--This article was written by Lou Whiteman of The Deal
Seeing a stodgy old automaker that has for years complained about the billions it needs to spend to get caught up on technology team with a Silicon Valley titan would likely seem like an investor dream come true. But when it comes to the rumored partnership between Fiat Chrysler (FCAU) and Google, be careful what you wish for.
Fiat Chrysler is reportedly in late stage talks with Google parent Alphabet's (GOOG) self-driving vehicle division about a technology partnership. The discussions are among the many Google has held with automakers in recent months, but apparently the tech giant has focused in on Fiat Chrysler as a likely partner.
On paper, such a partnership makes sense. Alphabet is diving head first into the automotive business, but lacks the manufacturing capability to roll out vehicles for the masses and has said it has no desire to get into the car making business. Google has been testing self-driving vehicles on highways for more than five years, and of late have made a series of auto-related hirings and comments that indicate the company believes it is closer than many expected to bringing out a commercial product.
A deal with a major automaker would also provide Google with a ready-made global network of sales and service locations.
Fiat Chrysler meanwhile is a minnow in the global auto business that is far behind some of its rivals in terms of next-generation powertrains and driving technologies. Company CEO Sergio Marchionne has vocally lobbied for a merger -- first with General Motors (GM), and more recently with Ford Motor (F), as a way to combine R&D costs, but those calls have fallen on deaf ears in no small part because Fiat needs the help much more than its would-be partners do.
Still, a Fiat Chrysler/Google partnership is fraught with danger for both sides. Fiat Chrysler's vehicles have been plagued with quality control issues, with Consumer Reports in February ranking Fiat last in its annual rankings -- and putting no Fiat or Chrysler vehicles among those it recommends for purchase.
And Fiat Chrysler is well behind its rivals in producing electric vehicles or even hybrids, the presumed preferred propulsion method for the fabled Google car. It's debatable whether Google would be well served tying its roll out of such a revolutionary new technology to a company with Fiat Chrysler's issues.
For Fiat Chrysler the stakes are even higher. Google according to reports was close to a deal with Ford last Fall and has had discussions with other automakers but those have stalled over issues of control and debates over who would manage the customer relationship and customer data. Apple (AAPL) has had similar difficulties reaching out to automakers, according to German media failing to reach deals with both BMW and Mercedes Benz-maker Daimler over similar concerns.
Alphabet is presumably looking for a similar arrangement in these latest discussions, and in Fiat Chrysler it might have found a partner needy enough accept its terms. For Fiat Chrysler investors the risk is that the company either goes along with Google and surrenders much of the upside, or backs away and misses out on its last best chance to get an overnight technology upgrade and bring down its future R&D spending plans.
A wild card in Fiat Chrysler's quest for a partner is Marchionne's planned 2018 retirement, and his perceived desire to get something done before he vacates the corner office. With top automakers seemingly not interested, Fiat Chrysler's deal choices seem limited to second tier Chinese or European players. A partnership with Google might be Marchionne's last best chance to make a splash.
It doesn't appear that Fiat Chrysler is negotiating from a position of strength.
--This article was originally published by The Deal, a sister publication of TheStreet that offers sophisticated insight and analysis on all types of deals, from inception to integration. Click here for a free trial.
