Marchionne Courting Automakers
#1
Marchionne Courting Automakers
In the middle of March, Mary T. Barra, the chief executive of General Motors, received a lengthy and unusual email from one of her direct competitors, Sergio Marchionne.
Ms. Barra had never met Mr. Marchionne, the C.E.O. of Fiat Chrysler Automobiles. And she was in no way expecting their first contact to be an offer to discuss a potential blockbuster of a merger.
The email, according to two people with knowledge of it and reported for the first time here, laid out in detail how global carmakers needed to consolidate to save money and suggested that a combination of G.M. and Fiat Chrysler could cut billions of dollars in costs and create an automotive superpower.
This analysis did not interest Ms. Barra or other G.M. executives and board members. Instead, Mr. Marchionne’s request for a meeting on the subject was flatly turned down, according to people with knowledge of the situation who spoke on the condition of anonymity.
It was a rare rejection for Mr. Marchionne, the mastermind behind the merger between the Italian automaker Fiat and Chrysler, the American car company that required a government bailout to survive the last recession.
Mr. Marchionne, however, is not one to be put off by rejection. So a month later, on April 29, in a routine analyst conference call, he doubled down. Instead of following the usual script, in which chief executives discuss the current state of their operations, Mr. Marchionne stunned the Wall Street analysts by devoting the entire call to his sudden and intense appeal to automakers to merge.
“I think it is absolutely clear that the amount of capital waste that’s going on in this industry is something that certainly requires remedy,” he said. “A remedy in our view is through consolidation.”
It’s not often that a chief executive announces to the world that his company is eager to find a merger partner. Some might even consider it a sign of weakness and, in fact, F.C.A.’s stock dropped about 10 percent over the next two days. Rather than rally support, Mr. Marchionne’s passionate appeal only highlighted the difficulties that lie ahead for Fiat Chrysler.
Mr. Marchionne has had remarkable success in blending two struggling car companies into the world’s seventh-largest automaker. F.C.A.’s sales in the United States have doubled since 2009. But it still sold only 4.6 million cars and trucks worldwide in 2014, about half as many as competitors like G.M. and Volkswagen. Its valuable brands, like Jeep sport utility vehicles and Ram pickups, don’t compensate for the fact that it makes less money than its rivals, lags in China — the world’s biggest car market — and barely invests in alternative-fuel vehicles that are critical to meeting the coming tougher federal rules on fuel economy.
Mr. Marchionne says he has a detailed plan to improve F.C.A.’s performance, but his current obsession seems to be playing the automotive Cassandra, warning of disastrous consequences if companies continue spending unabated. He has no patience for subtlety or delicate phrasing.
The bigger the issue, in fact, the louder he becomes. He irritated the National Highway Traffic Safety Administration by defiantly defending F.C.A.’s response to safety issues with older Jeep models. N.H.T.S.A. just last week scheduled a hearing to examine the company’s follow-through on recalls, something it rarely does. Mr. Marchionne also appears headed for a confrontation with union leaders in this summer’s contract negotiations because of F.C.A.’s rampant hiring of lower-paid workers. Alone among auto chiefs, he wants to end the current two-tier wage system by phasing out the top wage rate as veteran employees retire.
Detroit hasn’t seen a C.E.O. as provocative and unpredictable since Lee A. Iacocca, Chrysler’s previous savior, in the 1980s. And as with Mr. Iacocca, confidence is never a problem for Mr. Marchionne.
Ms. Barra had never met Mr. Marchionne, the C.E.O. of Fiat Chrysler Automobiles. And she was in no way expecting their first contact to be an offer to discuss a potential blockbuster of a merger.
The email, according to two people with knowledge of it and reported for the first time here, laid out in detail how global carmakers needed to consolidate to save money and suggested that a combination of G.M. and Fiat Chrysler could cut billions of dollars in costs and create an automotive superpower.
This analysis did not interest Ms. Barra or other G.M. executives and board members. Instead, Mr. Marchionne’s request for a meeting on the subject was flatly turned down, according to people with knowledge of the situation who spoke on the condition of anonymity.
It was a rare rejection for Mr. Marchionne, the mastermind behind the merger between the Italian automaker Fiat and Chrysler, the American car company that required a government bailout to survive the last recession.
Mr. Marchionne, however, is not one to be put off by rejection. So a month later, on April 29, in a routine analyst conference call, he doubled down. Instead of following the usual script, in which chief executives discuss the current state of their operations, Mr. Marchionne stunned the Wall Street analysts by devoting the entire call to his sudden and intense appeal to automakers to merge.
“I think it is absolutely clear that the amount of capital waste that’s going on in this industry is something that certainly requires remedy,” he said. “A remedy in our view is through consolidation.”
It’s not often that a chief executive announces to the world that his company is eager to find a merger partner. Some might even consider it a sign of weakness and, in fact, F.C.A.’s stock dropped about 10 percent over the next two days. Rather than rally support, Mr. Marchionne’s passionate appeal only highlighted the difficulties that lie ahead for Fiat Chrysler.
Mr. Marchionne has had remarkable success in blending two struggling car companies into the world’s seventh-largest automaker. F.C.A.’s sales in the United States have doubled since 2009. But it still sold only 4.6 million cars and trucks worldwide in 2014, about half as many as competitors like G.M. and Volkswagen. Its valuable brands, like Jeep sport utility vehicles and Ram pickups, don’t compensate for the fact that it makes less money than its rivals, lags in China — the world’s biggest car market — and barely invests in alternative-fuel vehicles that are critical to meeting the coming tougher federal rules on fuel economy.
Mr. Marchionne says he has a detailed plan to improve F.C.A.’s performance, but his current obsession seems to be playing the automotive Cassandra, warning of disastrous consequences if companies continue spending unabated. He has no patience for subtlety or delicate phrasing.
The bigger the issue, in fact, the louder he becomes. He irritated the National Highway Traffic Safety Administration by defiantly defending F.C.A.’s response to safety issues with older Jeep models. N.H.T.S.A. just last week scheduled a hearing to examine the company’s follow-through on recalls, something it rarely does. Mr. Marchionne also appears headed for a confrontation with union leaders in this summer’s contract negotiations because of F.C.A.’s rampant hiring of lower-paid workers. Alone among auto chiefs, he wants to end the current two-tier wage system by phasing out the top wage rate as veteran employees retire.
Detroit hasn’t seen a C.E.O. as provocative and unpredictable since Lee A. Iacocca, Chrysler’s previous savior, in the 1980s. And as with Mr. Iacocca, confidence is never a problem for Mr. Marchionne.
#2
Lexus Fanatic
All I have to say is if it isn't broke, don't fix it. Chrysler, even without help from GM, is making the best vehicles now that they have done in decades...so is GM. It took since the mid-1960s, several buyouts, and a bankruptcy to get Chrysler to be a credible company again....don't screw it up again. Besides, this proposed GM-Fiat-Chrysler merger would be so large that it is doubtful that regulators would allow it. I think Mary Barra was correct to turn it down.
#3
Lead Lap
Marchionne is an interesting fellow. He's been completely open about his proposed merger deals and how he sees the auto industry in general. Will be very interesting to see where he nets out on his plans before he departs in a few years.
#6
Lexus Fanatic
That's why I said in my post that I don't think that anti-trust regulators would allow it. Of course, on the other hand, since GM lost the Pontiac, Olds, Saturn, Hummer, and Saab divisions, and Chrysler lost the Plymouth and Eagle divisions, neither corporation is the size it one was.
#7
I am totally supportive of this (I work in Biotech and mergers are a way of life)
These two shops build the dregs of the industry and if added together into a giant pot of fools, they could make it easier for the real car makers (Toyota,MB, BMW, VW, Nissan, Honda and Hyundai) to eventually knock them out.
In the short run, you could see the Challenger go bye bye (no need to compete with the Camaro), the Durango (no need to compete with the Suburban, Ram pick up (Silverado has it covered).
Wow, I am loving this concept.
These two shops build the dregs of the industry and if added together into a giant pot of fools, they could make it easier for the real car makers (Toyota,MB, BMW, VW, Nissan, Honda and Hyundai) to eventually knock them out.
In the short run, you could see the Challenger go bye bye (no need to compete with the Camaro), the Durango (no need to compete with the Suburban, Ram pick up (Silverado has it covered).
Wow, I am loving this concept.
Trending Topics
#8
Lexus Fanatic
These two shops build the dregs of the industry
and if added together into a giant pot of fools, they could make it easier for the real car makers (Toyota, MB, BMW, VW, Nissan, Honda and Hyundai) to eventually knock them out.
In the short run, you could see the Challenger go bye bye (no need to compete with the Camaro), the Durango (no need to compete with the Suburban, Ram pick up (Silverado has it covered).
#9
Come on MM, you know I am a broken record and threads like this are made for me.
This could go on and on
The Malibu could put an end to the 200
The Aussie RWD cars (if they survive) could stop the 300/Chargers from littering the roadways of America
I would expect the T and C to win out in the Minivan space (can't even remember what GM has now)
The Vette could terminate the Viper
Having the Cruze shut down the Fart is a no brainer
To get this done, I could see Ferrari/Maserati/Alfa being spun as a separate company as these brands do not deserve to be contaminated by the foul stench of Chrysler or GM.
This could go on and on
The Malibu could put an end to the 200
The Aussie RWD cars (if they survive) could stop the 300/Chargers from littering the roadways of America
I would expect the T and C to win out in the Minivan space (can't even remember what GM has now)
The Vette could terminate the Viper
Having the Cruze shut down the Fart is a no brainer
To get this done, I could see Ferrari/Maserati/Alfa being spun as a separate company as these brands do not deserve to be contaminated by the foul stench of Chrysler or GM.
Last edited by S2000toIS350; 05-26-15 at 06:42 PM.
#11
Lexus Fanatic
#13
Lexus Fanatic
Anyhow, back on topic, what makes you think that regulators would approve a merger of two of the largest corporations in the auto industry. It is one thing for a large firm to buy into a smaller one, like Toyota buying part of Subaru or Ford buying out Volvo (since sold to Chery), but a GM-Chrysler-Fiat merge would be enormous, and work to stifle competition.
#14
The Regulators tend to throb when they see a resulting entity with a high degree of market power.
Let's have a jaded look at segments.
Luxury, neither of these losers has anything to speak of (again assuming the FMA spinout)
Trucks, GM has a top 2 spot in pickups with Silverado and the Suburban has the jumbo SUV space but Ford is still the dominant maker of pick ups
Big cars, kind of an out of date category, Impala vs who cares
Midsize, with Camry, Accord, Sonata, Fusion, no monopoly here
Small, with Corolla, Civic and Elantra, no monopoly here either
CUVs, RAV4, CR-V and Tucson own a lot of this space
Regular SUVs, Highlander, Pilot, RX, Santa Fe are all succeses
OK, your turn good sir
Let's have a jaded look at segments.
Luxury, neither of these losers has anything to speak of (again assuming the FMA spinout)
Trucks, GM has a top 2 spot in pickups with Silverado and the Suburban has the jumbo SUV space but Ford is still the dominant maker of pick ups
Big cars, kind of an out of date category, Impala vs who cares
Midsize, with Camry, Accord, Sonata, Fusion, no monopoly here
Small, with Corolla, Civic and Elantra, no monopoly here either
CUVs, RAV4, CR-V and Tucson own a lot of this space
Regular SUVs, Highlander, Pilot, RX, Santa Fe are all succeses
OK, your turn good sir
#15
Lexus Fanatic
Trucks, GM has a top 2 spot in pickups with Silverado and the Suburban has the jumbo SUV space but Ford is still the dominant maker of pick ups
Big cars, kind of an out of date category, Impala vs who cares
CUVs, RAV4, CR-V and Tucson own a lot of this space
Midsize, with Camry, Accord, Sonata, Fusion, no monopoly here
Small, with Corolla, Civic and Elantra, no monopoly here either
Small, with Corolla, Civic and Elantra, no monopoly here either
OK, your turn good sir
Last edited by mmarshall; 05-26-15 at 07:59 PM.