Out of Control Policy Blog

Quality May Dog Fiat-Chrysler Partnership

The Obama Administration's preference for Chrysler to partner with Italian-automaker Fiat is an interesting one. Fiat has has low approval ratings from consumers, ranking near the bottom for European and U.S. carmakers. Notes a report from USA Today on April 3:

•Fiats and Fiat-owned Alfa Romeos sold in European countries are near the bottom in reliability and "need to improve significantly to move away from the foot of the table where they have languished for several years," according to U.K.-based Which?, an advice publication that accepts no ads, similar to Consumer Reports in the U.S. It says newer models are improved.

•A survey of U.K.-market models by J.D. Power and Associates and magazine What Car? put Fiat 28th of 28 brands in the 2008 Customer Satisfaction Index for 2-year-old vehicles. Quality and reliability count for 30%.

The reliablity surveys don't reflect recent improvements, and give a misleading impression of Fiat products, says Gualberto Ranieri, vice president at Fiat Group headquarters in Italy. "We take quality and customer care issues seriously, and industry audits show that our performance has dramatically improved over the past decade," he said in an e-mail.

Still, such ratings cast doubt on whether a Fiat partnership would boost Chrysler scores. The 2009 Consumer Reports April auto issue showed Chrysler's Jeep, Dodge and Chrysler among the industry's least-reliable brands the past 10 years.

"You're putting together two companies that historically have had issues with quality," notes Stephanie Brinley at consultant AutoPacific's Detroit office.

This raises another question. What is that Fiat can bring to the table that another car company (or private equity firm) could not? Why's isn't Ford, the only U.S.-headquartered automaker not asking for bailout, not in the mix?

According to the Chrysler fact sheet from the President's Auto Task Force released by the White House, Fiat could lead to "Chrysler manufacturing fuel-efficient vehicles using Fiat's technology while benefiting from the managerial expertise of the Fiat senior leadership that successfully led a turnaround in Fiat over the past five years." The original agreement was "unacceptable" (to the government) and "After consulting with the President's Auto Task Force, Chrysler and Fiat agreed to important changes in their original agreement that would provide greater protection for U.S. taxpayers and would help ensure that new, fuel efficient Chrysler cars and engines are built in the U.S." Lots of qualifications in that statement--"could," "help ensure," etc.

The Obama Administration is taking its commitment to industrial policy seriously. Indeed, the Administration states "it is laying out a new finate path for both companies [GM & Chrysler] to restructure and succeed."

Clearly, this will become a model for how the Administration will approach other industries it believes will be necessary to restructure in the future. Are electric utilities next? Telecommunications firms? The steel industry? The list of industries in need of restructuring is potentially endless, and there is not shortage of experts that believe they know the way.

Samuel Staley is Research Fellow


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