Fiat's ambitions could ruin it
Fiat has no share in the huge U.S. auto market. Even though light vehicle sales in the U.S. have fallen to about 10 million a year, America is still the largest car market in the world.
A recovery will probably push unit sales above 12 million, but the figure may never return to the 16 million car and light trucks that were sold in this country four years ago.
Fiat means to make up for its lack of a presence in the U.S. by perhaps doubling-up on its European operations. Light vehicle sales in the E.U. have fallen as badly as they have in America. To pick up additional revenue, Fiat is close to doing deals to take control of both Chrysler and GM (GM) in Europe. Fiat's management would immediately have to take on responsibility of a much larger company operating in an unprecedented recession in its business.
While it is not clear whether Fiat is committed to taking on the double task, it is a possibility. Even doing just one of the deals would put Fiat at risk as it tries to repair a troubled but huge large car operation. According toThe Wall Street Journal, "Italian car maker Fiat SpA is in talks to buy a stake in General Motors Corp.'s German-based unit Adam Opel GmbH, as part of a wide-ranging strategy to become one of the world's largest auto makers."
Fiat's actions are reminiscent of the ones taken by Daimler when it bought Chrysler in 1998. The deal never worked financially, and Daimler sold the U.S. company to Cerberus in 2007.
Being a larger car firm does not mean being a more profitable one. GM, which does business around the world, has learned that after losing money in its U.S., Latin American, and European operations last quarter. That, and the history of Daimler, should make Fiat think twice about its ambitions.
Douglas A. McIntyre is an editor at 24/7 Wall St.