Your next Chrysler will be a Fiat

Fiat never managed to sell many cars in the U.S. when it was competing with The Big Three and the Japanese makers, and in 1981 it pulled out of the American market altogether. That makes Chrysler's decision to use Fiat models to pull itself out of one of the worst sales slumps in its history all the more puzzling. Chrysler's sales have been down more than other car companies operating in the domestic market. In many months, Chrysler sales have been off over 40 percent this year compared to 2008.

An exclusive report in The Wall Street Journal says that Fiat chief Sergio Marchionne, who is also CEO of Chrysler, will begin to import Fiat models, modified for the U.S. market, in 2012. In the meantime, according to the paper, "Chrysler is preparing to phase out many current models, including a number of Dodge cars, the Dodge Grand Caravan minivan and several Jeeps."

Fiat owns 20 percent of Chrysler now, and based on certain triggers in its agreement with the American company, that could go as high as 35 percent. Fiat has put no money into Chrysler, but has agreed to manage the American company and provide it with technology.

The strategy is dangerous and the odds against it are great. Chrysler cannot wait until 2012 for new models. Its market share is eroding quickly and it does not have large sales overseas in places like China to help offset its drop in U.S. sales. It is possible that Chrysler's U.S. market share could fall below that of niche players like Hyundai before the first Fiat model hits American shores.

The other problem with Marchionne's plan is that there is absolutely no evidence that Americans will buy Fiat models. At least Jeep and Dodge are brands that have been built over decades and have some substantial residual value. The U.S. market may reject Fiat vehicles completely, leaving Chrysler nearly defenseless in its battle against larger rivals like GM and Nissan.

Chrysler will still maintain some of its current cars, and they will eventually be updated, but that is not enough of a brand base to pull the firm back to profitability.

Douglas A. McIntyre is an editor at 24/7 Wall St.

Read Full Story