40%: Buyouts with Benefits

 

Image

 

Don’t we all like a great deal?

Whether it is rummaging through a garage sale for unnecessary odds and ends or (if you’re like me) bee-lining to the back of the Reasors store to delve into a shopping cart of discount items, humanity is naturally drawn to a good deal.

If  you’re anything like Fiat, you are skilled in finding good deals. The only difference is Fiat isn’t solely out for frugality, the company is going for a genius corporate strategy.

That’s where our number of the day comes in: 40%. Early this year Fiat bought Chrysler for its 40% off the total value of Chrysler. It was estimated to have a value of $10.37 billion and was bought for $6.3 billion. Fiat had a smaller share of the company while the wannabe member of the American “Big Three”  auto market was going through a government bailout in 2009. (Note: This was the only bailout that earned US taxpayers a profit due to a five year early pay off of the loan).

I’ve kept an eye on the company since the recent merger to better comprehend its strategy and how it will play out. I deem this merger to be successful in the future not only in building the Fiat brand but also for Chrysler as a company. Two important strategy components to this buyout are the sharing activities and the leveraging of global markets.

With the struggling European car market (especially in Italy), Fiat’s factories have been underutilized and creating losses. Now with  Chrysler on board as part of the Fiat team, these underutilized factories have begun to build Jeeps on site. This added product line will help the manufacturing side of the Italian company gain ground and increase production. The sharing of the manufacturing sites has the potential to be a sustainable competitive advantage. Fiat has even stated that as as a company, it is  estimated to break even in the struggling market by 2016.

Not only will the companies share manufacturing activities but also distribution channels. Fiat will be able to expand its smaller luxury vehicles into the American market. With the alliance with the Tata brand recently, Fiat has gained a distribution channel into Indian. With the buyout of Chrysler, it may open more doors for up American automobiles to better penetrate the Indian market.

In my opinion(contrary to many opinions regarding the merger),  Fiat is not “bailing out” Chrysler or vice versa. The purchase of Chrysler by Fiat is beneficial to both entities. The corporate strategy to merge in this particular situation and at this time is smart. It helps both companies compensate for losses in separate struggling markets and expands the market to reach new global territories. All politics aside and bailout bitterness brushed off, both Fiat and Chrysler entered into a good deal and gained strategy that has the potential to be sustainable.

 

Image

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s