Chrysler / Fiat Deal Is Horrible for GM and Ford

Includes: F, GM
by: Vitaliy Katsenelson, CFA

Fiat’s and Chrysler’s new partnership is borderline good or, at a minimum, a non-event for Chrysler. It’s great for Fiat, but horrible for General Motors (NYSE:GM) and Ford (NYSE:F).

Chrysler gets access to Fiat’s technology and smaller cars. That’s good, but Fiat doesn’t appear to be willing to throw a lot of cash in Chrysler’s direction. What’s great for Fiat is that it gets overnight access to Chrysler’s distribution. Fiat will be able to sell and service its Fiat and Alfa Romeo brands nationwide. This is also a positive to Chrysler dealers ( at least for the ones that are still around by the time this deal is consummated).

But this is horrible news for GM and Ford. Horrible! Horrible! Horrible! The auto market in North America is already and will continue to shrink for a while as consumers drive an existing car for 6 or 7 years instead of 5. And that decision has gotten even easier in the last decade as overall car quality has improved. So now GM and Ford will need to split a shrinking market with a new competitor.