Fiat-Chrysler merger to lead to birth of new auto giant, says Frost & Sullivan

Article published: 03 Aug 2011 15:56

A week after Fiat gained majority control over Chrysler, the merger of the two companies is the subject of a new analysis by Frost & Sullivan, which says that the merger will help create a new car giant.

 

Last month saw Fiat increase its stake in Chrysler to 53.5%, having bought out the stake from the US and Canadian governments. Fiat aims to further increase its stake in Chrysler to 58.5% by the end of the year and also has the option of buying 40% of Chrysler’s shares from VEBA between Q3 2012 and Q2 2016, in line with certain conditions. The group intends owning 70% of Chrysler in the near future.

According to Frost & Sullivan, the merger will prove to be an investment for Fiat, with Chrysler’s contribution to Fiat’s revenues expected to be a larger proportion than earned by Fiat’s own marques, although it highlighted that the group intends to produce more of Fiat cars than Chrysler cars in the years ahead. While the Fiat and Chrysler labels had an approximate 60:40 split ratio last year, the trend ahead suggests a 66:33 split, by the year 2018.

The merger will also see the brands synthesise their expertise, in particular with Chrysler helping Fiat to launch diesel vehicles in North America. The report adds that ‘Chrysler’s high-margin low-volume business could help offset any underperformance by Fiat in its home market.’ Increased platform sharing will also help increase economies of scale, helping to reduce new car pricing.

 

In terms of production, Frost & Sullivan says that the Fiat-Chrysler group is expected to increase 2010 production volumes 61% by 2018 globally, based on forecasts. Production will focus more on Asia and the Middle-East, with Frost & Sullivan saying: ‘Production volumes from the Americas is expect to drop over the next seven years, while production volumes from Asia is expected to have a remarkable increase from 2% in 2010, to 9% of overall volumes in 2018. The group’s Chinese production volume is expected to witness a twelve-fold increase by 2018. Taken together with projected volumes in Iran and India, more than 11% of the total Fiat-Chrysler vehicles produced globally are expected to be from the group’s Asian operations.’

Looking ahead, the Frost & Sullivan report says that the merger will form part of increased consolidation in the industry.

Prana Natarajan, senior research analyst, concluded: ‘Fiat-Chrysler’s conquest in the triads seems to be in the direction, in becoming one of the top global OEM groups, to say the least. Going forward, synergy could be the only goal and leveraged buyouts in the automotive scene could result in a few OEM groups controlling the majority of the market in the decades ahead. Fiat’s acquisition of one of the Detroit-Three reiterates the thought that, at the end of this decade, a vast portion of the world’s automobiles could emanate from a few drawing boards.’

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