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Fiat-Chrysler Deal Shakes Up Global Industry Hierarchy
Jun 10, 2009

Chrysler Group LLC is up and running and, combined with Fiat Auto Group, becomes the world’s sixth-largest auto maker.

Fiat has closed its deal to acquire 20% of bankrupt Chrysler LLC, saying the new auto maker “will begin operations immediately.”
“Only size managed well will be effective,” CEO Sergio Marchionne says.

The development follows a U.S. Supreme Court move late Tuesday to lift a stay preventing the transaction. The decision scuttled objections that threatened Fiat’s proposed acquisition of bankrupt Chrysler’s primary assets.

The auto maker now exits Chapter 11 protection less than seven weeks after filing, belying industry observers and legal experts who predicted a protracted, rancorous proceeding. “This is a very significant day, not only for Chrysler and its dedicated employees, who have persevered through a great deal of uncertainty during the past year, but for the global automotive industry as a whole,” Fiat CEO Sergio Marchionne says in a statement.

Marchionne today becomes CEO of Chrysler Group, replacing Robert Nardelli, who describes his 20-month tenure as the toughest challenge of his 38-year business career.

“The global economic downturn and the credit crisis have severely tested Chrysler’s ability to survive,” Nardelli says in a farewell letter to employees. However, based on the sacrifices he witnessed from stakeholders ranging from the United Auto Workers union to suppliers to dealers, “no one should ever doubt the tenacity of the Chrysler spirit and its rich legacy,” Nardelli adds.

He joins Cerberus Capital Management LP, which relinquishes ownership of Chrysler after acquiring the auto maker from the former DaimlerChrysler AG in 2007.

Jim Press, who was vice chairman and president of Chrysler LLC, becomes deputy CEO. However, following Nardelli out the door are product-development guru Frank Klegon, sales and service chief Steve Landry and Chief Financial Officer Ron Kolka.

Klegon and Landry have elected retirement, the auto maker says. Landry and Kolka will remain on the job temporarily to shepherd Chrysler LLC’s transition to Chrysler Group.

Klegon, Landry and Kolka are being replaced, respectively, by Scott Kunselman, Peter Fong and Richard Palmer. Palmer is one of three executives Marchionne brings with him from the Fiat organization. The others are:

* Pietro Gorlier, a former Case New Holland executive who also assumes part of Landry’s responsibilities as president and CEO of Mopar Services and Parts and Customer Services. (Fiat-owned Case New Holland is a major manufacturer of farm equipment.)

* Gualberto Ranieri, another CNH executive who becomes senior vice president-communications for Chrysler Group.

Jim Press stays as deputy CEO.

Reversing a consolidated management approach that evolved under Nardelli’s leadership, three executives are each given “full profit and loss responsibility” for his respective brand.

Fong, former director of Chrysler LLC’s mid-Atlantic business center, becomes president and CEO-Chrysler brand and “will be the lead executive for the sales organization with enterprise-wide responsibility.”

Former international sales chief Michael Manley is named president and CEO-Jeep, while Mike Accavitti, former Dodge marketing director, is named president and CEO-Dodge. Like Fong, each adds a second broader portfolio, with Manley charged with company-wide product planning and Accavitti assigned to oversee marketing.

Kunselman, whose fingerprints are on the award-winning redesigned-for-’09 Dodge Ram pickup, becomes senior vice president-product engineering. He moves up from vice president-truck product team and core leader.

Other key retentions include:

* Frank Ewasyshyn, executive vice president-manufacturing.
* Ralph Gilles, senior vice president-design.
* Doug Betts, senior vice president-quality.
* Scott Garberding, senior vice president-procurement.

The new company will be managed by a 9-member board consisting of three directors appointed by Fiat, four named by the U.S. government and one each by the Canadian government and the United Auto Workers union’s Retiree Medical Benefits Trust. The Board is expected to approve C. Robert Kidder as chairman.

“The process of determining additional board members is continuing,” the auto maker says.

In addition, Chrysler Group confirms a previously announced relationship with GMAC Financial Services, which will provide financing to consumers and dealers as the preferred lender.

The Fiat-Chrysler alliance eclipses Hyundai Motor Co. Ltd., which includes Kia Motors Corp., for sixth place among the world’s top auto makers, according to Ward’s data. The new entity ranks just behind fifth-place Honda Motor Co. Ltd., while Toyota Motor Corp. tops the list.

Separately, Chrysler and Fiat ranked ninth and 10th, respectively, just behind PSA Peugeot Citroen but ahead of Renault SA.

“While this scale is critical, events have proven only that size managed well will be effective,” Marchionne says in a memo to employees. “I ask each one of you to take on a leadership role and work with me to restore Chrysler to being a fully competitive and profitable company once again.

“Five years ago, I stepped into a very similar situation at Fiat,” he adds. “It was perceived by many as a failing, lethargic auto maker that produced low-quality cars and was stymied by endless bureaucracies. But most of the people capable of remaking Fiat had been there all the time. Through hard work and tough choices, we have remade Fiat into a profitable company that produces some of the most popular, reliable and environmentally friendly cars in the world.

“We can and will accomplish the same results here,” Marchionne promises. “The people who will lead that charge are for the most part already at Chrysler.”

The deal to create the alliance was threatened when a group of Indiana-based creditors challenged Chrysler’s restructuring initiative, claiming other creditors were unfairly compensated. But the Supreme Court dismissed the creditors’ arguments Tuesday, paving the way for the auto maker’s exit from Chapter 11 protection.

The restructuring, made possible through $6.6 billion in government-backed exit financing and engineered by the Obama Admin., gives a 55% stake in the new company to the United Auto Workers Retiree Medical Benefits Trust. The stake was awarded in exchange for major contract concessions by the UAW.

For their respective roles in the financing, the U.S. Treasury and Canada’s federal government receive stakes of 8% and 2%, respectively.

As of last week, plans called for Chrysler to resume production at four key plants June 29. Vehicle output was suspended when the auto maker filed for bankruptcy April 30.

Since then, Chrysler has been relying on its inventory to satisfy demand. Despite the auto maker’s tenuous market position, it recorded an uptick in retail volume for May.

However, a survey released today suggests car buyers are wary. “American consumers do not see Fiat as Chrysler's white knight,” says a statement by AutoPacific, a California-based auto industry consultancy.

AutoPacific says 47% of survey respondents believe Fiat-inspired products will not sell well. “Almost 43% believe that, bankruptcy or not, and Fiat control or not, Chrysler will fail in the next five years,” the consultancy says.

“In contrast, only 19% believe that Fiat cars will be a welcome sight in U.S. dealerships, and only 13% say that Fiat cars will save Chrysler.”

On tap for dealers, whose ranks were thinned Tuesday by 789 stores, are nine vehicles with Fiat lineage, according to long-term viability plan Chrysler filed with the U.S. Treasury Dept. in February. Four of these feature alternative powertrains – a key development given the Obama Admin.’s recent move to accelerate fuel-economy standards.

Neither Chrysler nor Fiat offer comment about their respective plans for the North American market but it is quietly acknowledged that the Fiat 500 minicar will be assembled at Chrysler’s plant in Toluca, Mexico.

According to an informed source, it also is likely the next-generation Chrysler Sebring midsize car will share a platform scheduled to debut next year in Europe as the underpinnings for the Alfa Romeo Milano.

Article Link:Fiat-Chrysler Deal Shakes Up Global Industry Hierarchy
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