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Cross-cultural management issues with Italian CEO of Chrysler

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1. What potential cross-cultural management issues do you speculate will occur with a new Italian CEO of an American company, Chrysler, and production of a new vehicle in Mexico?

Abstract (Summary)

Under the direction of Fiat SpA, Chrysler Group LLC is devising plans to produce the Italian auto maker's Fiat 500 subcompact at a Chrysler plant in Mexico, according to people familiar with the matter, while considering what other Fiat models to introduce to the U.S. market.

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Under the direction of Fiat SpA, Chrysler Group LLC is devising plans to produce the Italian auto maker's Fiat 500 subcompact at a Chrysler plant in Mexico, according to people familiar with the matter, while considering what other Fiat models to introduce to the U.S. market.

Chrysler is also looking at making a small Fiat engine for the 500 at a Chrysler plant in Trenton, Mich., and is considering building a Fiat-derived compact car slightly larger than the 500 in the U.S., a person familiar with the plans said.
Chrysler spokesman Gualberto Ranieri declined to comment on the company's product plans, which he said will be announced at a future date.

A decision to make the 500 in Toluca, Mexico, could be an early test for relations between Chrysler's new management and two key owners, the U.S. government and the United Auto Workers union. The plant's workers are represented by a Mexican union, not the UAW.

Making the car at Toluca would preserve jobs there at a time when Chrysler is closing several plants in the U.S. and eliminating thousands of American jobs.

Chrysler was saved from collapse earlier this year when the federal government provided $15 billion in emergency loans and brokered a rescue plan that gave Fiat management control of the company.

As part of the restructuring, a UAW health-care trust forgave $6 billion of the $10.6 billion it was owed by Chrysler. In exchange, the trust ended up owning 55% of the part of Chrysler that emerged from bankruptcy reorganization as well as a note for $4.6 billion. The U.S. government holds an 8% stake.

In May, General Motors Co., which like Chrysler was restructured in bankruptcy court with billions of dollars in aid from U.S. taxpayers, came under fire from politicians and the UAW for a plan to make a new small car in China. GM eventually reversed course and decided to make the car at a Michigan plant.

"There is going to be political fall-out on anything in this kind of environment related to jobs," said David Cole, chairman of the Center for Automotive Research in Ann Arbor, Mich. "It would be a mistake to make these decisions based on emotion rather than solid business judgment."

Mr. Cole cautioned that the U.S. market for subcompacts may not be big enough to support producing a vehicle like the 500 in the U.S.

Fiat was given a 20% stake in Chrysler in exchange for providing the American auto maker with small cars, fuel-efficient engines and other technology. It wasn't required to put any cash into Chrysler.

Fiat Chief Executive Sergio Marchionne was named CEO of Chrysler in June and has been working on a plan to launch some models from the Italian company's Fiat and Alfa Romeo brands in the U.S.

As part of Fiat's agreement with the U.S. Treasury to take control of Chrysler, Fiat could increase its stake to 35%. It will be given an additional 5% stake if it introduces a vehicle in the U.S. that gets 40 miles per gallon; that's approximately the fuel-economy rating of the Fiat 500. It will be given another 5% if it begins producing fuel-efficient engines in a U.S. plant, and a further 5% for allowing Chrysler to export vehicles through Fiat's global distribution network.

The Toluca plant, which employs 2,180 workers and currently makes the Dodge Journey crossover and retro-styled PT Cruiser, is an attractive home for the 500 because some of the cars could be exported to markets in South and Central America, where the Fiat brand is strong, people familiar with Chrysler's plans said.

Chrysler doesn't believe it could make much profit, if any, if it were to assemble the 500 in a U.S. plant, these people said.
President Obama's auto task force has promised not to interfere with the commercial operations of Chrysler and GM. Ron Bloom, the task force's new head, stressed earlier this month that the government won't micromanage decisions at either company.

"When a difficult decision has to be made on matters like where to open a new plant or what type of new car to make, the new Chrysler, not the United States government, will make that decision," said an administration official. "It's quite consistent with the plan from the start."

A UAW official speaking on the condition of anonymity said the union wasn't aware of the plans for assembling the 500.

Credit: By Kate Linebaugh and John D. Stoll

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A plant in Mexico making cars for a U.S. company that is partially owned with the U.S. Treasury's approval by an Italian company has a lot of cultural misunderstanding embedded in it. While Mexico is a ...

Solution Summary

Cross-cultural management issues with Italian CEO Chrysler for a Mexican Plant is examined.

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