Why Fiat Could Still be an Albatross Around Chrysler's Neck

Last Updated Feb 22, 2011 8:32 PM EST

No car company on earth has a better head of steam right now than Chrysler. The Eminem Superbowl commercial both created a new post-bankruptcy brand and set the company up as the soul of Detroit. But Chrysler still has a problem, and that problem is called Fiat (FIATY).

Not a minor problem, as Fiat is now running the Chrysler show. This will not be management from a distance, either, because CEO Sergio Marchionne wants to use his stake in the Pentastar to bring Fiat and Alfa Romeo back to the U.S.

Fix it again, Tony... again?
Fiat and Alfa both had... well, to call them reliability issues understates the scope of how balky the cars were. I once heard an apocryphal story about a couple in the 1980s who visited a Fiat dealership for a test drive. The car they wanted to check out was being driven by somebody else. So they waited for its return. And they could tell it was coming because on its way back, it caught fire.

Of course, it's not as if Fiat is going to flood Chrysler dealerships with cars whose wheels that fall off and engines explode (although its cars have not been ranked highly back home). Initially, it wants to revive its U.S. market through the introduction of the stylish Fiat 500, a small "design car" that's meant to do battle with the Mini Cooper. So far, this ride has gotten positive reviews. But for Marchionne, the real name of the game is Alfa.

Does America need another luxury brand?
Marchionne has his sights set on the lucrative U.S. luxury market, the realm of BMW, Mercedes, Lexus and Cadillac. You can see his logic. BMW is focused on performance. Mercedes on plutocratic aspiration, Lexus on staid reliability, and Cadillac on exotic styling and raw power. There's a competitive space there for a more affordable version of the Maserati Quattroporte, an extremely stylish Porsche competitor that did well for Fiat in limited markets.

Reliability isn't necessarily the most important factor in this lofty realm. You buy a Honda so that it starts every morning. You buy a Porsche because you harbor the fantasy that you could take the nearest offramp to a race track and turn some hot laps. Fiat, however, has two tasks in front of it: carve out space for itself in the gaps between the competition, and make absolutely sure that its old bad reputation doesn't come back to haunt it.

Chrysler quality could be the real headache
The former may actually be the real challenge for Alfa. Auto experts now think that Fiat's return to the U.S. could go a long way toward alleviating the lingering reliability issues. "Fiat's target market will have little memory of their prior existence in the U.S.," said Jesse Toprak, Vice President of Industry Trends and Insights at TrueCar.com, when I checked in with him. "The key for Fiat will be public opinion of the vehicle once launched."

He added, "The Fiat 500 also comes with three years of free maintenance which will help deal with any reliability issues consumers might have."

Oddly, if Fiat establishes itself as a reliable nameplate, and then Alfa rolls in and does the same in a market with higher overall expectations, Marchionne's real problem could be, well, Chrysler itself. The Detroit Big Three's perennial third wheel has typically finished behind both its Japanese and domestic rivals. These are the trials of trying to revive a brand and reintroduce its products. The job never ends.

Related Photo: Chrysler/Fiat Media
  • Matthew DeBord

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