Sergio Marchionne is either a visionary or seriously deluded. The chief executive of Fiat (pictured,above), fresh from a five-year turnround of the once-derided Italian car group, now wants to build one of the world’s biggest carmakers – in the midst of the industry’s worst crisis since, well, ever.
Mr Marchionne’s blueprint would put Fiat’s auto division at the core of a global carmaker created by pulling in Detroit’s bankrupt Chrysler and the European arm of General Motors, the former US leader now teetering on the brink of bankruptcy.
The new company would build everything from Jeep 4x4s through Vauxhalls, Opels and Saabs to Alfa Romeos and the tiny Fiat 500. Based on 2008 sales figures, it would sell more than 6m cars, outflanking GM and tying with Germany’s Volkswagen as the world’s second-largest carmaker, behind industry titan Toyota.
“You are always taking a big gamble when you do something completely new,” Mr Marchionne acknowledged in Monte Carlo at the weekend, chainsmoking and downing two stiff espressos after a night when he got just four hours’ sleep. Fiat’s chief executive had just returned from New York and Turin, and was stopping off in Monaco briefly for an interview with the Financial Times, before jetting off this week to Berlin, then back to New York, Washington and Detroit.
This followed a landmark week during which President Barack Obama warmly endorsed Fiat – a company few Americans have heard of – for forging an alliance to help save Chrysler once it emerges from bankruptcy.
But from Monday, Mr Marchionne will embark on a much bigger and potentially riskier task: winning over Germany. He needs the support of German politicians and its powerful trade unions to take control of Opel, based in the country, whose operations form the core of GM’s European arm. He hopes to win them round with a vision of a big, new, listed European carmaker that can take advantage of international scale to compete globally. If he succeeds, he is likely to spin the business off from Fiat, a tractors-to-newspapers industrial group, and begin seeking savings from the tie-up with Opel – which he estimates could reach more than €1bn a year.
“We will learn stuff from each other,” he said. “This is a marriage made in heaven industrially.”
Mr Marchionne would then become the first mover in what could become a major realignment of the industry, putting pressure on rivals such as France’s PSA Peugeot Citroën and Renault to join forces. While other car chiefs hunker down to conserve cash and survive a crisis that has decimated their sales and idled plants, Fiat’s boss hopes to become the biggest beneficiary of the crisis.
History is not on his side. Cross-border mergers of carmakers have a track record of losing money and ruining managers’ reputations, while European acquisitions of US auto companies have done even more poorly. Worse still, Chrysler and its Jeep and Dodge brands have been the scene of two of the biggest disasters in the history of transatlantic takeovers: Daimler’s ill-fated purchase of Chrysler and Renault’s failed American Motors Corporation venture, eventually sold to Chrysler.
But while others overpaid for assets during previous booms, Mr Marchionne is setting out to build the new group during a crisis that has put major carmakers on the block for little or nothing. Unprecedented state involvement in the industry has further changed the playing field, putting governments in America, Germany and elsewhere in the driving seat in deciding their carmakers’ fate – potentially both an opportunity and a risk for Fiat.
At meetings in Germany on Monday, Mr Marchionne will seek to win over the government and Klaus Franz, head of Opel’s works council, to his vision of a new pan-European industrial champion. Opel’s fate has become a central political issue in Germany in an election year, and some union leaders and politicians have spoken out against Mr Marchionne’s bid for the company, fearing he will cut jobs and close plants. Volkswagen, Europe’s largest carmaker, also has Toyota in its sights, and could oppose Fiat’s attempt to build a new car group on its home turf.
Fiat’s tie-up with Chrysler was applauded as a point of national pride in Italy last week, but nationality matters only up to a point, he says, in an industry in dire need of cost-cuts and scale. “Fiat is Italian-based, but it’s not Italian,” he said. “It’s no use talking about globalisation and then putting up national flags.”
With anxiety high in Germany over Opel’s fate, and GM looking to governments for aid for its European business, Mr Marchionne will base his pitch to politicians and regulators on a pan-European solution to the problem. “This is a real-life opportunity to make the European Union work as a union,” he says. “If we don’t do this, it’s a failure of our efforts to create a single market.”
Mr Marchionne served notice last year that he intended to be a leader in industry consolidation. Fiat, which sells just over 2m cars – almost all in Europe and South America – needed scale of 5m to 6m to continue in business. He began talks on Fiat’s alliance to share technology, manufacturing and other operations with Chrysler nearly a year ago.
As he shuttled back and forth to the US this year, he also privately broached the idea of an alliance with GM in Europe in talks with Rick Wagoner and Fritz Henderson, GM’s former and current chief executives.
In essence, Mr Marchionne proposes separating Fiat’s autos division from its Iveco trucks, CNH farm and construction equipment, and other divisions. The Ferrari and Maserati luxury carmakers, estimated to be worth about €5bn, will stay with the parent.
Under the plan Fiat Auto would merge with GM’s European operations including Saab, GM’s small Swedish brand which it is selling separately. “The worst thing you want to do in surgery is leave hanging pieces,” he said. The new company might also include GM’s Latin American operations.
It would eventually have 35 per cent of Chrysler, in which Fiat is taking an initial 20 per cent stake, rising in 5 percentage point increments.
If Mr Marchionne has his way, the newly formed car company will float as soon as this summer under a new name, with both GM and the Agnelli family, descendents of Fiat’s founder, expected to stay as shareholders. “Fiat/Opel sounds good to me,” he said. “If they want Opel first, that’s fine.”
In Mr Marchionne’s telling, the deal’s industrial logic hinges on plans to merge the small and midsize car operations of Fiat and GM.
This will allow Fiat and Opel to pool costs, but raise inevitable questions about the closure of car plants, of which GM has 10 in Europe and Fiat has 11. In a country that has seen no car plants closed since 1945, Mr Marchionne will tell German officials on Monday that he will not break with practice – although the engine parts of the two businesses would be expected to merge.
Mr Marchionne wants to complete the deal on a tight timetable. “This will be done in May,” he said. “An agreement in principle has to be struck in 30 days.”
The deal will need to clear antitrust hurdles, potential competing bids – albeit none as bold as this made publicly to date – and hostility from various camps, not only in Germany. Mr Marchionne tangled verbally last month with Günther Verheugen, EU industry commissioner, after he questioned Fiat’s ability to finance deals with both Chrysler and Opel, given its current debt load.
Mr Marchionne hit back quickly, expressing astonishment at the “tone and content” of Mr Verheugen’s remarks, which he described as “not helpful to the ultimate goal” of righting the troubled European car industry.
Even before Monday’s news of Mr Marchionne’s plan to fashion a new listed car company, equity analysts had been questioning his ability to run Fiat, Chrysler – where he is widely tipped to become chief executive when it emerges from bankruptcy – and hold the title of non-executive vice-chairman at UBS. Carlos Ghosn, Renault and Nissan chief executive, has been dogged by similar claims of overstretching.
Mr Marchionne said that it was unlikely he would stand for the job at UBS again next year, and hinted that he would not hold all three jobs now up for grabs at the Fiat group, the proposed Fiat/Opel and Chrysler. “I can’t do it all,” he said.
Tough talks now await Mr Marchionne – not only in Germany but also with GM, as Fiat haggles over the details of stakes and each company’s contribution. As this happens Chrysler alone will occupy a large chunk of Mr Marchionne’s time, posing formidable challenges of its own.
Fiat’s boss will this week begin a tour of the carmaker’s US facilities, where he will interview staff as he prepares to take the reins of Chrysler as soon as a month from now.
But while Mr Obama’s task force wants quick “surgical” bankruptcy proceedings for Chrysler, fresh doubts emerged at the weekend as to whether it can survive at all if the legal proceedings are protracted. Even if it emerges safely Mr Marchionne will face a tough challenge making his own mark on Chrysler’s vehicle line-up and hidebound corporate culture.
He also faces high expectations in Italy, where figures from Silvio Berlusconi, prime minister, down have praised Fiat’s expansion plans as a high-water mark for its industry.
Mr Marchionne insisted he was focused on the task ahead. “You have to stay humble through these things,” he said.
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