Analysis of External Factors
Fiat Chrysler automobile company faces a lot of challenges even though most financial analysts believe that the merger was a significant step towards improving the performance of the parties concerned. Sergio Marchionne, the chief executive officer of Fiat, offered an expensive bet to companies that wanted to merge with it (Carney 2009). Most critics expected this offer to attract successful companies like DT Dobie and Ford. However, they were shocked when Chrysler’s offer was accepted by this company. The following issues are important in explaining factors that forced Fiat to merge with Chrysler even though it knew its financial challenges.
Michael Porter argues that threats of substitute products that arise due to changes in technology are serious problems for companies (Bainbridge 2012). The automobile industry is evolving and this means that all companies must realign their strategies to ensure they manage these challenges of changes in market trends (Sherman 2010). Porter explains that the presence of rivalry between suppliers make them to use unethical practices to have competitive advantages over others.
Chrysler was unable to withstand competition from other companies including Fiat; therefore, it was quick to accept Fiat’s offer to merge with it to ensure it reduced competition in the automobile industry. Thirdly, the need to manage Fiat’s brand forced it to merge with Chrysler to ensure it is associated with a company that has a rich tradition in car manufacturing; therefore, this was an effective way of managing threats of new entrants (Miller 2008). Porter argues that threats of new market entrants force companies to merge to have competitive advantages over others.
Moreover, Fiat had a poor customer care department and it was necessary to improve the services of this sector by merging with another company (Williams 2011). Lastly, Fiat did not have adequate funds to finance its operations because of the challenges it experienced between 2007 and 2008. The power of suppliers as presented by Porter forced these companies to merge their operations.
Chrysler had adequate funds to finance its operations, but did not have market for its expensive products (Maynard 2013). Therefore, it was necessary to combine their efforts to ensure they supported each other in different processes. Chrysler produced expensive automobiles that were beyond the consumer’s ability to buy them. Porter explains that when the bargaining power of buyers is low companies should merge their operations to reduce costs and lower the prices of their goods or services.
Chrysler’s Competitive Advantage
This company had a dark past and this had forced most people to despise its products because of poor financial performance. The merger with Fiat will ensure it streamlines its performance and this will attract clients to buy its products. It is necessary to note that the merger led to changes in the brand names used by these companies (Bainbridge 2012). They dropped their former names and adopted the new brand name that symbolised a new company under different management. This is a significant step towards reducing competition in the automobile market.
Secondly, Chrysler will expand its market because the merger ensured that these companies used similar advertising strategies. The products of these companies adopted similar production processes and thus this company took advantage of Fiat’s brand name to market its products (Snow 2011). Moreover, this company will reduce its costs because of the merger; therefore, it will be in a good position to reduce the prices of its products to attract clients (DePamhilis 2009). This will be a significant competitive advantage that will help this company to lower the prices of its products.
In addition, this company does not incur heavy taxation expenses because the cost is shared with Fiat. This means that it will have less pressure to make profits because of a reduction of its expenses (Rosenbaum 2013). Chrysler will get a better team of managers and subordinate staffs because of an increase in employees from Fiat. It is necessary to explain that mergers enable companies to rejuvenate their human resource by an addition of employees from another company (Filippell 2011). Lastly, an increase in capital will enable this company to get discounts when purchasing its raw materials. This means that it will enjoy the benefits of economies of scale and this will help it to lower the prices of its products.
Recommendations
The marriage between these companies is yet to achieve its fruits. However, there are hopes that their performance will improve if they align their finances and employees according to their goals. The following issues are important in promoting excellent performance in Fiat Chrysler Automobiles.
First, Fiat and Chrysler should realise that they have become one and this means they need to combine their efforts to ensure they achieve their goals. They must work as a team and ensure there is coordination between their departments to facilitate efficiency in decision making. Secondly, there is the need for them to ensure that they merge their departments to reduce the cost of running this company. This includes reducing the number of managers and eliminating departments that are not necessary. Employees must be educated on the need to embrace teamwork to ensure their activities are indistinguishable. This will promote order and unity amongst workers and ensure there is efficiency in service delivery.
References
Bainbridge, S. 2012. Mergers and Acquisitions, 3D (Concepts and Insights), Foundation Press, New York.
Carney, W. 2009. Mergers and Acquisitions: The Essentials, Aspen Press, New York.
DePamhilis, D. 2009. Mergers, Acquisitions, and Other Restructuring Activities, Academic Press, Massachussetts.
Filippell, M. 2011. Mergers and Acquisitions Playbook: Lessons from the Middle-Market Trenches, Wiley, New York.
Maynard, T. 2013. Mergers and Acquisitions: Cases and Materials, Aspen Press, New York.
Miller, E. 2008. Mergers and Acquisitions: A Step-by-Step Legal and Practical Guide, Wiley, New York.
Rosenbaum, J. 2013. Investment Banking: Valuation Leveraged Buyouts, and Mergers and Acquisitions, Wiley, New York.
Sherman, A. 2010. Mergers and Acquisitions from A to Z, AMACOM, New York.
Snow, B. 2011. Mergers and Acquisitions, Wiley, New York.
Williams, T. 2011. Mergers and Acquisitions, Cases and Materials, Aspen Press, New York.