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“Size managed well is good. Size managed for empire-building purposes is nonsense,” Fiat's chief executive Sergio Marchionne declared recently. Assuming he pulls off the mega-deal now in his sights – and he will face all manner of opposition – investors can only pray it becomes an example of the former, not the latter.
Each element makes individual sense. Fiat’s newly minted Chrysler alliance brings together two subscale carmakers that lack exposure in markets where the other is relatively strong. Their products have little overlap, and both have strengths to share – Jeep and minivans from Chrysler, stylish subcompact cars from Fiat.
Meanwhile, a tie-up of Fiat and General Motors’ European arm – principally Opel – offers sizeable cost-saving potential from reducing the number of engines and platforms used by the two assemblers. The pair would also fit well together, with complementary geographic exposure and distribution in Europe.
The central question is whether Mr Marchionne would be better focusing on one option, not both – let alone trying to throw in GM’s Saab while engineering a spin-off of Fiat Auto from its conglomerate parent. His turnround of Fiat from borderline survivor to credible industry consolidator has been impressive. The proposed grand alliance now in prospect would be a challenge of an utterly different magnitude.
Two things might make it worth trying. First, neither deal alone would push Fiat past the 5.5m-cars-a-year volume threshold Mr Marchionne reckons is needed to be a post-crisis winner. Indeed, the Fiat boss recently added carmakers’ need to drive volumes of 1m vehicles a year across each individual “architecture” or platform to be viable.
Second, the dramatic industry downturn means deals can be done on terms unthinkable in the good times. Chrysler and GM Europe are available essentially for free, and with state loans or loan guarantees. European governments may similarly be prepared to allow cuts in excess capacity and jobs that they could not contemplate outside a crisis. If anyone can pull it off, Mr Marchionne is the man to do so. But that provides no guarantee that he can.
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