Frost & Sullivan comments on Fiat demerger
Frost & Sullivan's Automotive & Transportation Group research analyst, Niranjan Thiyagarajan, comments: 'With the automotive market finally coming up for air after the worst of the recession, industry observers are closely watching how the automotive majors will consolidate their positions. With his five-year restructuring plan, Fiat CEO Sergio Marchionne clearly wants to hedge risks through a demerger of the company's Automotive and Industrial business unit. The goal is to focus on the automotive market and make Fiat purely an automaker. The plan though is not without complications, begging the question of what will happen to investor shares, for example. Fiat proposes current investors would get one new share of both companies for each of their existing shares. What the demerger will not do is affect Chrysler's ownership structure, of which Fiat currently owns 20%, a number that is expected to increase to 35% over the next two years.
'As an automotive-listed entity, Fiat has a better chance of finding new alliance opportunities with other players. Marchionne's plan to demerger is seen as a show of strength as the company has long relied on support from industrial business. What this demerger also implies is that as a stand-alone operation, Fiat Auto would have a more synergetic link-up with the Chrysler brand and help reach Marchionne's projected annual sales of 6 million units by 2014. Chrysler is a very important partner in Fiat's march towards domination of the global automotive market and billions can be saved through joint purchase, product development and manufacturing facilities. Chrysler plans to sell nine Fiat-based models by 2014, four of which will be hybrid or pure electric vehicles confirming an aggressive intent to capitalise on Fiat's prowess in small cars. With the North American EV market expected to grow at close to 96 per cent by 2015, the Chrysler and Fiat Group stands to gain from being at the right place at the right time, albeit with competition!'