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How will Fiat change Chrysler?

Italian auto maker Fiat is now the majority owner of Chrysler (53.5% stake) after taking the last U.S. government-held 6% share of the company for a payment of $500 million. It also paid $125 million for the 1.5% stake held by the Canadian government. With the U.S. and Canadian governments out and Fiat in, what changes can be expected?

According to a report released from SupplierBusiness, an IHS Global Insight business unit, Fiat plans to create four regional entities - Europe, North America, Latin America and Asia-Pacific - each with their own manager. Other management strategies will be implemented as well, including new steering committees created by each senior executive of each region to "delegate some responsibilities" to the 25 managers, including the four regional bosses, alongside the heads of functions such as engineering, sales and purchasing.

What isn't clear is how all of this will impact purchasing. IHS SuplierBusiness Principal Analyst Matteo Fini, commented that, "Although Chrysler and Fiat have already started working on a number of areas, trying to create high volumes per part, they will have to demonstrate they are able to reap the benefits of the critical mass arising from the Euro40 billion combined purchasing budgets."

Fini expects that, "There might be a global purchasing organization acting as an agent for the two carmakers and charging a service fee to cover its costs (as was in place with the GM-Fiat organization). Alternatively they could create four purchasing functions, one for each region. The advantage of this would mean adding only one additional separate unit to manage Asia, since Brazil, Italy and the U.S. are already realities running on their own in terms of procurement operations."

The next question is how this might affect supplier relations, and "whether Fiat adopts Chrysler's attitude towards the supply base and who will be the chief purchasing office (CPO) for the global group." In the recent SupplierBusiness OEM-Supplier survey, which PlasticsToday reported on, Chrysler faired pretty well. "In 2011 it was the only OEM to record an increase in its ratings together with Skoda while all other automakers saw a deterioration," said SupplierBusiness.

Under the current leadership of CPO Dan Knott, SupplierBusiness noted that there have "a number of changes in the business practices with the objective to make them fairer to suppliers and avoid some confrontational episodes, which beleaguered Chrysler's quality of supplier relations."

Unfortunately, SupplierBusiness commented, Fiat's relations with its supply base deteriorated sharply in 2011, with much of the drop attributed to "the unclear prospects for this automaker as perceived by its suppliers," including a refreshing of its product offerings. Also hurting Fiat according to the survey were "poor payment terms."

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