George Mason Law Professor Todd Zywicki on Chrysler

TODD J. ZYWICKI is George Mason University Foundation Professor of Law at George Mason University School of Law and Senior Scholar of the Mercatus Center at George Mason University.

With a deal sealed to sell bankrupt Chrysler's best assets to Italy's Fiat Wednesday, the real work can begin to rebuild the storied American automaker after its rescue from certain collapse.

It won't be an easy task, warned analysts who cautioned that significant challenges remain and it could be years before the alliance can truly claim to be successful.

The new Chrysler which emerged from bankruptcy protection after just 42 days still has to contend with the collapse in global auto sales which led to its demise.

And there is no guarantee that consumers will flock to the Fiat-engineered small cars when they finally reach the US market.

Fiat has acquired a 20 percent stake in the new Chrysler in exchange for sharing valuable technology, vehicle platforms and powertrains which will allow the Detroit automaker to meet upcoming emissions and fuel economy standards and expand its product offerings.

The Italian automaker will gain access to the lucrative US market and get closer to the economies of scale which chief executive Sergio Marchionne has said are necessary to compete in the global automotive industry.

Fiat, which did not provide Chrysler with any cash, will be able to increase its stake to a majority position once billions in government loans are repaid.

While Fiat is expected to use Chrysler’s dealer network to launch its diminutive two-seater Fiat 500 in the United States, new models built with Fiat’s technology will likely bear one of Chrysler’s brands in the coming years.

The marketing expenses of launching a new brand are simply too high, particularly given the weak level of auto sales, and Fiat still has work to do to overcome a reputation for poor quality it developed prior to being forced out of the US market in the 1980’s.

Chrysler’s workers have been hit by a painful failed marriage to Germany’s Daimler, years of layoffs and plant closures,. and months of speculation over possible mergers and a bankruptcy filing.

Now they can finally get back to concentrating on developing new products.

A number of senior executives will be leaving, including the heads of product engineering and sales and marketing, and several Fiat executives have been brought over to fill top posts such as chief financial officer.

Chrysler is currently on track to lose its number four spot in the US market to Japan’s Honda, with sales were down 46 percent for the first five months of the year.

Its share fell to 8.5 percent in May from 9.4 percent in April and 10.6 percent in May 2008, according to Autodata.

Scott Drake discusses Chrysler and GM with Professor Todd Zywicki.