CMGT500 Week 4 Individual Application Assignment

Popular Press Example

The Merger between Chrysler and Fiat

This week in our reading, we learned  how and when it can make sense for two companies to join forces.  In Managing International Alliances: Conceptual Framework (Gomes-Casseres, 1993), the author laid out key issues for companies thinking about entering a joint venture.  This week, I'm going to review how some of those issues along with our other readings played out in the Fiat-Chrysler merger.

First some background.  2009 was a very dark time for U.S. automakers.  The Big 3 was hit hard by the recession and there was a lot of debate over whether it was time to let them fend for themselves.  Ford secured its own line of credit but GM and Chrysler were pushed into bailouts and bankruptcies. In this, Fiat CEO Sergio Marchionne saw an opportunity with Chrysler.  It was very unlikely that either company would survive on its own, "but together, the two automakers looked like a two-piece jigsaw puzzle with one piece in each of Marchionne's hands"(Vallequette, 2012).  Marchionne's "logic of collaboration" (Gomes-Casseres, 1993) was fairly straightforward.  Both Fiat and Chrysler needed each other, and since Fiat was known for small cars and Chrysler's reputation was in big cars and SUVs, there would be a synergy there for both companies to pursue.

You'll recall that this wasn't Chrysler's first marriage with another automaker.  It's alliance with Daimler failed in 2007 after "Daimler-Benz dominated Chrysler during their nine-year merger" (Vlasic, 2012).  We read that the right match is one where "partners have complementary needs and assets" (Gomes-Casseres, 1993).  Marchionne saw Chrysler for its ability as a mass purchaser of parts (Vlasic, 2012), and Chrysler needed a white knight, and it was Marchionne

What was the basis of trust for such a merger to work? Although none of the reporting cited by this paper indicated specifically, I would suspect a "semi-strong form trust" (Barney, Hansen 1994) was at play to bring these two automakers together.  Some governance would be required and also an understanding that Fiat would not exploit Chrysler's shaky financial standing. 

To make the merger work, Marchionne divided his time equally among the two companies and "promoted executives from both sides and assigned responsibilities that cut across geographic and corporate lines" (Vlasic, 2012).  By doing this, Marchionne saw the value blending the corporate cultures of both companies.  Kanter wrote about the need for managers to be "sensitive to political, cultural, organizational, and human issues" (Kanter, 2010).  In developing one company, Marchionne apparently had avoided the mistakes of Daimler by not running rough shod over Chrysler and its Detroit culture.  Kanter also warned that "underlings may not exhibit the same enthusiasm as the CEO" (Kanter, 2010) but it's clear this merger is having success, but it may be mixed.  First lets look at the first two products of this merge

First is is the roll-out of Chrysler's Dodge Dart - a compact car "derived from the chassis and technology of the Alpha Romeo" (Vlasic).

Second is the Maserati Kubang.  The SUV is "based on Chrysler's popular Jeep Grand Cherokee" (Vlasic).

What both cars do is get Fiat in the SUV market, and Chrysler into the fuel-efficient market. 

The merger has given new life to Chrysler, its  sales for September were up 12% over the same time last year, its best month since 2007 (Trudell, 2012).  But there are threats looming for Fiat-Chrysler.  The European debt crisis continues to rage.  Italy's unemployment rate is 10.7% and according to the Detroit Free press Fiat sales have declined 17% (Snavely, 2012).  As the merger presses ahead, Marchionne will have to decide whether corporate headquarters will be in Detroit, Turin, or somewhere neutral.  With its improved financial standing, perhaps it will be Chrysler that will pick up the slack from Fiat and push both these companies across the finish line as one trans-Atlantic automaker.

Resources:

Barney, J, & Hansen, M, (1994). Trustworthiness as a Source of Competitive Advantage. Strategic    Management Journal, 15, 175-190.

Gomes-Casseres, B, (1993). Managing International Alliances: Conceptual Framework. Harvard Business School, 1-20.

Kanter, R,  (2010). Collaborative Advantage: The Art of Alliances. Harvard Business Review, 1-16.

Snavely, B (2012, October 4). Chrysler under pressure to offset Fiat losses as bikes outsell new cars in Italy. Detroit Free Press. Retrieved 10/4/12 from http://www.freep.com/article/20121004/BUSINESS01/310040145/Chrysler-under-pressure-to-offset-Fiat-losses-as-bikes-outsell-new-cars-in-Italy
Trudell, C (2012, October2). Chrysler sales gain 12% as Marchionne sees best pace in 4 years. The San Francisco Chronicle. Retrieved 10/6/12 from http://www.sfgate.com/business/bloomberg/article/Chrysler-Sales-Gain-12-as-Marchionne-Sees-Best-3912271.php

Vlasic, B (2012, January 10). A merger once scoffed at bears fruit in Detroit. The New York Times.      Retrieved 10/4/12 from http://www.nytimes.com/2012/01/10/business/chrysler-and-fiat-merger-shows-fruits-of-teamwork.html?_r=0

Vellequette, L (2012, May 14). How a merger made a Dart: First test of snergy shows Chrysler, Fiat can listen, Collaborate.  Retrieved electronically from ProQuest Database.