Chrysler-Fiat Alliance Gets More Interesting With PSA Presence

Chrysler-Fiat Alliance Gets More Interesting With PSA Presence

By Bill Visnic

Still digesting the possibilities and likelihood of the proposed alliance between Chrysler LLC and Fiat S.p.A? Add French automaker PSA Peugeot-Citroen to the mix.

The potential for a triumvirate comprised of Chrysler, Fiat and PSA either makes the situation more intriguing -- or more preposterous.

Reports from Europe saying suddenly hookup-hungry Fiat is building a war chest to fund a potential takeover of or, more likely, a merger with PSA were denied on Thursday, the same day Fiat's ability to sling money into any deal came under pressure as it revealed in its own shattered financials, including its heavy cash burn and a deeply cut profit forecast for 2009.

PSA and Fiat Are Complimentary. More or Less

The prospect of a Fiat-PSA merger seem more plausible than the Fiat-Chrysler alliance strictly from an operational and product outlook.

Although many of their model lines overlap, PSA's Citroen has a product line that includes interesting and generally well-regarded cars in the larger C and D market segments in which Fiat essentially doesn't play, with the latest C4 C-segment car and the chic and upscale C5 maybe Citroen's most appealing current models. 

Much the same is true for Peugeot, although its presence in the larger segments is in a slightly different vein from Citroen, largely the effect of brand perception.

PSA also has numerous, mature alternative-powertrain development programs, with a long history in pure electric cars and is well along the development path for hybrids, diesel hybrids and other efficiency-enhancing technologies. PSA's wide-ranging "Blue Lion" initiative is focused on everything from pure electric cars (which PSA has been making since the mid '90s) to the high-efficiency HybridHDI diesel-hybrid system, which it plans to have in production next year. Fiat has nothing approximating this competency.

How the two companies complement each other in their manufacturing operations is a fluid question. Sharply downturning sales and demand in the European Union have riddled most manufacturers with excess capacity and high inventories -- but it is a relatively recent phenomenon, making somewhat problematic any broad assessments about capacity, other than to say that, like their counterparts in the U.S., both PSA and Fiat likely have too much capacity for the foreseeable future.

The Chrysler Wild Card

Setting aside the PSA aspect, the alliance Fiat and Chrysler propose still mystifies when it comes to potential tangible results.

For example, many continue to ask what Chrysler, fighting a daily battle for solvency, can hope to gain from a deal that brings not cash, but the promise of product synergies that will take months, and likely years, to consummate.

Moreover, with it openly reported that Fiat does not want to complete the deal unless Chrysler is awarded the next $3 billion in federal loans it expects to win if the company can present a viable restructuring blueprint, critics already are calling the scheme a potential foreign plundering of U.S. taxpayer money. And some U.S. lawmakers already have weighed in with dim opinions.

Now, with the added element of a possible Fiat-PSA tie-up, it increasingly appears as if the two European automakers could exploit Fiat's proposed alliance with Chrysler for the no-cost access to Chrysler distribution network that it effectively is. Peugeot ceased sales in the U.S. in 1991, and although was said to have toyed with the prospect of returning, the cost of establishing a sales and distribution network likely could not be justified. Ditto that for Fiat.

Now, it appears the two companies could, for no investment, place Fiat, Citroen and Peugeot cars in Chrysler showrooms and potentially shoulder out the vehicles of the fading Chrysler, nurturing only the still-attractive Jeep brand and possibly Chrysler's pickups.

If the Fiat-Chrysler alliance is completed, that scenario is likely. Chrysler is finding it increasingly difficult to move its metal, announcing this week titanic cash rebates of up to $6,000 on leftover 2008 models and hefty incentives on 2009 vehicles, as industrywide inventories continue to rise.

One other issue dampens any Fiat and PSA expansionist ambitions: With the U.S. sales crashing to a low not seen in two decades, it hardly is a fortuitous time to hitch one's growth hopes to this market -- even with a vast dealer body and distribution network acquired for free.

In the end, there are any number of factors that may squelch the Fiat-Chrysler alliance, leaving one more plausible outcome: weakened Fiat and never-all-that-strong PSA combine to attack their problems on the home front -- and wisely leave Chrysler and the U.S. alone.

PHOTOS:

1. Citroen C5 is a tautly designed luxury-sport sedan (courtesy PSA Peugeot Citroen).

2. Peugeot 207 GTi THP 175 a Ford Focus, Honda Civic competitor (courtesy PSA Peugeot Citroen).

Michelle Krebs:  is Editor-in-Chief of AutoObserver.com. Follow @AutoObserver on Twitter.