for political gestures, but the listing of a merged Chrysler and Fiat, an idea that was floated in yesterday's Wall Street Journal, would be the final triumphant proof that the President's decision to bail out Chrysler in 2009 with $7-billion (U.S.) of government money was the right thing to do.

Better still, it would make good business sense for struggling Fiat to become absorbed by a car maker operating in a rising market. Since Fiat took control of Chrysler following the bailout, the U.S. business has gone gangbusters, almost doubling unit sales while Europe has languished. Fiat is too dependent on European motorists. The recent political turmoil has ripped the heart out of the Italian car market, where national car sales fell by almost a fifth last year to a 30-year low of 1.4 million units, and some motor analysts are expecting another 20 per cent drop in Italy this year if the economy fails to recover.

Story continues below advertisement

Selling cheap family cars to Italians is no longer a profitable business model for Fiat which needs to find new markets outside of Europe and the obvious solution is for the Turin-based company to sell more of its posh brands, such as Maserati and Alfa Romeo, to the indulged offspring of Chinese mandarins. But while Fiat has yet to find a way into China, Chrysler's Jeep has doubled its Chinese sales where SUVs are the latest craze.

If it makes sense to fold Fiat into Chrysler, there is the problem of buying out the UAW pension fund which retains a minority stake in Chrysler. The cost would be significant but a relisted Chrysler with a U.S. share rating would have better access to the capital needed for a major restructuring of the group. At the same time, Mr. Marchionne would need to convince the Agnelli family, founders of the Fiat company, to accept the notion of being an even smaller minority shareholder in a U.S. company. In the past, the Italian establishment might have insisted on an Italian solution for Fiat or, at a pinch, a merger with another European industrial company.

But the cataclysm that has hit the Italian car market has changed the rules of the game. There is no room for a weak regional automotive company. Even the German motor titans are feeling the chill. Daimler gave warning this week that earnings would fall, complaining that its home market was beginning to suffer from a loss of consumer confidence due to the pervailing gloom emanating from southern Europe and the Cyprus bailout. German car sales plummeted in March, ending a lengthy period of growth with Volkswagen and BMW both suffering domestic sales setbacks. Mr. Marchionne's investment in Chrysler was a smart move. He must now be regretting how desperately smart it really was.

Carl Mortished is a contributor to ROB Insight, the business commentary service available to Globe Unlimited subscribers. Click here for more of his Insights.

Report an error
About the Author

Carl Mortished is a Canadian financial journalist and freelance consultant based in the U.K. With a career spanning investment banking, journalism and consulting for global companies, he was for many years a financial writer and columnist for The Times of London. More


The Globe invites you to share your views. Please stay on topic and be respectful to everyone. For more information on our commenting policies and how our community-based moderation works, please read our Community Guidelines and our Terms and Conditions.

We’ve made some technical updates to our commenting software. If you are experiencing any issues posting comments, simply log out and log back in.

Discussion loading… ✨

Combined Shape Created with Sketch.

Combined Shape Created with Sketch.

Thank you!

You are now subscribed to the newsletter at

You can unsubscribe from this newsletter or Globe promotions at any time by clicking the link at the bottom of the newsletter, or by emailing us at