Reporter Skeptical Chrysler-Fiat Deal Will Work The Obama administration announced Monday that Chrysler must strike a deal with Italian automaker Fiat — or another manufacturer — in the next 30 days or lose its government loans. David Kiley, senior correspondent in BusinessWeek's Detroit bureau, says he's "very skeptical" Chrysler and Fiat can actually make a deal work.
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Reporter Skeptical Chrysler-Fiat Deal Will Work

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Reporter Skeptical Chrysler-Fiat Deal Will Work

Reporter Skeptical Chrysler-Fiat Deal Will Work

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MICHELE NORRIS, host:

If the Chrysler-Fiat deal is struck within the next 30 days, what would that alliance look like and would it be enough to turn Chrysler's fortunes around. We're joined from Detroit by David Kiley who has been writing about this proposed partnership for Business Week, welcome to the program.

Mr. DAVID KILEY (Senior Correspondent, Business Week): Thank you very much.

NORRIS: If you read the Obama administration's report from the auto industry task force, it talks about the product mix and geographical reach of both of these companies being very complimentary. Let's talk first about the product mix. We heard Frank Langfitt there mention smaller fuel efficient cars - that's the promise of Fiat here, right?

Mr. KILEY: Yeah, I mean in Europe they built small cars that are much more fuel efficient than they're here, and that's certainly is Fiat's strength. And that is the direction that the U.S. market is going to, and that's where Chrysler needs to go if they're going to survive and meet these tougher federal fuel economy regulations that we've coming down on us.

NORRIS: And we here mention, in particular, of the Fiat 500 - a small car that's really popular in Europe.

Mr. RILEY: Yeah, it is, but let's not forget, it was designed for Europe and I'm very skeptical that Chrysler and Fiat can actually make this thing work, that they can execute it properly. It looks wonderful on paper, right, you have these two complimentary car companies. It sounds an awful lot like hmm, maybe the Daimler Chrysler idea back in 1998 where you had two companies that seemed to compliment each other and have all these synergies in it and it looked great on paper. But these things, as we learned, don't, don't get executed on paper, they get executed in the market place.

NORRIS: But what are the flaws there. What's the root of your skepticism?

Mr. RILEY: Well for one thing, Fiat has zero reputation for quality in the U.S., and by the way, neither does Chrysler. The Obama administration was quick to point out that consumer reports recommends exactly zero Chryslers. So I'm anticipating the consumers - let say the deal comes off and we're two or three years down the road - consumers are going to have to pass up Hondas, Toyotas, Ford, Chevy's, Nissans, on and on and on, to buy what amount to be the Fiats, Italian cars not built for North America in mind, wrapped up in a Chrysler blanket. That sounds like a kind of a flier to me, for the consumer to pass up all those other vehicles and buy into what amounts to kind of crazy pizza pie of a car.

NORRIS: What's about the financial help for Fiat itself? How strong does that company look right now?

Mr. RILEY: Well, its been a comeback story in Europe. Sergio Marchionne, the CEO, is doing a great job of putting Fiat back on its feet. But it's not like Fiat is the Toyota of Europe, they're more like the recovered Chrysler of Europe. And so their bad times are not so far in their rear view mirror that, If I were Sergio, I'm not sure I would be wanting to get into bed with the U.S. company that is perennially the sickest and most troublesome of the U.S. automakers.

NORRIS: You know the task force also talks about a hindrance to Chrysler being its small size, that it just doesn't have the scale to really be innovative with R&D, would an alliance with Fiat help out in that department?

Mr. RILEY: Well no question because Fiat operates extensively in Europe where Chrysler is very limited. They operate in South America. So they would - Chrysler would achieve some global reach and Fiat, which does not operate in North America would get their North American reach. This is after all, still, even with China coming on, the United States is the great proving ground of automotive companies with the consumer. So it's a very important market, but again this all looks great on paper and I've never seen one of these deals -with the possible exception of, Renault-Nissan, work out very well.

We've just seen Ford, for example, unwind all of its deals with Jaguar, Land Rover, Aston Martin - they're trying to unload Volvo. GM had terrible results with Saab. They also had these joint ventures with Suzuki, and Isuzu and yes, even Fiat years ago, and none of them worked out very well. The clash of cultures when you're dealing with a European company and a U.S. company, these are not small obstacles to overcome, and again, history shows they don't work out very well.

NORRIS: David Kiley, thanks so much.

Mr. KILEY: You're very welcome, thanks for asking me.

NORRIS: David Kiley is senior correspondent with Business Week.

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