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As U.S. Automakers Struggle, Fiat Seizes Expansion Opportunities

May 4, 2009 at 6:20 PM EST
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With designs for global expansion, Italian automaker Fiat plans to acquire part of the restructured Chrysler company and is moving to take over GM's European unit. A Business Week reporter explains Fiat's plan.
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JUDY WOODRUFF: In America, Fiat has not exactly been a household name, especially when compared to Toyota, Honda, or any of Detroit’s former big three.

But as some automakers shrink, consolidate, or deal with bankruptcy, Fiat has global designs of its own. Last week, the Italian company announced plans to acquire up to 35 percent of a restructured Chrysler company.

And today, Fiat’s CEO, Sergio Marchionne, met with German officials about the possibility of taking over G.M.’s main European unit, Opel.

For a closer look at what Fiat is trying to do and the obstacles ahead, we’re joined by David Kiley. He’s a senior correspondent who covers the auto industry for BusinessWeek. And he joins us from Ann Arbor, Michigan.

David Kiley, thank you very much for joining us. Since Americans aren’t so familiar with Fiat, remind us, who is this company? What do they make?

DAVID KILEY, BusinessWeek: Well, they have been the ninth-largest auto company in the world. And unlike a lot of other car companies, which are pretty much in the car business and the financing business, Fiat is a bit of an odd duck.

They’re structured actually a little more like General Electric, believe it or not. They’re kind of the G.E. of Italy. They have hundreds of companies under their corporate umbrella, everything from ski resorts to agricultural equipment, and, of course, cars. And the cars represent about half of their revenues.

Fiat seeks to expand globally

David Kiley
BusinessWeek
There's a theory that goes that auto companies that don't have that global reach, that global scale will get eaten up by their larger competitors or be forced into sort of a bad competitive situation.

JUDY WOODRUFF: And so last week we learned they wanted to be in on the Chrysler deal, buying up to a third of Chrysler. Now they're looking at Opel. What are they trying to do?

DAVID KILEY: Well, it seems like they might be trying to bite off more than they can chew. It reminds me a little bit about what people say about the president these days, that he's got too many balls in the air. He's trying to reform Wall Street, and health care, and the auto industry all at once.

But what they're trying to do is kind of overnight achieve this global scale that they lack. Fiat only sells about 1.5 million vehicles.

If they -- with their deal with Chrysler, and now if they succeed in taking Opel from General Motors, that will put them at about 5.5 million vehicles a year. That will put them at fifth-largest auto company in the world.

And there's a theory that goes that auto companies that don't have that global reach, that global scale will get eaten up by their larger competitors or be forced into sort of a bad competitive situation. So Sergio Marchionne...

JUDY WOODRUFF: So is that -- I was going to say, is that his vision to get big because he has to get big?

DAVID KILEY: That's his idea. He has publicly stated that he believes that an auto company needs to be at least sort of 3.5 million units a year.

And I'll tell you what I find interesting, though, about his plan, and here's the risk. He's going after Chrysler and Opel in Europe. These are two fairly distressed outfits.

And there's a reason why, as these companies have been put up for sale, you don't see Toyota -- which is by most people's standards probably the best-run car company in the world -- you don't see Toyota bidding for this, you don't see Honda, you don't see BMW, which is another fabulously run company, because they've realized -- and BMW sort of found out the hard way back in the '90s, when it tried to acquire the English car company Rover -- that, when you acquire these companies, you not only acquire their troubled assets, but you acquire a whole different corporate culture that can really infect your own and create a lot of problems.

Toyota and Honda, these companies are growing organically from within, not by acquisition.

Americans skeptical about rescue

David Kiley
BusinessWeek
It has been decided by the White House that the auto industry is worth saving, it's worth saving the jobs, and it's worth saving kind of the symbolic importance globally to our economy of having a viable auto industry.

JUDY WOODRUFF: David Kiley, let's be very blunt about this. Why should American audiences care what a big Italian company is trying to do?

DAVID KILEY: Well, we know that about 60 percent, kind of give or take a few percentage points, of American people don't think the auto bailout was a good idea. That leaves the White House and about 45 percent of the rest of the country.

I'm one of those people that kind of believes that a viable auto industry is important for the American psyche, and so you've got Ford in pretty good shape. You've got Chrysler -- on paper, the plan, you know, can work with Fiat. And you have -- pretty soon we'll have a scaled-down General Motors, probably kind of operating lean and mean.

So a lot of people won't care. I mean, heavens, you've got Chrysler -- Consumer Reports right now doesn't recommend any Chrysler cars. I'm not sure that's going to change in the next two or three years just because the Italians have come in and tried to show the Americans how to build better cars.

But it has been decided by the White House that the auto industry is worth saving, it's worth saving the jobs, and it's worth saving kind of the symbolic importance globally to our economy of having a viable auto industry.

Concerns over Chrysler deal

David Kiley
BusinessWeek
Chrysler has no future without Fiat; that's the first thing.

JUDY WOODRUFF: So, just quickly, does it help the Chrysler survival prospects if Fiat is healthier, is able to expand buying Opel and whoever else they're interested in?

DAVID KILEY: That's a very good question, Judy. It's very difficult to answer. Chrysler has no future without Fiat; that's the first thing.

One of the concerns might be that they're biting off more than they can chew in this potential acquisition of Opel, and that is going to distract Sergio Marchionne from solving the problems in the U.S., as he's trying to solve those problems in Europe that are going to arise from acquiring Opel and trying to knit together Fiat and Opel in Europe.

It's a lot to take on for any company and any CEO. He's got a lot of hard times in front of him.

JUDY WOODRUFF: And, finally, we could know soon whether this is going to happen or not, this Opel purchase?

DAVID KILEY: I would be surprised if we didn't know, you know, before another week or two goes by. You'll either see a deal in principle or you'll see Marchionne make an announcement that he couldn't get the terms that he wanted and he's walking away.

And, frankly, I think that's going to be -- if he winds up not getting Opel, I think that's going to be one of those deals that he was better off not making.

JUDY WOODRUFF: David Kiley with BusinessWeek, thank you very much.

DAVID KILEY: You're welcome. Thanks for asking me.