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Marchionne Courting Automakers

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Old 05-26-15, 10:44 AM
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Default 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.
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Old 05-26-15, 01:20 PM
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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.
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Old 05-26-15, 02:04 PM
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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.
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Old 05-26-15, 02:26 PM
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It's true they could save billions by consolidation, but at the expense of creating [or getting that much closer to] a monopoly. No thanks.
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Old 05-26-15, 02:38 PM
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I agree with Hoovey. This would be too much consolidation. I don't think anybody needs to be merging into GM at this point.
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Old 05-26-15, 04:52 PM
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Originally Posted by BrettJacks
I agree with Hoovey. This would be too much consolidation. I don't think anybody needs to be merging into GM at this point.
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.
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Old 05-26-15, 05:41 PM
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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.
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Old 05-26-15, 05:59 PM
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Originally Posted by S2000toIS350
I am totally supportive of this (I work in Biotech and mergers are a way of life)
The auto industry, however, is not Bioech, although granted, the Biotech industry does produce diesel fuel for the auto industry from renewable sources.

These two shops build the dregs of the industry
Not any more...not since the two bankruptcies and the reorganizations. In fact, some of what we are seeing from both companies is (now) as good or better than what we're seeing from European and Asian firms.


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.
Actually, this just shows how competitive today's auto industry really is...everyone has a role in it, and no one is "knocking others 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).
First, I don't think the Challenger would go. Even if GM were to combine with Chrysler, don't forget that the Camaro and Pontiac Firebird F-Bodies sold side by side for some 35 years......from 1967 to 2002. Second, the Durango does not compete with the Suburban and Yukon XL....the Suburban is substantially longer, wide, and heavier. In fact, the Durango only (marginally) competes with the regular-size Tahoe and Yukon. As far as the Ram leaving, that is an interesting question, since its sales would have to be compared to those of the GMC Sierra, the Silverado's corporate cousin. ,
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Old 05-26-15, 06:38 PM
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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.

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Old 05-26-15, 06:40 PM
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Firebird and Camaro were essentially the same car with famous GM badge engineering.

The Challenger would be odd crapbox out in my game.
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Old 05-26-15, 06:52 PM
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Originally Posted by S2000toIS350
Come on MM, you know I am a broken record and threads like this are made for me.

This could go on and on
Fine....suit yourself.

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Old 05-26-15, 06:56 PM
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MM, the broken record image was well played!

If you invested in biotech, you could drive whatever you want.
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Old 05-26-15, 07:05 PM
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Originally Posted by S2000toIS350
MM, the broken record image was well played!

If you invested in biotech, you could drive whatever you want.
I've got a large enough portfolio of bonds and mutual funds that at least some of them probably do support the biotech industry somewhere. And, BTW, I'm quite satisfied with what I drive now.

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.
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Old 05-26-15, 07:19 PM
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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
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Old 05-26-15, 07:55 PM
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Originally Posted by S2000toIS350

Luxury, neither of these losers has anything to speak of (again assuming the FMA spinout)
The CTS is well-respected in the luxury category, but Cadillac simply has it priced too high.


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
I wouldn't totally agree that Ford is the dominant maker of pick-ups....at least in the U.S. True, the F-150, among half-ton trucks, is the single largest seller, but the Silverado and Sierra (both from GM, and essentially the same truck) outsell the F-150. And GM also sells the mid-size Colorado/Canyon pickups....Ford pulled the compact Ranger out of the American market several years ago, though there are some rumors of it coming back next year.


Big cars, kind of an out of date category, Impala vs who cares
Not out of date at all. Some people still like size, comfort, and refinement, though it is also true that you can also get that sometimes in more efficient, easier-to-park, smaller packages. And, among full-size cars, the new 2014-2015 Impala (not the older ones) currently ranks among the best...just ask Consumer Reports.

CUVs, RAV4, CR-V and Tucson own a lot of this space
MANY small crossover SUVs inhabit this space....and the Subarus are also some of the most popular. Upmarket/luxury-class CUVs are also growing rapidly....MKC, NX, RDX, GLK, Q3, etc......

Midsize, with Camry, Accord, Sonata, Fusion, no monopoly here
Small, with Corolla, Civic and Elantra, no monopoly here either
So are several competitors from GM and Chrysler. I don't see your point here.

OK, your turn good sir
Thank You. It's nice to deal with someone who addreses others civilly.

Last edited by mmarshall; 05-26-15 at 07:59 PM.
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