PEOPLE AND ORGANIZATION

People and Organization



People and Organization

Component A- Chrysler-Fiat case study

Introduction to Case

The merger between Fiat and Chrysler seemed to be an attractive move in the industry where both the automakers could benefit significantly, resulting in collective synergies. Fiat forecasted an emergence as the world's sixth largest automotive group after merging with the Italian automaker Chrysler Group LLC (shortly, Chrysler). The company believed that this strategic alliance would increase its consolidated production to about six million automobiles by the year 2014, resulting in an increase of €100 billion in its revenue. A decade from now, if one were to analyze this deal in retrospect, the Fiat-Chrysler alliance would still be one of the most important milestone in the history of the automotive industry. Under this deal, Fiat would own about 80% of Chrysler in the upcoming future (Volpato, 2009: 49).

This deal happened back in 2009 when Fiat acquired Chrysler's ownership after Daimler AG's exit from the DaimlerChrysler Motors Company LLC. Together, the consolidated production resulting from the merger could mean a lot of business for the consolidated company who aims to achieve a status for being the sixth largest automobile under this deal. Fiat has received the initial 20% stake and management control of Chrysler in 2009 after the bankruptcy of the American company (Kisiel, 2009: 105). This paper analyzes the loopholes of the deal and imagines a situation where the faults could have been avoided to make this deal more successful.

Identification of the Problem and Steps to Avoid Merger Failures

Fiat acquired a 20% stake in Chrysler as early as 2009, when the American company announced a technical bankruptcy. In early 2011, Fiat increased its stake to 25% and on 12th April, bought another 5%. The company bought another 16% stake for $ 1.26 billion purchase of the last two packages in accordance with the agreements, after the sales of Chrysler outside North America rose to $ 1.5 billion. Another condition of the deal was the agreement, under which the Italian company gets the right to sell Chrysler models in Brazil and the EU under the brand Fiat. With the help of an American company, Fiat failed to repay loans of more than $ 7.5 billion to U.S. and Canadian authorities (Gesteland, 2002: 231).

Despite having the conviction that it would be a success, there are certain factors that still plague the deal of mergers, creating problems for the two companies that are involved. In the face of economic crises, the companies still are skeptical about the potential benefits that may have led Chrysler to produce a small car in order to survive in the market, as well as acquiring federal aid from the U.S in return for its negotiations with Fiat. Another major reason behind the problem is the financial stresses faced by Chrysler under which the company needs a large amount of money to exceed a target of four million cars per year. Even though the potential production in the deal would be five million cars, ...