Chrysler desperately needs strong alliance partners like Fiat to move towards more fuel efficient cars, analyses Karan Mehrishi of 4Ps B&M

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A part from auto parts, they were providing R&D support to Chrysler not very long ago. Now all that French auto parts supplier Faurecia is providing Chrysler is legal headaches to add to its financial ones. Faurecia claims that Chrysler had promised to pay R&D costs in addition to the parts costs for the Chrysler PT Cruiser and Sebring, Dodge Avenger and Nitro and Jeep Liberty; costs amounting to some $110 million. Fancy those misleading names by the way. Chrysler is neither ‘cruis’ing in the market, nor is it in a position to ‘avenge’ the competition, ‘dodge’ trouble or, for that matter, at ‘liberty’ to dictate terms with its suppliers!

It isn’t new for Chrysler to fall in trouble with alliances or mergers. Interestingly, it seems to be getting into another big one - with Italy-based Fiat Auto. Apparently, Chrysler is coxing Fiat to supply much needed small car technology; in return the Italian can have access to a 35% stake (through an unbinding agreement of course) in whatever it can salvage. All the best with that!

More seriously, though, Chrysler needs all the support it can get, even if it means going back the dreaded alliance route, else it may not even be able to survive an alliance with itself now. In this downturn hit economy, the big three are under state obligation to turn ‘consumer pocket friendly’ – a thought that they had banished from their cerebral cortex for almost fifty years. If not, the Detroit majors might not get the federal bailout package, that’s apparently helping their CEOs sleep well at night. However, out of the earmarked $12 billion, Chrysler is eligible for less than $4 billion with the rest going to bigger brother GM. In order to meet the incumbency, Chrysler now desperately wants to churn out small cars that will appeal to ‘poorer’ customers, who may have had enough of ‘big on engine-big on size-low on quality’ American cars. Fuel guzzling is not in fashion anymore and Fiat is the best fit at this time. The Turin-based manufacturer supposedly has the world’s foremost repertoire of small car making techniques and offers cutting edge designs. Fiat also holds the patent for the class leading CRDi diesel technology that’s taking the world by storm. Through a significant stake in Chrysler, Fiat on its part can have access to the larger American market and can market its lesser known brands like Lancia and Alfa Romeo to the affluent Americans. Also, there now appears to be a possibility where American customers will start looking beyond the fuel guzzling v8s and seriously consider the next generation diesels from Fiat’s stable. Convincingly, there now appears to be a great deal of synergies between the two partners and finally some rationale in the relationship will prevail.

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Source : IIPM Editorial, 2009

An Initiative of IIPM, Malay Chaudhuri and Arindam chaudhuri (Renowned Management Guru and Economist).

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Citigroup has once again resorted to restructuring – this time, however, by shedding off its decade-old strategy...

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Citigroup has once again resorted to restructuring – this time, however, by shedding off its decade-old strategy of becoming a financial supermarket and splitting into two. But will it be of any help? MANISH K. PANDEY analyses...

Some companies have it in them, some don’t. We are talking about the ability to rewrite history. That’s what Citigroup did some ten years ago when it decided to provide investment advice along with traditional banking. Unfortunately however, Citigroup is now going through the painful process of giving up that strategy in a not-so-historic way.

As cost cutting measures and pink slips are failing to provide the bank with much needed succour, CEO Vikram Pandit seems to be at his wits’ end looking for a saving grace. And interestingly, but not surprisingly, he has realigned Citigroup’s current dealings into two separate businesses – Citicorp and Citi Holdings. Raison d’être: to free up capital and save the group from the collapse – may be his last attempt to make Citigroup stand on its feet!

With Citicorp, Pandit now plans to focus on leveraging the competitive advantages of the group’s global banking business and through Citi Holdings – which will be made up of brokerage and retail asset management (including Smith Barney, Nikko Cordial Securities, Nikko Asset Management and Primerica Financial Services), local consumer finance (including CitiFinancial and CitiMortgage in the US, and consumer finance operations across the globe) and a special asset pool – he wants to keep an eye on group’s riskier assets and hard-to-manage ventures. “With lower risk and a streamlined set of businesses, we expect Citicorp to be a high-return and high-growth business. And with Citi Holdings, we will tighten our focus on risk management and credit quality for businesses with strong market positions but that are not central to our core franchise,” avers Pandit. In fact, Pandit has also agreed to give up control of the Smith Barney brokerage to Morgan Stanley and even plans to sell the CitiFinancial consumer-lending unit and Tokyo-based Nikko Asset Management, once the hive off process is complete.

Certainly by doing so he can now strive to further reduce operating costs and allow Citigroup to sell or spin off any of Citi Holdings assets to raise cash but then is it actually going to be profitable is the question that is doing the rounds in many minds. “There are certainly ‘good bank’ and ‘bad bank’ components in Citigroup’s balance sheet, and our assumption is that with a role for the government, Citi can find a profitable path. But without treasury involvement, the path will be more dicey,” Mike Englund, Chief Economist, US-based Action Economies tells 4Ps B&M. No doubt the new move is a sort of back to basics – to focus on the pure banking by shedding off the idea of creating a financial supermarket – but then it doesn’t change Citi’s business model at all. The move only separates the business on paper with Citi’s current problems lying intact.

For more articles, Click on IIPM Article.

Source : IIPM Editorial, 2009

An Initiative of IIPM, Malay Chaudhuri and Arindam chaudhuri (Renowned Management Guru and Economist).

For More IIPM Info, Visit below mentioned IIPM articles.
IIPM set to beat economic slowdown
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