Fiat to the Rescue?

Chrysler, heavily dependent on light trucks (jeeps, minivans, pickups), was whipsawed by the spike in gasoline prices in summer 2008. Then came the credit crunch; when its access to lease financing disappeared, it lost 20% of sales overnight. As cash drained, it attempted to work out a deal with its many creditors, and failed. Assuming the firm emerges from Chapter 11 – rather than collapsing into liquidation as dealers and other creditors play "chicken" in hopes of a bigger slice of a rapidly shrinking pie – what will it need to survive?
First, Chrysler has neither the cash – nor after a mass of white-collar buyouts, the people – to develop new cars. It strikes me as unlikely that it will receive an infusion of cash and the stability to rebuild its famous design and engineering capabilities. Fiat doesn't have the money. Nor does it have the people, because it has no expertise in large cars, SUVs and light trucks to supplement whatever remains of Chrysler's historically famous but leanly staffed product development organization. Chrysler thus faces a long 2 years, until new product arrives via Fiat.
It will then face the challenge of selling Fiats. The new product will consist almost entirely of small cars, because as a company firmly rooted in southern Europe and strong in Brazil and other developing markets, that is Fiat's core strength. But neither Chrysler, nor any other company operating in the US, has been able to make a go of that on a consistent basis.
On paper we have policies to encourage a domestic market for small, fuel-efficient vehicles: CAFE, or Corporate Average Fuel Efficiency requirements, in place since 1977. Under CAFE, in order to sell a large car, firms must sell small cars, or they will exceed the average "mpg" standards that legislation imposes. The problem Americans have not bought into that policy: they want power. Given separate, less stringent standards for trucks, the entire market shifted towards light trucks (which for CAFE includes jeeps and minivans, and not just pickups). Small cars remain a small slice of the market, but in 2012 Chrysler's jeeps and minivans and pickups will be dated; small cars will be the only "new" product they will have on offer.
Absent a polar shift in American politics, to enable a stiff gas tax, Chrysler will not survive to 2015.
Now in the longer haul they need to not just survive, they need to gain back at least a modicum of market share. To stay in the auto business will require the cash to continue funding new product develop. That is in itself not an insuperable barrier. But in the background firms also need to be able to fund supporting research and development so that they can bring a range of new technologies to market, particularly electric vehicles (whether they run off of batteries, small "hybrid" engines or fuel cells). At present Chrysler is wholly incapable of doing that by itself. Fiat is probably too small as well. A beefy combination of the two might be another story, particularly as a smaller company has greater leeway to buy technology from independent suppliers. (Larger companies want to withhold core technologies from larger rivals, but Fiat-Chrysler may be viewed as a way to leverage their own investment, rather than as a threat.)
That too appears unlikely. Over the past 15 years vast improvements in engineering tools -- computer design and simulation, specifically -- have enabled car companies to spin off vehicles from their core platforms more quickly and at lower cost than ever before. And the U.S. market is so large that it supports a plethora of firms -- 14 at last count. From how many varieties does a consumer need to choose a minivan? Or mid-size car? Or whatever type of vehicle? Hundreds of models are on offer. There is no reason to assume Chrysler cars will improve so markedly that they will be able to pull away from the field and secure more sales than the company does today. Or that they will make money: given the competition, profits were falling across the industry even as sales boomed. There's no reason to think they'll recover.
And no sales pitch from President Obama will change that.

Thanks to JJ and DR for the back-and-forth behind this.