General Motors’ announcements of plant shutdowns, job losses, and massive model restructuring seem to confirm that the late Sergio Marchionne was right about the automotive industry.
Rewind back to 2015, things were rosy, car sales were romping to record levels, autonomy was a vague utopia Twitter was dreaming about, and EVs were just starting to gain what’s perceived to be traction among the major automakers. Then there was Fiat Chrysler Automobiles and its enigmatic CEO, Sergio Marchionne.
During a regularly scheduled earnings call with financial analysts in mid-2015, Marchionne launched into a 25-page powerpoint presentation titled “Confessions of a Capital Junkie.” During his diatribe, Sergio made the case that the global automotive industry needed to focus dearly on consolidation, he claimed the major corporations were all wasting money, resources, and manufacturing capacity on redundant operations and product development. His core argument was that the industry could potentially save billions of dollars if big players would just share resources with one another.
Marchionne also pulled the plug on unprofitable vehicles such as the Dodge Dart and Chrysler 200 before the rest of the industry really knew what was happening when it came to the crossover craze. To that end, the expansion of the Jeep brand has been timed perfectly. And of course, FCA has a golden goose in the Ram 1500. Also arguably the best marketing efforts of all three American-based automakers, when it comes to stirring emotion.
On Monday General Motors explained its actions were part of a “response to market-related volume declines in cars,” and resulted in the cancellation of vehicle programs, that included the Chevrolet Volt, Impala and Cruze, as well as the Cadillac CT6 and XTS, plus the Buick LaCrosse. There’s the upcoming idling of assembly plants in Oshawa, Lordstown, and Hamtramck. General Motors also justified its actions on the basis of needing to reduce operational costs in order to free up cash for tech-heavy future investments–by the sounds of it, these are the exact conditions Sergio predicted.
The entire basis of Marchionne’s 2015 presentation wasn’t just freeing up cash for future investments, but ensuring those investments were returning significant amounts to the automakers. “OEMs spend vast amounts of capital to develop proprietary components, many not really discernible to customers.” According to Forbes, return on capital investment for mainstream automakers was just ten percent, which is only a single percentage point above the cost of capital. Meaning no one is really walking away with a significant chunk of change.
In order to boost margins into the stratosphere, Sergio suggested automakers needed to reduce the number of vehicle architectures, strive for even more common parts across product lines, along with tailor-made “one-off co-operations, JVs, and other equity tie-ups”. Marchionne argued that there needed to be even more sharing between rival automakers as “the potential savings are too large to ignore.”
It was actually the basis of his overtures towards GM CEO Mary Barra regarding a potential merging of the two historic automakers, even though Barra wouldn’t even entertain a conversation with him. For his part, Marchionne was confused as to why General Motors wouldn’t even listen to his proposal considering he wasn’t pitching just a small boost to profit margins, but offering “cataclysmic changes in [finacial] performance.”