Report: Chrysler, Fiat merger may take a decade to 'fully bear fruits'

Alisa Priddle / The Detroit News

Chrysler Group LLC and partner Fiat SpA make vehicles with little in common, which will make harmonizing product, parts purchasing and production difficult, a Deutsche Bank analysis concludes.

And almost all automotive mergers and acquisition deals "took easily a decade to fully bear fruits," the research report released Monday said. "We doubt Chrysler/Fiat can be much quicker."

The report comes out as Chrysler prepares to host a six-hour briefing Wednesday on its five-year plan. About 300 people, including analysts, government and union officials, dealer representatives and media will gather in Auburn Hills for presentations by members of senior management, including Sergio Marchionne, who is chief executive of Chrysler and Fiat.

Deutsche Bank said the cost benefits of combined purchasing for the two automakers will not be easy to realize given how little geographic overlap there is.

But on a positive note, the geographic differences offer market potential, according to the three analysts who wrote the report. Chrysler historically has sold 90 percent of its vehicles in North America whereas Fiat is strong in Europe and has 25 percent market share in Brazil, the authors said. "Introducing some of Chrysler's products is obviously in the cards," the report said, singling out the potential of the Dodge Ram full-size pickup.

Where the analysts see savings for Fiat is in "avoided cost" by allowing the Italian automaker to stop some of its development efforts and replace them with Chrysler technology. Into this category fall versions of large rear-drive sedans (Chrysler 300) and sport utility vehicles (Jeep Grand Cherokee) for the Alfa Romeo brand.

Marchionne has turned around companies before, including Fiat.

"The task to turn around Chrysler is huge, potentially bigger than any other task faced by Mr. Marchionne before," the report said, citing market share that has shrunk to 8 percent, continued reliance on low-profit fleet sales, "a relatively empty product pipeline," about $18 billion in debt, most of it in government loans, and staff that has been "dramatically downsized in recent years, suggesting that a lot of talent has left the company."

Edmunds.com on Monday released figures that offer further insight into the difficulties Chrysler is having selling vehicles and retaining share.

Edmunds puts Chrysler share higher, at 9.1 percent, and said it takes a Chrysler dealer 124 days on average to sell a new vehicle, which is substantially more than the industry average of 87 days to make the sale. And eating into the profits is a 21.7 percent average discount on a Chrysler, Dodge or Jeep vehicle, or $4,584 per vehicle.

Comparatively, Ford Motor Co. and General Motors Co. have greater market share and faster turnover of sales with less-expensive incentives.

Part of the Chrysler disadvantage is that the only all-new product for the 2010 model year is the Ram heavy-duty pickup.

Deutsche Bank puts at zero the value of Chrysler to Fiat initially (noting Fiat paid no cash for its initial 20 percent stake), which Deutsche Bank said has no real downside other than the investment in time and energy if the joint venture fails.

There is one area where adding Chrysler could prove to be of value to shareholders, the Deutsche Bank report said. Pairing the two automakers forms a stronger automotive unit within the Fiat Group that could be spun off from the heavy truck and agricultural divisions.

"This would uncover the value potential of CNH (Fiat's agricultural unit), which we analyze to be the main asset," say the analysts.

apriddle@detnews.com (313) 222 - 2504