What Fiat Could Do for Chrysler (and Vice Versa)

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Bartek Wrzesniowski / AFP / Getty

Employees work on a car-assembly line producing the Fiat Panda in a factory in Tychy, Poland

The reorganized Chrysler Group LLC postponed the annual press preview of new cars at its proving ground near Chelsea, Mich. — all part of the production stoppage while the company waited out bankruptcy proceedings. But even during that downtime, Chrysler's American engineers and designers were busily exchanging notes with their counterparts at Fiat, just as they have been doing for the past six months.

What will come of all this cross-fertilization? With the Supreme Court blessing of the deal that released Chrysler from bankruptcy, the discussions and note exchanges are quickly shifting into high-powered design collaboration that will soon reshape the beleaguered automaker's future product plans, including a big, new emphasis on smaller vehicles with spiffy little engines.

Think Chrysler Lite. "Fiat already has the lowest C02-emitting engines in Europe," says a Chrysler official privy to the product discussions, who asked not to be identified. "Their strength is our opportunity," he gushes. Chrysler is eager to get new vehicles on the road adapting subcompact and compact car architecture, he adds. "We might not sell a minicar in the U.S., but we could sell it somewhere else." But there's a big potential U.S. play too: "We also have to worry about the new [fuel-economy] standards," he says.

Fiat CEO Sergio Marchionne wants to use the Italian carmaker's technology to sharpen the focus of the Chrysler brands, insiders say. For example, Fiat's technology could allow Chrysler to build a reputation for high performance — not something it's known for today. The new technology could also augment Chrysler's traditional strength in four-wheel-drive, sport utility and truck segments, which are under pressure from rising fuel prices.

Perhaps most important, Fiat gives Chrysler access to up-to-date small engines, says Jim Hall of 2953 Analytics in Birmingham, Mich., which keeps tabs on technical developments in the automotive business. The technology package from Fiat might include an experimental two-cylinder engine of less than 1-liter displacement, which has more than enough horsepower to drive a small car, says Hall. The engine is about half the size of the smallest engines now sold in the U.S.

In return, Fiat gets access to Chrysler's new V6, which could open up new upper-tier segments in Europe. Fiat doesn't have a competitive V6 now.

Suppliers also hope that Fiat will transfer some of its well-honed diesel technology to Chrysler. Chrysler buys diesel engines for vehicles it sells in Europe, but it withdrew a diesel-powered Jeep Liberty from the U.S. market last year because the European-made engine didn't seem to meet the expectations of American consumers. Also, Chrysler needs a new diesel engine for export markets in Latin America and the Middle East.

The hope is that a Chrysler-Fiat alliance will make small, fuel-efficient diesel more acceptable to American consumers, according to a major European-based supplier of engine technology that works with Fiat. Fiat's new diesel, a generation ahead, is quieter and cleaner and burns low-sulfur fuel that would enable it to meet stringent new emissions regulations, he says.

Fiat also offers Chrysler very competent small cars that could put Chrysler fairly quickly in segments like the fast-growing subcompact market, where sales could grow by a third in the next four years, says Hall. Chrysler's smallest car is the compact Dodge Caliber, which has enjoyed limited success. In addition, the Fiat platforms are flexible enough to accommodate different body styles, from two doors to four doors to hatchbacks and small wagons, he says.

Finally, the alliance could bolster Chrysler's presence in the highly competitive midsize market. Fiat has an excellent midsize chassis/platform, which serves as the basis for the Alfa Romeo 159. "Chrysler could certainly use that," says Hall, since the struggling American automaker doesn't have the money to develop its own. Hall adds that the Chrysler-Fiat alliance is very likely to expedite Fiat's own plans to reintroduce the Alfa Romeo brand into the U.S. market. Fiat has been eager to bring Alfa Romeo, which now has nine models selling in more than three dozen countries, to the U.S. but has been stymied because it lacked a distribution network. "Now it has a distribution network," Hall notes. "It's called Chrysler."