Fiat Pins U.S. Re-Entry on Chrysler Partnership

But Stake in Troubled Automaker Might Not Be Best Fit for Its Image

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DETROIT ( -- When Fiat left the U.S. two-and-a-half decades ago, it didn't have the best reputation for quality. John Bulcroft, president of consultant Advisory Group, recalls people derisively saying the letters in its name stood for "Fix it again, Tony."

Fiat CEO Sergio Marchionne
Fiat CEO Sergio Marchionne
Today, of course, the company is well-respected outside the U.S. and is known for attracting buyers who are trendy, fashion-conscious and affluent. So it's a bit of a head-scratcher that the partner it chose to aid its return to the States is Chrysler.

In one of the odder couplings out there, Fiat announced it's taking a 35% stake in Chrysler with an option to increase it to 55% at a later date. The pact would give Fiat the distribution it sorely wants. CEO Sergio Marchionne said at a public forum in Venice last May that he was looking for a partner to return the brand to the U.S., possibly with the popular Fiat 500 subcompact. But the question is whether access to showrooms and factories will be worth the tradeoff if Fiat allies with a marketer with a quality reputation in this country that's not a whole lot better than the one Fiat left behind.

"Americans' perception of the brand and its legacy is of not having the greatest reputation for quality" at a time when quality and durability has become more important to buyers, said Steve Miller, CEO of Aegis Group's auto consultant Synovate Motoresearch.

(Chrysler refutes that; Chairman-CEO Bob Nardelli said at a recent roundtable with the press in Detroit that the automaker had the lowest number of U.S. recalls in 2008 and noted that the company's vehicle quality and reliability are getting better.)

Hipness problem
Another potential problem: Fiat-branded cars in the U.S. will attract the same sort of fashionable buyers that go after Mini USA, said Wes Brown, VP of Iceology, a group that seemingly clashes with Chrysler's more traditional-looking dealerships and salespeople.

Even so, there's no denying there is logic to a deal. Mr. Miller estimates that Fiat would have had to spend between half-a-billion dollars and $1 billion to set up its own U.S. dealer network, noting "this is a stealth way into the market." As for Chrysler, "the deal keeps [it] out of bankruptcy," said Mr. Bulcroft. "This alliance means Chrysler survives to fight another day."

In fact, many auto pundits give a thumbs up to the marriage -- with some caveats. Iceology's Mr. Brown said he'll be watching how the two corporate cultures work together, since many automotive marriages don't last.

The good news for Fiat, said Mr. Bulcroft, is that Americans under the age of 30 don't recall the automaker's rep here decades ago. Fiat has become "somewhat of the comeback kid" in Europe since Mr. Marchionne arrived in 2004, noted Jim Park, chairman of Global Auto Systems, who also cited a positive in that Fiat has few geographic or product overlaps with Chrysler.

But don't expect Fiats on Chrysler lots anytime soon. Chrysler needs another $3 billion from the U.S. government, and lawmakers want some assurance it won't be helping to fund a company that will end up owned by an Italian automaker.

In the meantime, Chrysler's working hard to move the metal: It's offering 0% financing simultaneously with employee discounts for a new incentive program, dubbed "Employee Pricing Plus Plus." Buyers of all Chrysler, Jeep or Dodge models (except the Dodge Sprinter) pay what employees pay, plus get a combo of zero-percent financing for 48 months that can lower the cost of a 2008 vehicle by as much as $6,000.

Partnership won't affect marketing

The Chrysler/Fiat U.S. alliance isn't likely to encompass marketing, which may be a relief to the marketers' agencies. The automakers have big chunks of their business with different holding companies -- Chrysler with Omnicom Group and Fiat with Publicis Groupe and WPP Group.

Chrysler's lead U.S. creative agency is BBDO, Troy, Mich., and New York, and media is handled by Omnicom sibling PHD. The automaker slashed U.S. measured media spending in the first three quarters of 2008 to $579 million from $866 million the same period a year ago, according to TNS Media Intelligence.

Publicis' Leo Burnett is Fiat's main above-the-line agency, and its sibling Arc also does a lot of work in Europe. Fiat uses independent Armando Testa in Italy and a slew of local agencies around the world. At the beginning of the year, Fiat moved its entire $206 million media-buying business into WPP-owned agencies, mostly MEC and Maxus network. (WPP owns a 49% stake in the in-house Fiat Media Centre in Italy.)

When Fiat is ready to reintroduce its brand to Americans, look for the automaker to rely heavily on digital and experiential marketing, which have been making more waves in Europe for the marque than its traditional ads. AKQA, London, handles a lot of Fiat's digital work globally.

Both carmakers are without chief marketing officers. Fiat CMO Luca de Meo resigned earlier this month after seven years, and at press time there was no word of his successor. Chrysler announced last month that CMO Deborah Wahl Meyer was leaving effective immediately and the position was being eliminated.

-- Emma Hall and Jean Halliday
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