Why General Motors Continues To Shrug Off A Fiat-Chrysler Merger
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With Fiat-Chrysler Autos’ CEO, Sergio Marchionne, making some very outspoken statements in a recent interview over the idea of his company merging with General Motors, it has brought the topic back into the spotlight.
As much as analysts want to weigh in, and Marchionne wants to insist on the great deal he feels it is, GM has simply brushed it off each time. And that’s a good thing.
It shows GM has a focused mindset for the future, and doesn’t plan to veer off course. As a recent Automotive News report tells, GM simply has no benefit to merging with FCA.
Most importantly, General Motors has become a leader in the Chinese market. Despite recent losses, it stands far ahead of FCA in the market. GM has also been busy, to use a quote from CEO Mary Barra, “merging with ourselves.”
What she means by this statement is the rapid consolidation of vehicle platforms to build multiple vehicles on only a few blueprints. GM lags behind Toyota and Volkswagen Group in the regard, but an FCA merger could be catastrophic in the reorganization plans.
Finally, FCA seriously lacks any sort of alternative fuel technology to be of any relative interest to GM. While GM is just now beginning to see the rewards from investing in the Chevrolet Volt program (applying the technology to other vehicles, and moving forward with the 2017 Bolt) FCA lags behind with any future technology in that regard.
Simply put, former GM executive Bob Lutz may have said it best.
“You can put lipstick on the pig for a while by doing things like the Hellcat. That’s great, it probably makes a lot of money. But that isn’t the future.”
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Marchionne says merge for chassis consolidation. He’s really saying, “Help, I’ve got FCA so far in debt I have to split off 10% of Ferrari to try and make it up and it’s not gonna work, but because I’m a greedy dickwagon I’m gonna ride this out until collapse and then blame the Americans.”
I really don’t get why this guy is so determined to ruin so many great companies. He should resign before he makes it any worse.
On one hand, FCA seems like North Korea: annoying, possibly dangerous, and just won’t go away.
But … Exor Capital. Sergio’s the Vice Chairman. They made a $6b play for PartnersRe in July. Massive amounts of cash, can partner with another holding company if needed, and force GM’s hand, one way or another.
To them, I suspect this is more about making Exor’s stake in FCA work (for them), with a side helping of ego, and if platform-sharing and ‘efficiencies’ are a byproduct, fine (for them).
A far-less expansive hedge-fund forced a $5b GM buyback in March.
Maybe I’m just paranoid. Time will tell.
Where comes the point that GM management puts a stop to all this nonsense? You know who really should be voiceing thier opinion on this is the Chairman of the Board, Tim Solso. All we hear is Barra, Barra Barra, when in reality her boss is Solso. He is the one in charge of board and who would help make decisions like this. Solso has remained largely quite so far ever since taking over chairmanship and I don’t understand why. Looking at his history with Cummings he was outspoken and very daring in his running of the company. The bottom line here and I am sure Scott will not agree if he reads this, but GM upper management needs to speak up and have a few defenses in order. Sergio is not God, he can’t have everything he wants. I think Barra is a good CEO, even though her and Dan Annman are still very green in terms of leadership and dealing with issues like this. My opinion,let her run the company and let Solso/Board step up and start fighting this guy.
this gossip is becoming comical.
General Motors merging with FCA (Fiat-Chrysler-Automobiles) doesn’t make sense because FCA has nothing that GM needs as well as the fact that FCA is bleeding money as well as well as the fact that it would cause GM to have extremely high over capacity; the reason why Sergio Marchionne wants a merger is because of GM’s $25 Billion in cash reserves which Marchionne could use to pay off FCA debts. One even has to wonder whether FCA can borrow enough money to get a controlling interest in General Motors which means for Americans.. it might be a good time to buy GM stock which is trading at about $28 as any attempt by FCA to gain control of GM will mean the stock going up.
I agree that GM (Solso) needs to be more aggressive and confront Sergio. He should issue a definitive statement as to how much a bad deal this is. I think them keeping silent might be playing right into Sergio’s plans.
Maybe schedule a meeting between Barra and Sergio, and have Mary give him the middle finger in person.
But the worst thing GM can do is underestimate Marchionne….This guy is a snake in the grass who is a puppet for Exor Capital and the Agnellis. If he is able to convince activist investors this is a good idea, who knows what will happen.
I’m getting tired of FCA. It is not GM’s fault they are under financially the Sergio don’t know what he is doing.
Is the Jeep brand profitable for FCA? What is going on here?
The Chrysler side of the business seems to be profitable, the Fiat side seems to be losing money because Europe and Brazil suck right now.
For Sure but Sergio is plowing the money into Alfa not Chrysler as he should be doing. Alfa will never provide the Volume he needs. Nor will Fiat who is flat lining right now.
The Fiat over capacity in Europe is strangling them right now but Sergio will not close down those plants.
Here is a comment that was posted on another automotive forum…..Jeez, I hope this guy isn’t right about this…
“Given what I understand about capital markets I’m almost positive this deal, while yet to play out, is a done deal. No matter what some here say and think about Sergio – he is no fool and he has all but said he will be doing a takeover of GM. And he would never be so public about it unless he and his backers – The Agnelli’s and perhaps the Rothschild’s – had their ducks in a row. You only have to look at the current list of investors who have large stakes in both GM and FCA that just behind the scenes nods and winks in that group could make this a done deal without having to involve buying up blocks of GM shares, although that will happen…
What I found interesting about Cramer’s stock tip is that he has said he is selling and recommends selling GM stock because they won’t talk to Sergio. But that recommendation is designed to suppress GM’s stock price when normally the stock price of the company being taken over goes up, so you hold onto it. To me Cramer is part of a manipulation to lower GM’s stock price ahead of some block purchases that friend’s of Sergio will be making soon to get a stronger voting position and increase their profit from a merger.
Next 6 months will be interesting to watch.
Something else to consider is the internal GM maneuvers. What if Mark Reuss for example is working with Sergio. Mark got passed over for Mary. Imagine how it would impact shareholders if when Sergio makes his move Mark Reuss stands by Sergio’s side and Sergio announces that after the merger he will take on the Chairmanship to guide the merger until he retires, but hand day to day running to CEO Mark Reuss who’s father also was GM CEO?
Mary may not only be facing a stock challenge but a night of the long knives…”
Storybook theater my friend, that’s what you have there. Done deal? I hardly think that is even close to the fact. Also Marks father was never a CEO, he was president for a short time under CEO Robert Stempel.
Like Dan said this is far from done.
Mark is not upset that he was passed over. Mark to be honest is where he wanted to be. He is products guy and that is what he is fully in charge of. Mary fights the money battles and get the money to pay for Marks plans.
If Mark had been in charge he would have had little input on product and just been fighting the battles over the ignitions and the old GM culture. They both are in a place to take advantage of both of their strengths.
Like Dan said Marks father was a GM guy and he too was Mr. Grand National. You can see it runs in the family.
Mark is young enough that I expect he may replace Mary at some point. Most leaders anymore last only so many years due to the stress. Lord knows she has seen her share.
Neither the US government not investors want to see yet another Chrysler collapse. We are rapidly approaching such a reality. Great pressure will be put on GM to do this deal with some investors pleased to see GM hold a 30 percent US market share.
This deal would be great if it did not mainly consist of damaged brands in both line ups
GM needs to focus on itself for the next decade and maintain it’s cash considering the global economy isn’t very healthy.
The only worthwhile brand within FCA is Ferrari and it’s getting spun off
Why would GM consider a deal, when they can hold out until FCA fails in five years (or less)? Then, when Sergio and crew are trying to sell everything of value, GM can step in and get a good deal on Jeep (maybe Comau and/or Teskid, too). The rest of the spoils can go to others or fall away. Either way, it looks like there will lay-offs in Mopar factories five years from now if Sergio doesn’t get his poop in a big shiny group.
I also think it’s wise for GM to be silent about this. Big picture, if GM publicly rebuffs FCA, it sends a vote of no confidence in FCA products which will ripple through the industry and hasten its demise. I don’t think GM wants Chrysler to fail suddenly, as that will lead to destabilization of the auto industry as a whole. Sergio’s desperation is hurtful enough. The auto industry doesn’t need someone with the influence GM has reinforcing that desperation.
Remember, we have Exor and the Agnelli family to worry about besides Sergio. Exor just acquired another company via hostile take over…John Elkann and company seem very viscious. Hopefully GM knows this.
http://www.ft.com/intl/cms/s/0/934a6be8-39d0-11e5-bbd1-b37bc06f590c.html#axzz3lBEPvY5M
The bottom line is and no matter how much I even say that GM needs to speak up and fight these people, they have a plan. Matter of fact I guess there are 2 ways to look at it. Maybe they are staying low key for a reason. Maybe they have a big surprise up thier sleeve to fight FCA. I am sure they know what they are up against with FCA and I can only hope they have a good plan B if A dose not work.
Dan you are correct I do not agree into a public spectacle here and now. Now will there be a time to respond yes but not yet.
Here is a point of wisdom that imparts what I believe.
“Answer not a fool according to his folly, lest thou also be like unto him.”
“Answer a fool according to his folly, or he will be wise in his own eyes.”
While these quotes contradict each other they also point out there is a time to not respond but their Is also a time you should respond.
The game here is very high stakes Poker and you are play with an dangerous man with the ability to upset the table if you show your hand too early and he knows he will lose.
Sergio is not a normal car or business man. He is a money man and while he has fed his ego he also is willing to fill his pockets and run away even if he loses leaving the others in shambles if needed.
As Wait very astutely pointed out Exor Capital is a venture Sergio is VP in for the Angnelli family. He is their cut money full dog. The Family has changed since the old man dies and they are more interested in money than tradition and long term companies. Sergio has helped them with short term gains and left a lot of damage behind him along the way.
Sergio is much like Johnathon Goldsmith from the 80’s. He too preyed on companies with money people and would gut them for what they were worth and leave the a mear shadow of what they once were.
At this point he appears to be getting some money lined up but most people he was expecting to back him are not involved. Exor is part of the group that owns FCA so I do not count them as outside investors. He is also counting on Ferrari money. Beyond that we have not seen many lining up to support him. It appears to be internal support.
Now on the other hand GM holds a lot more cards than Fiat. If Sergio makes a move GM will not sit there and take it. They I am sure have several plans and money people of their own ready to step up and step in to prevent the take over. GM’s key will be to minimize the damage done. While I believe they can fend off Sergio he still can inflict a major amount of damage to the programs GM is investing in for future product. While the damage may not be seen now it could hurt things 5-10 years from now.
Also GM does not want to appeal in public as a venerable company to the public. Remaining strong silent and appearing firmly in control is a positive.
At this point what would be the point of responding to Sergio saying I am going to hug you and you yelling back no your not. Better to remain strong confident and line up your backers to smack this bastard over the head so hard he will forget who he was for 5 years.
The point is what has GM to say and what point would they prove by saying anything now. You know they can not telegraph their moves. Some I am sure Sergio is anticipating and hopefully many he is not.
Work from a position of strength and that is what GM will do. These issue seldom ever make the papers and most legitimate companies do not want to be drug through the press. The Automotive media is already sucking on Sergio’s tit and no need to continue to feed the machine.
By the way you have seen how the media loves to support GM? Even if they are 100% correct the media still tried to bounce them as the media loves to hit the large corporations like GM. They seldom give them a fair story or break. Even in the ignition deal you never got all the facts like how so many of the so called victims were not belted in the car or even driving impaired at often high speed. The fact was most of these people the life and death started and ended with out using the belt as the airbag was not going to save them no matter what if you are not belted in hitting a tree at 70 MPH.
Dan I understand your feelings and I wish Mary going public and telling Sergio to go F himself was on the 6 o clock news but that is not going to help anything but make us feel good.
Our best bet is this right now. GM remains strong and gains support from money people on their side. They have many supporters right now as they are headed in the right direction and most analyst predict them to continue to increase in value. Many want to ride that train. If FCA comes in it will be devastating to GM. Second most of Sergio’s support is from with in Exo and related money people. I just don’t think he has the support to make the full move. But like I said how do you minimize the damage.
On the other hand it has been good Sergio has gone public on this as he could have just kept his mouth shut and tried to do this by surprise. That way GM did not have a year plus to prepare for the fight. He telegraphed his move and it may be his undoing. He is much like Napoleon saying follow me into battle only to turn and find the people he expected not there.
While I do not agree Dan on speaking up now there will be a time to throw down the gauntlet and fight. The time will be then to answer the fool to show he is not as wise as he thinks.
Note if this had happened right after the bail out GM would have gone down like a row of domino’s. The last 5 plus years have really helped them in the eyes of Wall St and investment people and they like to back winners not people in 8 billion in debt asking for hugs.
I did like the N Koran comment. I made something similar a while back. Not much different there. Just a bad sweater vs. hair.
Incredible post, Scott3. All of your points are well taken. I hope you are correct on every one going forward.
There is one wild card here. VW
VW wants to buy FCA but Sergio does not want to be a part of them. He knows he will be out the door as soon as the deal is done.
There may be a roll for VW to play and could GM include them in the plan to fend off FCA? I have heard nothing of this but it may bear watching as we know who does want FCA.
In the end FCA will change the question is just what way. They can no longer afford to stand on their own and this is why I have posted for the last year they may be gone in 10 years to the ire of some. I did not say it in Glee but the reality as they are taking on debt like the Titanic took on water. They die a little every day.
The key is for those who are invested in FCA and how they expect to protect their investment.
Good point Scott, it would be really interesting seeing VW and GM take sides to rip Sergio and Elkann apart and VW get FCA. I do agree with you that Sergio is getting way to smart for his pants and when its all said and done he will bitten off way more then he can chew. He will go down with Fiat. The good news is that still the majority of shareholders think this is a bad deal and are not for it. I am waiting for someone like Warren Buffett to come in and buy like 5 billion worth of stock to help GM fight off FCA.
Yes, I was also wondering for awhile what Warren Buffett would do in this situation. I have heard that he has a very good working relationship with Mary. He bought a new Cadillac XTS based on her recommendation.
Before crown Warren you may need to really consider he is a businessman first and one that is very careful of his image.
While he appears to be a kind hearted older soul he really is a hard nose businessman who has done what makes him money first and worry about the rest of us second.
Note the Canadian Pipe Line that the Obama administration keeps kicking down the road is part environmental but it also is part Warren. Warren donated a lot of money to the present administration but he also owns most all the trains that transport the oil too. In the long run it hurts our country to use rail but Warren is making a lot of money too.
Just because he bought a Cadillac does not mean he will come to the rescue. He could very easily move to the other side if it benefits him.
Warren could be your best friend or your major issue in cases like this. I do not hold it against him as this is how he has made his money. Investing is like gambling. You always bet with your head not your heart.
I would not count on VW either. They would likely just hang around and cherry pick what is left.
Totally agree. I was just pointing out that Warren and Mary are acquaintances. Buffett’s investment group (Berkshire Hathaway) owns alot of GM stock.
Ms. Barra also travelled to Omaha, Nebraska (where BH is located) and met with them to allay fears about the ignition switch debacle when news of it first broke.
Note I am not condemning Warren as it is just what he is and that is how people like him make money. As long as they do not break the law more power to em even if I do not like the outcome.
Just imagine a Camaro based on a Dodge platform with a Hemi engine, if they merge I will look for Hyundai or VW or something like that.
Why would you want a Camaro based model with a Hemi? The new LT is much more advanced and has more room for growth.
This is the problem. If this merger went down you would lose many things. There is no keeping two V8 engines. Chevy would get the nod here for their newer engine. Trucks. Chevy may come out as they are the brand selling much more in volume. Cars. Well Chevy is safe Buick would remain for China. would remain.
Chrysler is a question mark. Most of their new cars are better but not as good as what GM has. The RWD cars are older and need replaced now not 2019 as planned. All I see is Jeep and some Mini Van surviving. Then Sergio would rob GM of their money to fix Fiat, Alfa and what ever else they have left that will still fail due to the lack of global love for anything Italian other than Pizza, Ferrari and the Pope.
In the end Sergio will leave two companies in shambles enriching himself and the A family.
The real issue is you mash up GM and Chrysler you will alienate both sides and many will leave to go buy else where as neither company will really survive and who wants to give Sergio any money.
If you want people to speak up it is the public who if they reject this out loud it will help keep many from wanting to invest as if the customers on both sides say no who will they make money off of.
If they mash this up I am not sure where I would go but it would be hard to buy a GM car made by Sergio. In fact it might be a cold day before in hell before I would buy any product he is responsible for.
A reject Sergio protest on the web would do him more damage than anything GM would say right now. The lack of customers is not all that hard to consider if they really do away with the brand and if he does to GM what he did to Chrysler.
I just had a dent repair guy out and what he used for poor metal was Chrysler. That was the standard for which he compared poor metal.
The point also is brand loyalty. You will have millions of GM fans going elsewhere because of the European heritage, you would also have millions of Chrysler fans that dont want GM. This would be the worst matchup in history and would help destroy the American auto industry. He and Elkann must be stopped somehow or some way.
Berk is going to do what is best for them in the end. GM wants to keep them happy as groups like this if they lose a warm feeling about profits could turn fast on you.
People think Warren is just a warm and fuzz grandfather lending great advice on whims. He is a smart calculating businessman who tries to keep the advantage in his court. A lot of people play up to him because he can make or break many in the market.
In other words you do not want to disappoint him as he can crush you fast.
I am sure if he asked Mary for a Sergio hug of varying degrees she would ask what degree would Warren want.
The recovery for a Chrysler GM merger would be worse than the Civil War.
Yes, if this were to happen, we would only have one true American car company. Maybe an online petition saying that we will refuse to buy any GMFCA product will get people’s attention. People pledging that they won’t purchase any GM / Italian melting pot vehicles could have alot of influence on the powers that be (excluding Sergio and Elkann).
Probably wouldn’t do any good. But at least there will be public awareness that most people are against this.
Hopefully GM/Barra/Solso, etc. have a good ol’ fashioned ass kicking planned for Sergio, and all of this will be moot.
It is kind of ironic that the American Auto industry almost went the way of the dinosaurs in 2008-2009. And it still might happen today because of a guy in a black sweater and his 39 year old curly haired ferret.
It would only need to scare off the potential investors that is all.
This was on the web.
1. Marchionne’s own fears never materialize and everything works out just fine. Hooray, problem solved.
2. Marchionne is correct, FCA runs into trouble, can’t solve it, and declares bankruptcy. Do not pass Go, do not collect $200, go directly to 2009
3. Marchionne is correct, FCA runs into trouble, and the company begins making evasive maneuvers like other Detroit automakers did during the Great Recession. Underperforming brands are (finally) shelved, global production is streamlined, new technology is prioritized, and after a long rough patch, things come out more-or-less okay.
4. Marchionne is at last accepted into GM’s lukewarm embrace. From there, things could go a thousand different ways. That’s a choose-your-own-adventure book in itself.
5. Marchionne uses investors to force a merger with GM, resulting in hurt feelings, a tsunami of lawsuits, waves of terrible publicity, and even more uncertainty than with option #4.
6. Marchionne finds another partner like PSA Peugeot Citroen. Its problem aren’t fully solved, but if both companies go down, they’ll go down together
They Speculated #3 or #6 were the most likely as I have seen other comment too.
Sergio knows he can not keep going on as he is and this is why he is so vocal as he is desperate. If he were not so desperate he would remain quiet work a deal with VW and walk away.
I think number 3 will happen before any of the other scenarios. Also Mackey brought it up as have I many times, what do you think of Chairman Solso? All we ever hear about is Mary. But in many circles its been said that Solso and Dan Annman are really the ones running the company. You almost never hear this guy speak except for at Annual report stock holder meetings and when they elect a new Board member. Correct me if I am wrong but the Chairmen of the Board is as high as you go on the totem pole. I believe he was made chairman instead of Barra do to the fact she was still very new to leadership and had little knowledge of running board meetings. But here we are now with a serious situation that can jeopardize GM and he is silent. Considiering the fact that GM split the CEO and Chairman roles after Dan Ackerman left, they also split the power as well.
Dan the first thing I will assure you of is Mary is very able to run a board meeting and handle most other situations. She did not get where she is with out doing the job. She is far from a token. I have watch her move over the years and she is a very capable executive. To point out how she is under pressure I would point to the ignition deal. Few CEO or Chairman GM has had over the last 45 years would have handled it as well.
Second I would point out that Mary also has an asset. Yes she is a woman and not some old male executive. Now this is not a sexist thing but a deal where GM is trying to prove they are not the same old gang saying they are going to change but never do. They took the bold step to put a qualified woman in charge. No more good old boys club where they keep putting in the same old incompetent accountant.
These moves were done to gain public confidence and also gain favor with investors.
To this point Mary has proven herself as the lead public figure of GM.
Yes the board is her boss, hell they are everyone’s boss. But they have put Mary and Mark in place as they are true auto product people who know how things work and how things needed to change. The board is often made up of leaders of other companies and other banks etc. that over see the work of those they put in charge. If they are not happy they speak up if things are going well they observe and advise. As of now things have been going as well as can be expected coming from where they were in 2009.
Growing up around the headquarters of BFG, Firestone and Goodyear I have in various jobs and my families jobs had close contact with the CEO and Board members of these companies and I grew up observing how they operate. While not at big as GM they operated and I know Goodyear still operates much the same as GM now. The board steps back and let their choice run the company. If they perform you hear little from the board.
I am just stateing what was said at the time of Barra becoming CEO. I mean let’s face it GM could of also made her Chairman at the same time. It was stated that both the Board and Dan Ackerson felt she did not have the experience to run a board meeting and that she needed to concentrate on running the company. Now I am sure she can handle it by now. But my whole point is that during all this merger talk that you would think you would hear a bit more from the top man at GM Tim Solso who has in my opinion stayed mysteriously quite during all this.
Here is some positive news regarding Ms. Barra…
http://www.detroitnews.com/story/business/autos/general-motors/2015/09/10/mary-barra-fortune/72000108/
Hey, as long as she can fight off Sergio Mergio and keep GM away from FCA, I will be part of her fan club no doubt.
“Sergio Mergio”……Good one !!!
FCA should find some emerging Chinese giant to merge with. That would really be a win-win situation.
But GM? This company which has already more then enough problems to “merge with itself”? Nonesense.
Here is some great info from an article in today’s Automotive News…Mulally said this about Ford in 2006
“We’re going to merge with ourselves,” Mulally said shortly after his arrival, when reporters studied Ford’s ugly balance sheets and asked whether it needed a partner to survive.”
Here’s more from the article:
“GM CEO Mary Barra borrowed that phrasing in recent months to turn down overtures from Sergio Marchionne. Mulally showed the best merger plan might stem from a good, hard look in the mirror”.
“And, of course, the company pared its brand roster to just two: Ford and Lincoln. Even that was a concession for Mulally, who originally wanted to ditch everything but the core Blue Oval lineup. “
Fascinating reading about Ford, Renault-Nissan, Toyota and Tesla. Not sure if it will work, but here is a link to the article…
http://www.autonews.com/section/industry_on_trial#week6
GM doesn’t have “ugly balance sheets” any more. But I think Barra’s analogy is spot on.
Thanks for sharing. I am sure in the end the investors will do the right thing and tell FCA to get lost