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Consolidation and the Impact on Chrysler Powertrain

by David Zatz on

After Fiat Chrysler Automobiles presented their financial reports and prognostications yesterday, CEO Sergio Marchionne explained why he desires more consolidation, implying that Chrysler (and Fiat) may lose some of their unique engines and transmissions. In essence, Mr. Marchionne said:

  • His past statements do not mean that FCA will die without merging, that he wants a big deal before he retires, etc., but are general comments on the auto industry.
  • Automakers have terrible returns on capital (several slides showed this; FCA shares after his speech).
  • One reason for these poor returns is duplication of effort.

success of deals

Mr. Marchionne showed numerous types of alliances, from simple single-product cooperation to all-out mergers,  with successes and failures marked in red and green (above). He said that the smaller the effort, the more likely success seemed to be. This argues against FCA merging with a major automaker, though combining with a minor one, such as Suzuki, may be safer.

He said that nearly half of the investment in a new car (industry-wide) was based on things that were not major differentiators — most engines, transmissions, etc. Chrysler, for example, uses the same transmissions as other companies through nearly its entire line:

  • ZF automatics used by BMW, Range Rover, etc., in Cherokee, ProMaster City, Charger, Challenger, 300, and Ram
  • Hyundai automatics in Dart
  • Tremec manuals in Viper and Challenger
  • Mercedes automatics in Wrangler

Meanwhile, FCA sells its own diesels to Suzuki; they are very popular in India, where Fiat barely sells any cars at all.

splitAccording to Mr. Marchionne, across the industry, vehicle R&D is 40% of development cost; powertrain R&D is 15%; vehicle tooling is 35%; and powertrain tooling is 5%. (The rest is around 5%.)

Mr. Marchionne’s discussion is almost certain to be misinterpreted by analysts and pundits. That said, it is probably a sign of things to come. Chrysler may not be developing its own new transmissions for some time.  If this is true, the expertise required will disappear in time. Turin is still likely to keep working on their own “automated manual” style transmissions, though these can also be licensed, while Auburn Hills will keep working on hybrid and electric solutions.

Even as he made this speech, FCA’s actions ran counter to his statements. Turin uses Microsoft for telematics software, while Chrysler uses QNX; while there’s a need for different hardware, there’s no need for different firmware. Likewise, rather than using Maserati’s version of the Chrysler V6, Alfa Romeo will be using “a Ferrari V6,”  even as Ferrari is being spun off.

Fiat also has its own lines of transmissions, including dual-clutch automatics, manuals, and reportedly a new conventional eight to ten speed being developed to fit into the new Alfa Romeos, which rumor claims will be mid-engined designs that do not have the space for the ZF.

Mr. Marchionne has said that he wants to avoid duplication of effort and to have few platforms supporting many cars, but he has also allowed deviations to meet brand needs. Most of the brands under his care have far different audiences and needs, giving him a much tougher nut to crack than Toyota or Volkswagen-Audi Group.

engine overlap

It still seems that Chrysler will not be working on its own transmission to replace the ZF any time soon, if at all, and that the company is probably willing to jettison other Chrysler components if they can find a collaborator. In the meantime, one or two new four cylinder families are in the works — and no matter who actually creates them, credit will no doubt go to Alfa Romeo and Ferrari.

In the long term, it appears from this chart that Mr. Marchionne thinks that FCA should be sharing out engines and transmissions with another automaker, or using those of another automaker, or both.

There seems to be the most overlap in three and four cylinder mainstream engines, but FCA is still working on a new generation of their own powerplants rather than borrowing a design.

Allpar still has no reliable information on whether Chrysler is creating a new V8 to replace the Hemi, and the engine-overlap chart may explain why.  The transmissions overlap chart included the notation: “Potential elimination of up to one billion euros in duplicated engines and transmissions spending per year.”

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