Blips of information have popped up since March, when Fiat-Chrysler CEO Sergio Marchionne proposed an all-out merger with another OEM. Citing cost savings, and reduced redundancies in engineering, Marchionne has had his eye on General Motors in specific.
While GM CEO Mary Barra has ultimately rebuffed the idea completely, Marchionne has been busy courting investors to put pressure on GM. Automotive News reports why the chatter has died down as of recent, despite the hard “no” from GM.
Most of the talk is fueled by past talks of a Chrysler-GM tie-up, according to past GM Vice-Chairman, Bob Lutz. Lutz says 2007 almost had the two merging for good as $7 billion is cost savings impressed executives on both sides. Marchionne says roughly $5 billion could be saved in a new merger, according to a presentation he gave in April. But, GM felt it to be a risky move to take over Chrysler, a cash-strapped company then, and somewhat now. If FCA initiated a hostile move in merging with GM, it would have to be completely equity based, as the company does not have the cash reserves for such a move.
And GM wants nothing to do with FCA’s lack of exposure in China, not to mention jeopardizing its SAIC partnership it has held. GM also has its own European problems to contend with, as the company finally begins a turnaround at Opel and Vauxhall. Â The Fiat brands would only complicate things, not to mention create immense cultural clashes.
Max Warburton, an analyst for Bernstein Research, says FCA’s best shot is to continue courting GM investors on increased profitability in the long run. It seems the idea is far from dead, as much as General Motors wants it to be with Warburton adding the mechanics of a merger “look wild, but not impossible.”
Comments
Just recently Sergio backed down on the GM merger talk saying they were far from any serius talks of a merger with GM. That tells me someone else is in serious talks with FCA other then GM. I am no longer worried about this GM, Chrysler merger. Too many factors are against it ever happening.
I know bankers and such love playing with numbers in these scenarios, but as a car consumer, I don’t see how GM gains jack with a merger with Fiat/Chrysler. Consumer Reports most of the Fiat/Chrysler/Dodge/Jeep vehicles as MEH. Almost everything Chrysler could offer consumers GM already offers.
This article, as well as other ones recently on the internet, all seem to quote this one analyst, Max Warburton, who seems to single handedly keep this GM-FCA merger nonsense in the news.
“Beating a dead horse”…indeed.
Less auto companies would not make things better, especially for auto buyers. If anything, these companies should be split up into smaller ones. Merging not very successful auto companies together do not make a better one. You just end up putting people with bad habits all in one room, where the bad habits spread around. Just look at what happened with American Motors back in the day.
If the old GM and Chrysler had been allowed to go into bankruptcy we would probably have half a dozen or more healthy auto companies made out of the useful parts of those old dinosaurs. Instead we will likely be bailing them all out again in the not to distant future. It will be Chrysler third time time picking the taxpayers pocket at that point.
Richb the fact is GM did just what they needed to do and just get the company down to a manageable number of models and work to decrease the over lap.
In todays market the small company is going to be a thing of the past accept for the small niche companies and they often make it up in price like Morgan.
The formula you predict is where you get development cost that smaller companies just can’t afford. The mergers Sergio is looking for will happen just not with him. The strong companies will continue to work to control cost on components but not with weak players in a tied to them partnership.
We will see companies like BMW who want to stay independent continue to joint but independent partnerships like they have with Toyota and even larger companies like Ford working with GM on transmissions.
The key is both partners keep independent but yet save on cost on components that can be shared but still tailored to each brand as not to appear as the same identical unit. Platforms and transmissions are great at this as are AC systems and the like.
The formula of many small companies would not have been healthy and would not have lasted long.
In todays segment even the largest like GM, Ford and Toyota are willing to work with smaller companies that are strong with money to share cost. It is to the point I have seen stated even companies the size of Honda are to the point on development cost that they are having difficulty going it alone. At the rate it is going no one will be immune.
As for FCM and other weak players many will be broken up for what is worth saving and much of them will fade away in the near future.
As of now for Sergio to make this work he would need at least two major money funds to step in and a lot of luck as there is just no one interested in his plan. They know the returns would be very short term and in the end it would be a money loser. His company has too much over capacity now and he is not making the cuts to fix it.
To save FCA a lot of models need cut and the money saved needs pumped into new class leading product. Right now they are not moving ahead with new product fast enough and while better it is not good enough.
FCA is in real trouble. I have predicted in then years they may not be here and at the rate it is going it may not be that long. This will be painful to watch.
Before both companies filed chapter 11 GM pumped all it’s money into new product so they has something coming out. While not the cars they wanted they at least had something. Case in point the present Malibu while they worked on the one we are about to get.
FCA really had no money and it took them years to get new product out other than the trucks and some updates to the present line up. It was too little to make a difference. Now they are discounting models across the board and not making money like they should. They need more income to do even more new models but that is just not happening.
They really need a good value small car that could replace the Neon and to this point they still lack that. This is where they could make a lot of money along with a mid size truck again but it is just not happening.
I expect Jeep and Ram will be somewhere else at some point with VW? That money will go to save Fiat not Chrysler I hate to say.
Either way unless someone with deep pockets and more than one of them show up this is not going to happen. Also GM was not going to let it happen with out a fight.
Sergio wasted too much money on his fantasy, Alfa Romano – – a division he has already once, like Lancia, tried to relaunch. In fact, under his leadership, Alfa has lost customers by investing in uncompetitive product.
FCA stood a good chance of success. All that was needed was a keen, longterm focus on two or three brands (at most) for global expansion. Jeep and Fiat or Chrysler, depending on market, were the best bets and all Sergio needed to do was follow Ford’s development plan from this last decade–I site Ford because it was more damaged than GM and had in 2006 more in common with Chrysler’s lack of global reach.
Sergio has a short attention span that wastes money. He never finishes a project due to his obsession with fast growth via mega deals. Because of this he has wasted billions on Lancaster and Alfa over the last decade.
At this point, FCA will likely end up in another bankruptcy within the next few years. The only other option would be a sale of Alfa to VW, and the addition of a Chinese partner with deep pockets willing to walk the long road with a company that lags by all metrics in quality, tooling, product range and true focus.
Who ever runs this company must invest in one brand, for better or worse, to compliment Jeep and Ram. This didn’t need to be difficult.
Jeez, here is the first paragraph of a story that appeared in Reuters today…They even have a news story when there is no news to report !!??
“Consolidation continues to be necessary in the auto industry but there is nothing new to report on Fiat Chrysler’s (FCHA.MI) (FCAU.N) desire for a tie-up with General Motors (GM.N), FCA CEO Sergio Marchionne said on Friday”.