Never one to mince words, Fiat Chrysler Automobiles (FCA) CEO Sergio Marchionne has again spoken of the need for his company’s board to consider a merger with General Motors – by something approximating “force” if necessary.
Speaking with US industry publication Automotive News, the outspoken FCA chief — a veritable quote machine as you can see from a past interview featuring us here and here — touched on the proposed GM merger, or some other partner deal elsewhere, saying that while his company could persist without it, it would do so in “mediocrity”.
That’s a fairly remarkable thing for a CEO to say about his own company.
“It would be unconscionable not to force a partner,” Marchionne said. Naturally, the Automotive News interviewer suggested this inferred something like a hostile takeover approach.
“Not hostile,” Marchionne said. “There are varying degrees of hugs. I can hug you nicely, I can hug you tightly, I can hug you like a bear, I can really hug you. Everything starts with physical contact. Then it can degrade, but it starts with physical contact.”
Despite GM’s continued resistance — it has adequate scale, said its chief Mary Barra — Marchionne called the logic of the deal “irrefutable”.
“We’re not talking about marginal improvement in margins,” he said to Automotive News, “we’re talking about cataclysmic changes in performance, just huge.”
“I’ve gone through product by product, plant by plant, area by area, and I’ve analysed them all.
“I’ve obviously made some arbitrary assumptions about which architectures survive, which engines survive, and the only deal that offers them the same benefits as we potentially get … is us.”
The potential profits, he says, are exponentially larger than the current combined global earnings of GM and FCA. “I’ve offered to sit down with them and take them through the numbers,” he said.
“They won’t listen. And that kind of abject refusal to engage … the capital markets won’t understand why you are rejecting the discussion.
“You may reject the deal but you can’t reject the discussion. If you’re refusing to talk to me, and you have seen nothing, you either think you’re above it all, or you think the capital markets are full of schmucks that owe you something.”
What figure are we talking? “Look, the combined entity can make $30 billion a year in cash. Thirty. Just think about that [expletive] number,” he said.
Interestingly, a GM US spokesperson wouldn’t call Marchionne’s analysis wrong but said GM officials led by Mary Barra believed the company and its shareholders were better off on their own.
“I’m not trying to date Mary [Barra], for the record, but I tried to get to see her,” Marchionne said, adding “… [I’m] not the guy at the corner who’s selling pencils. I tell you that you can make X billion more by being together, I guarantee you that I can carry half the market”.
As Automotive News contends, FCA trails its fellow global car-makers in the areas of margins, R&D spending, hybrid technology, and vehicle autonomy. FCA is also the only major car conglomerate with more debt than cash reserves.
In a world of the Volkswagen MQB matrix — among many, many conceptually similar modular architectures — no single FCA platform underpins more than one million vehicles a year. This causes scale issues. Legacy platforms are also heavier, hurting fleet fuel economy.
This is why the development of architectures such as the RWD one to underpin the renaissance of Alfa Romeo is so important. FCA has committed billions to resurrect the Italian brand, with the aim to develop as many as eight new models and grow sales from 68,000 vehicles globally in 2014 to 400,000 sales by 2018. This is begins with the Giulia.
It’s not all bad. The Jeep brand is the clear jewel in FCA’s crown, given its booming global sales. Marchionne himself said Jeep: “is the biggest insurance policy I have because that brand was the best part of Chrysler by a long, long stretch”.
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