Fiat arrives and Chrysler is quietly born again

This time, there were no acrobats and fireworks. This time, no ice cream on the front lawn of Chrysler headquarters in Auburn Hills, Mich. No video featuring best wishes from celebrities. This time — Chrysler's third takeover in 11 years — the mood was government green. There was no public display Wednesday to celebrate the birth of Chrysler Group, now run by Italy's Fiat Group and not in bankruptcy court.

"It's really not the time for celebration," says Brad Coulter, a turnaround expert at O'Keefe & Associates. "If anything, it's a sigh of relief. Hopefully this is finally the answer for Chrysler."

Chrysler's orphaned assets — the closed plants and other non-productive units — were left behind in bankruptcy court awaiting liquidation.

Newco and Oldco, Chrysler people and industry analysts call the two Chryslers.

The automaker thought it was Newco just 20 months ago when private equity firm Cerberus Capital Management took over, promising a new beginning for the troubled automaker. It was Cerberus that assembled the lavish celebration.

When Cerberus bought the company in August 2007, auto sales were strong, particularly for trucks and SUVs, Chrysler's forte. It already was losing money, but its market share still was 12.9%. That fell to 11%, however, last year and just 10.2% through May, according to Autodata.

Sergio Marchionne becomes Chrysler's new CEO while remaining CEO of Fiat Automobile and the Fiat Group that owns it. In an upbeat e-mail to employees Wednesday, he said the challenges facing Chrysler are similar to those he faced — and overcame — at Fiat after he took over the company five years ago.

Fiat "was perceived by many as a failing, lethargic automaker that produced low-quality cars and was stymied by endless bureaucracies," Marchionne said. "But most of the people capable of remaking Fiat had been there all the time."

Cerberus, now completely divested of Chrysler, spent $7 billion to buy the automaker, then refused to spend more to get it through the steep falloff in sales last fall. The private equity fund told the U.S. Treasury in December that it was "not a deposit-taking institution that can act as an ATM machine for its portfolio companies."

So, the U.S. government stepped in with $9 billion in emergency loans. It now owns 8% of the revamped company, and Canada, which also is helping, owns 2%. Fiat owns 20% and the United Auto Workers union's retiree health care trust owns 55%. The remaining 15% is being held in reserve by the U.S., to be doled out to Fiat if it meets certain performance goals.

Cerberus hired Bob Nardelli, former Home Depot CEO, less than two years ago to lead Chrysler. In his goodbye e-mail to employees Wednesday, Nardelli said: "What I have learned along the way is that Chrysler people have the resolute heart of a scrappy underdog. ... This is a company that has been knocked down many times, but never knocked out."

In past decades, Chrysler tried more than once to reinvent itself at times of financial distress, once even calling itself "the New Chrysler."

Eventually, Germany's Daimler took it over in 1998, under the guise of "a merger of equals." The honeymoon lasted just long enough for the two automakers to develop deep loathing of one another. Daimler sold 80.1% of its Chrysler stake to Cerberus, then wrote down the other 19.9% to $0 on its books and finally dumped that, too.

Marchionne moved fast to start his effort to make Chrysler a lean, hard car company. He changed the management structure Wednesday, naming a CEO for of each brand and operation — and making each CEO entirely responsible for that unit's profitability. No more losing money in one place and covering it with profits elsewhere. The new bosses mainly are Chrysler hands, but there are a few Fiat veterans.

"It certainly means that there will be a lot of pressure to perform and meet targets," says Rebecca Lindland, director of the auto group at consultant IHS Global Insight.

As Marchionne bluntly put it in an interview with trade magazine Automotive News last December: "The world of today will not give (automakers) a single inch of room. Time is up."

What didn't happen immediately Wednesday was restarting factories. All production was shut down April 30 with the bankruptcy filing.

"It could be a staggered restart," says Dianna Gutierrez, Chrysler manufacturing spokeswoman. "If we're running low on minivans or (Jeep) Wranglers, obviously those would come back up" soonest.

In fact, restarting might be difficult. Some suppliers, struggling in the industry's decline, might not have the cash to restart operations. "The next couple of months are going to be crucial for them holding their supply base intact," Coulter says. "The supply base is very, very fragile."

Other hurdles remain:

•Size. By Marchionne's own standards, Fiat/Chrysler is only two-thirds of a viable car company.

"An automotive group needs to produce 5.5 million to 6 million vehicles per year to achieve the critical mass necessary to have any chance of making an economic profit," he told bankers in Switzerland on March 24, according to a text from Fiat.

Chrysler and Fiat combined produced about 4.3 million in 2007, before the recessionary collapse.

Marchionne's strategy included acquiring General Motors' European and South American operations, but Canadian parts maker Magna seems to have the inside track.

•Products. Chrysler Group has to survive on its own models, mainly trucks, vans and large cars, for about two years, until Fiat-designed small cars arrive in Chrysler showrooms.

"It's going to be tough, there's no doubt," says Lindland. If surviving for two years "means making money, then not likely. If it means keeping losses to a tolerable level, then probably."