The tables have turned. Previously bankrupt Chrysler is now helping out Fiat as sales drop due to the European debt crisis. Sergio Marchionne, the CEO of both Fiat and Chrysler, considers President Barack Obama’s decision in 2009 for Fiat to save Chrysler as a “once in a lifetime" moment in 2009. Fiat now comes to rely on Chrysler, which became majority owned by Fiat this year.
According to the analysts that Bloomberg surveyed, Chrysler is expected to outperform Fiat's operating profit by 87% in the second half and the gap is expected to continue in 2012.
Emanuele Vizzini, chief investment officer at Investitori Sgr in Milan, said that if Fiat didn’t have Chrysler, it would have been “very vulnerable” now since it doesn’t have plenty of industrial and financial options available to it. Marchionne's turnaround of Chrysler has made Fiat's troubles in Europe worse.
The U.S. unit is taking the majority of available development and management resources but Fiat is left with older models and a declining market share, making Fiat rely on Chrysler’s volatile earnings.
Last Oct. 7, Marchionne said that in the long-term, neither Fiat nor Chrysler would have made it on their own. He explained that Fiat doesn’t have much of a future as it is “too small and too handicapped by an inadequate business model in Europe.”
According to the average estimates of six analysts, Chrysler may have to post earnings before interest, taxes and one- time items, of 864 million euros ($1.18 billion) in the second half of 2011. On the other hand, Fiat's traditional operations, including profit from the Ferrari and Maserati brands amount to 462 million euros.