Quality Magazine

Chrysler to Partner with Fiat and File for Bankruptcy

May 1, 2009

SANTA MONICA, CA - Chrysler is filing for bankruptcy, and this is not all bad news for the company and for the economics of the automotive industry at large.

“The merge with Fiat is a critical milestone in the evolution of Chrysler, and holds much more promise than the merger with Daimler in the ‘90s,” says Edmunds.com CEO Jeremy Anwyl. “Chrysler has one last chance to create relevancy for its brand in order to convince consumers to overcome the risks and buy its vehicles.”

“If Chrysler is to have a post-bankruptcy future, building cleaner, more fuel-efficient vehicles that help us kick our oil dependency has got to be part of it, as it must for all automakers,” says John O’Dell, editor of Edmunds’ GreenCarAdvisor.com. “And, Chrysler’s tie-up with Fiat could bring a whole new batch of fun to drive, fuel-efficient and environmentally friendly cars to our shores.”

“It appears Chrysler will use bankruptcy to cut dealers and has the government's support to do so, apparently,” says Michelle Krebs, editor of Edmunds’ AutoObserver.com. “President Obama's automotive task force reportedly wants Chrysler to reduce its dealer ranks by more than half to put it more in line with its market share.”

As of the end of the first quarter this year, Chrysler had about 3,200 dealers and 11% market share. By comparison, Toyota had just under 1,500 dealers and 16% market share. Fewer dealers generate more sales-per-dealer and profits for each dealer. An automaker then can reduce its costs in terms of dealer-support infrastructure, financing and incentive pay. Fewer dealers also allow an automaker to better control its inventories.

For consumers, the government has promised to guarantee warranties for Chrysler. “No one can blame car buyers who shied away from brands that were mentioned in the same breath as the word ‘bankruptcy,’” says Edmunds.com Consumer Advice Editor Philip Reed. “Now that their warranties are being guaranteed, Chrysler and GM vehicles are good deals which are worth considering.”

Year to date, Chryslers have been sold for an average of 22.6% off sticker price while the industry average discount is 16%, according to Edmunds.com’s data.