Will Fiat Take Chrysler Away From Detroit?

Sergio Marchionne

Sergio Marchionne

Though it’s under new ownership after nearly going under in 2009, Chrysler (FIATY.PK) has remained a mainstay of the Big Three — the small circle of automakers based in Detroit, Michigan. Along with General Motors (NYSE:GM) and Ford (NYSE:F), the three companies were — and still are — the largest automakers in North America. More recently, the trio have become known as the Detroit Three, due to their geographic proximity to one another, and not surprisingly, their residency in Michigan’s largest city.

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However, the Detroit Three might soon become the Detroit Two, if Chrysler’s new parent Fiat acts on its interest in moving the company to the fair state of Tennessee. Reportedly, state officials are trying to romance Fiat’s CEO Sergio Marchionne into putting Fiat’s joint headquarters with Chrysler in the Volunteer State. Following meetings with Tennessee governor Bill Haslam, Marchionne said Tennessee officials have been “working me over pretty well.”

Marchionne was in the state to attend the ribbon cutting of an expansion of a Fiat subsidiary plant in Pulaski. However, when asked rhetorically where they would prefer the headquarters to be, Haslam replied: “I vote right here.”

Fiat currently calls Turin, Italy, its headquarters, but since the merger with Chrysler — which could be completed by next year — speculation has been that Fiat might move its own headquarters to the U.S. and provide a new agency that would manage both Fiat and Chrysler.

Tenneessee is a wonderful state,” said David Cole, chairman emeritus of the Center for Automotive Research, a top industry think-tank in Ann Arbor, Mich. “It’s more centrally located than Detroit, it has a great tax structure, and it’s a nice place to do business.” However, Cole — the son of former GM president Ed Cole — stands by Michigan and its role as the automotive hub in the U.S.

“The whole environment here is automotive,” he said. “Companies benefit when they are in a place where the center of gravity is around their business. But you never know with Sergio. He’s a tough one to predict.”

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Chrysler 200

The move wouldn’t be completely unorthodox for Fiat, or Chrysler. Volkswagen (VLKAY.PK) has a full-blown manufacturing plant in Chattanooga,  and Toyota (NYSE:TM) has a suppler in Jackson that provides casted aluminum components for the automaker. Increasingly, companies are looking to the south to meet their manufacturing needs, spurred by more favorable tax codes, cheaper labor, and as Cole noted, a more central location.

However, Cole is not convinced that Marchionne will follow suit. “I know Sergio, and he’s not going to say they have to be in Michigan automatically. He’s probably not going to commit without some gamesmanship going on first, to see what kind of a deal he can get on incentives. But my guess is that in the end, it’s going to be in Michigan.”

It will likely come down to a “bidding” style war between the two states. By playing one off the other, Marchionne will be able to secure the best deal for the company. Given the mass exodus of automakers from Detroit, the state will likely be willing to bargain for Chrysler’s sustained citizenship.

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