I noticed a few reports floating around about a potential partnership deal between Euro auto manufacturer Fiat and the US auto manufacturer Chrysler. A discussion of the possible partnership is discussed in this article.
So who benefits from this deal? According to the article, and my own views, it looks likely that both companies would benefit. Fiat is likely to gain access to US markets and will hold an equity stake in Chrysler, while Chrysler will have access to a small car line-up with little capital invested.
Consider the top-down analysis approach (macro and industry). What is happening in the economy that potentially effects the auto-industry? If we think back to last summer, the media was somewhat fixated on the price of gasoline...
So are smaller cars likely to be in greater demand? If so, who is already in this market?
As a side note, the Treasury is loaning Chrysler $1.5B to support it's financing arm. In this article, the author notes that Chrysler "plans to offer zero-percent financing on several models and expand lending to car buyers with less than ideal credit" what does this tell you about Chrysler's customer acquisition policy? Is this consistent with the current economic climate?
SERIOUSLY!
ReplyDeleteI am suprised to learn that after the financial crisis in September last year, anyone would still offer "zero percent financing...expand lending to car buyers with less than ideal credit"...The only reason I can think of is that people who is responsible and with good credit are not risking their credit at our current economy at this time because fear of losing jobs, so that Chrysler has to sell it to anyone who wants to buy...with perfect or less than perfect credit...then again, since they are at the edge of bankrupcy, with underfunded employee benefit plans, Defined benefit pension plan (http://www.investopedia.com/articles/retirement/08/safe-db-plan.asp) ...can anything be worse?
So with the new $1.5 B loan or investment from the Treasury (including 700 million of troubled asset relief fund), Chrysler now has more money to finance more people...borrowing money to loan money to people who are less likely to pay them back...I am not too convinced that this would this "stimulate" our economy
As for small cars entering the US market, it may be a good move,considering minicoopers, volkswagen beetle's popularity, honda fit, toyota yaris...However, not having small car isn't Chrysler's problem. Chrysler's problems are quality of their cars, strong competition from foreign competitors, cost of their labors. They need some type of restructuring plan, or prayer.
-Carol Hsieh
Many people will agree that Chrysler's problems are not going to be fixed easily. Getting the bailout money from the government will help but it needs to make structural changes to its management to turn itself around. The quality and perception of quality by the general public is what will bring Chrysler around. Fiat joining up with Chrysler can definitely benefit both companies but they should not rush into deals together simply to do something new.
ReplyDeleteFiat's smaller cars can definitely be advantageous here but numerous dealers are already offering smaller cars with improved gas mileage. Chrysler's line up can use a boost so closely examining what the market wants/needs can benefit both companies.
There is also the dilemma of safety. Smaller cars need to be safe as well for consumers to want to invest in them. People want to save money but safety is also paramount; I would rather spend a little more and be safer in an accident then save some money but be in the hospital due to my smaller car not being safe. There are trade offs that Fiat and Chrysler need to recognize before making hasty decisions that could further hurt an ailing economy.
The credit situation is interesting. Numerous creditors now are shaky in lending money to anyone with less than excellent credit. Advertising that you are willing to offer 0% financing for people that have less than ideal credit can be problematic. Some of the problems we are facing today are because people with poor credit were given more credit than they deserved. Banks lost a lot of money due to unqualified buyers. The automobile industry should be careful not to sell cars today at tomorrow's expense.