Chrysler's bailout and the subsequent takeover by Fiat were among the more contentious and controversial market interventions of the 2008-2009 period. With auto sales plummeting and a financial crisis boiling, Cerberus, the private equity firm that owned Chrysler, had run out of ideas. Unwilling to put more funds into the company, Cerberus was steering Chrysler into bankruptcy, and directly toward a liquidation in late 2008. "Nobody else wanted the company," Clark tells me in the accompanying video. "Its market value was zero."
Fiat was literally the only company willing to step up to the plate. And even though they occupied very different places in the world's auto market — Chrysler focused on the U.S., making big cars like Jeeps, while Fiat specialized in small cars with a strong base in Europe — the two companies in some ways made a good fit. Fiat had endured its own near-death experience. "Fiat almost went bust in 2002 and 2003," Clark said. It survived only because its banks were willing to bail it out. "The company's near-death experience gave it the game plan to step in and turn around Chrysler. They came in knowing that it could do at Chrysler what it did in Fiat in 2004."
Facing a choice of a deal or liquidation, the U.S. government helped broker a deal that provided new capital for the company, forced bondholders and employees to take significant haircuts, and shielded Fiat from some risk. The deal called for Fiat to put in a small amount of money upfront. But the automaker would receive larger stakes in Chrysler when it met benchmarks such as producing new fuel-efficient vehicle models in the U.S.
Sergio Marchionne, the CEO of Fiat, eagerly took on Chrysler as a challenge. He believed merging the two companies would give Fiat a foothold in the U.S., which remained a very large car market despite its recent troubles, and one in which Fiat had virtually no presence. He also believed Chrysler's Jeep could be a vehicle for breaking into Asian markets, another area in which Fiat was weak. His theory, according to Clark: "Take two players — Europe with small cars, and U.S. in big cars -- and you have a global automaker."
At first, Clark reports, Chrysler workers and executives in Detroit were skeptical of the latest group of saviors. In the previous decade, after all, Chrysler had been owned by a German car company and by a New York-based private equity firm. But Marchionne didn't simply import a cadre of Italian executives to run Chrysler. "He dipped into the company and picked up people who were second and third-tier management and gave them a chance," Clark said. Marchionne further won over Chrysler employees by working on the floor with staff, instead of hiding out in the executive tower.
In bankruptcy, Chrysler was able to eliminate a lot of its debt and shuck onerous labor commitments. Those were purely defensive moves. The real test of a turnaround would come in the ability to develop and roll out new products. As Clark notes, the company has had a fair amount of success. The Chrysler 200 was introduced with a splashy, controversial 2011 Super Bowl ad featuring the rapper Eminem and a sedan tooling around Detroit's grim streetscape. Marchionne, a huge fan of Apple's 1984 ad, personally approved the ad, which was the brainchild of Olivier Francais, Chrysler's French-born chief marketing officer.
Under Fiat, Chrysler has made significant progress. It paid back the last of its taxpayer loans in July 2011, six years ahead of schedule. (The taxpayer wound up taking a small loss on their "investment" in Chrysler.) The company's sales have come roaring back, along with the U.S. car market. In 2011, Chrysler sold 1.37 million cars, up 26 percent from 2010. December 2011 marked the "seventh-consecutive month of sales increases of at least 20 percent."
But the story doesn't necessarily have a fairy-tale ending. The rollout of the Fiat 500, the small car featuring an expensive advertising campaign with Jennifer Lopez, hasn't lived up to expectations. And Clark notes that the real test of the partnership will be Chrysler's ability to roll out a successful small car, like the revamped Dodge Dart, which is being introduced at this week's Detroit Auto Show. Clark notes that the Dart is the product of a combined Chrysler-Fiat development process, which shaved a year off the schedule and saved $300 million in costs. On Motoramic, Justin Hyde offers an advance video peek at the Dart.
Clark's chronicle of Fiat's occasionally bumpy ride is highly readable, authoritative, and entertaining. But for a full reckoning of Fiat's American adventure, we'll have to wait for a future edition.
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Daniel Gross is economics editor at Yahoo! Finance. Follow him on Twitter @grossdm; Email him at firstname.lastname@example.org