Fiat Chrysler Chief Executive Sergio Marchionne has been arguing for years that the global auto industry needs to consolidate in order to afford all the emissions and safety technologies on the horizon. As a former accountant and lawyer, he has some valid points: the auto industry chews up capital like no other (the major automakers spent a combined $134 billion on capex and R&D in 2014). And the returns on invested capital (an average 7.8 percent last year) are miniscule compared to other industries.
Yet none of his competitors are interested in joining forces, especially now, when the industry is enjoying near-record sales. Most recently, the New York Times reported that Marchionne sent a private email to
But Barra, who rebuffed Marchionne’s suggestion, had other plans. GM, she felt, was strong enough to not only commit $10 billion to shareholders through stock buybacks and higher dividends but to plow another $5.4 billion into its U.S. factories over the next three years, without killing GM’s newly restored balance sheet.
Where does that leave Marchionne and Fiat Chrysler? Still looking for a partner.
There’s really only one potential merger candidate that makes sense: Volkswagen AG. The German carmaker is the world’s second-largest auto manufacturer, behind
Coincidentally, that’s where Fiat Chrysler is strong. Its Jeep brand is growing like crazy, and its Ram pickups have been taking market share from
Picture the North American juggernaut that would result: sporty European passenger cars (VW), technology-leading luxury cars (
From a North American perspective, at least, it makes all the sense in the world for Volkswagen to hook up with Fiat Chrysler.
Across the pond, however, it’s a different equation. VW is already strong in Europe and doesn’t have any interest in adding Fiat’s small cars to its product mix. Besides, on a continent where there’s already substantial excess production capacity, Fiat’s plants are inefficient and outdated, and its labor relations are a mess. Alfa Romeo, despite Marchionne’s promises of a revival, is still nowhere, and Ferrari is being spun off. That leaves Maserati, which is growing nicely, but off a small base.
And from a technology standpoint, there’s nothing Fiat Chrysler could offer Volkswagen that it doesn’t already have.
What’s more, Volkswagen has its own issues, particularly after the recent blow-up between Chief Executive Martin Winterkorn and Ferdinand Piech, the former chairman and member of the controlling Porsche-Piech families. Piech publicly challenged Winterkorn’s leadership abilities, but the rest of VW’s supervisory board sided with Winterkorn, and Piech resigned. Many industry watchers speculate that VW has not heard the last from him, however, especially since his extended family still controls 50.7 percent of the company.
Meanwhile, Winterkorn is focused on consolidation, too, but within his own company. After recently acquiring full ownership of Porsche sports cars, Ducati motorcycles, MAN and Scania commercial trucks, the company now has 12 brands under the Volkswagen Group. For the next few years, the focus is on trying to cut costs and leverage synergies between those brands.
All of which is to say: don’t hold your breath for a merger between FCA and Volkswagen, at least for the time being.
Instead, Marchionne is going to have to find a way to clean up his own house and wait for the next crisis to make his move.
