Fiat’s 3.2 billion euro deal to gain full control of Chrysler sent its shares shooting up 16.4 percent to hit their best price in two and a half years.
That despite industry analysts saying they doubt Fiat can cut its losses in Europe with this move.
Chief Executive Sergio Marchionne’s dream has been to merge the two into the world’s seventh-largest carmaker, hoping Chrysler’s growing sales last year can compensate for Fiat’s slumping ones, and he can use Chrysler’s profits to rejuvenate Fiat’s product line-up:
Cesare Pozzi, Professor of Business Economics, LUISS University, Rome said: “This could be an opportunity. With this kind of merger there are not going to be too many people cast aside, as both of these companies were in profound difficulty. The sector is undergoing major restructuring. There’s the chance of a new alliance involving Italy and the US, if you look at it from a wider perspective.”
But where that Italian business economics professor sees opportunities, a German market analyst focuses on the problems of putting together two troubled companies.
Oliver Roth, Sales Director, Close Brothers Seydler Bank said: “Zero plus zero doesn’t add up to very much. Fiat has massive problems and is trying to get out of that by a full takeover of Chrysler. Chrysler has good sales figures in the booming US auto market, but that alone won’t help Fiat. They will have to come up with new products – new cars – and they haven’t done that for 2014 and they’re are only planning it for 2015. But the (European) car crisis remains and it remains to be seen if Fiat has really done something big here.”
In addition the company is taking on more debt to fund the deal.
Fiat has promised to break even in Europe by 2016, whether it can do that depends on its ability to share technology, cash and dealer networks with Chrysler easily and cheaply.