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Chrysler Board Meets Today, as Fiat Loses Millions

Chrysler's new owner is itself having trouble making money, as its head determines next North American steps.

by on Jul.27, 2009

Luca Cordero di Montezemol, Chairman Fiat SpA left, and Sergio Marchionne, CEO

The board of the newly formed Chrysler Group is starting from scratch, and must base its initial decisions based on covenants dictated by the U.S. and Canadian governments.

The new Chrysler Group board of directors is scheduled to meet for the first time today, working on an unspecified agenda. While boards traditionally set overall strategic direction, and approve management’s capital spending requirements from previously approved product development plans, the board of the newly formed Chrysler Group is starting from scratch, and must make its initial decisions based on loan covenants dictated by the U.S. and Canadian governments.

Complicating things, it’s not at all clear if the new board understands the products currently in production, let alone has any basis for making the billions of dollars in product decisions required to refresh the aging — and slow selling — lineups of the Chrysler, Dodge and Jeep brands. The new board appointments have experience in finance, corporate restructurings and modifying union contracts in the airline industry. Auto industry experience is, well, scarce, to put it politely.

The board also faces an immediate tactical issue regarding Chrysler’s extremely weak vehicle sales. The smallest of Detroit’s once so-called “Big Three” has been hardest hit by consumer concerns and the Great Recession, with U.S. June sales plunging 42%, the worst of all major manufacturers, but its new head has repeatedly stated that Chrysler needs to move away from the huge sales incentives that put it in — and keep it in — red-ink results.

Chrysler Group is now offering to double the U.S. government’s Cash-for-Clunkers subsidy, which translates for incentives of up to $9,000 on “eligible” Chrysler, Dodge and Jeep products, which include most. This “Double CA$H for Your Old Car” program is the first big incentive campaign since Chrysler emerged from Chapter 11 protection, in June.

No Board Meeting Needed!

No Board Meeting Needed!

The severe challenges the Chrysler Board faces come with Fiat’s own troubles as a backdrop. Both companies are headed by Sergio Marchionne as CEO, although Marchionne said he is spending less than half his time on Chrysler, as he spoke about Fiat’s losses on a conference call with analysts and reporters last week. If you’re looking for a precedent here, think of Carlos Ghosn, the head of both Nissan and Renault, whose alliance is loss-making, as are both the individual car companies he runs.

During the second quarter of 2009 Fiat posted a net loss of $254 million, compared with profits of $918 million a year ago, as the Milan-based conglomerate lost money in its industrial operations, which include Fiat, Alfa Romeo, and Lancia automobiles. Ferrari and Maserati are held in separate companies.


Fiat to Make Cars and Engines in China with GAC

The C-size Fiat Linea sedan enters production in 2011.

by on Jul.07, 2009


Under Chinese industrial policy offshore companies must have a local partner for access to what has become the world's largest vehicle market.

Fiat Group and Guangzhou Automobile Group Company Ltd. (GAC Group) signed a “Framework Agreement” yesterday to establish a 50/50 joint-venture for the production of cars and engines for the Chinese market.

The first model to be launched will be the C-size Fiat Linea sedan with 1.4-liter 120 horsepower and 150 horsepower engines.

Under Chinese industrial policy offshore companies must have a local partner for access to what has become the world’s largest vehicle market. GAC delivered more than 530,000 cars to customers in 2008 and had RMB 109.9 billion in revenues ($16 billion).

Fiat Linea

First car built will be the Fiat Linea sedan with a 1.4-liter, 120 or 150 horsepower, engine. Linea has two distinct Italian meanings: style and direction.

The plant will be located in Changsha, the capital of Hunan province, a major road and rail hub in the heart of south central China, approximately 600 kilometers north of Guangzhou.

The two cities are due to be connected within a couple of years by high-speed rail link, as China continues to spend almost two-thirds of its budget on infrastructure improvements.

In the U.S., about two-thirds of the Federal budget goes for payment on debt, $412 billion in interest alone during 2008, of which the Chinese hold significant amounts in the form of 24% of the Treasury bills outstanding.   

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No JV required!

The agreement was signed in Rome by Zhang Fangyou, Chairman of GAC Group, and Sergio Marchionne, CEO of Fiat Group, in the presence of the President of the People’s Republic of China, Hu Jintao, and the Prime Minister of Italy, Silvio Berlusconi.