General Motors Restructuring Shows Late Sergio Marchionne Was Right
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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.”
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So you are saying Miss Machete Barra is copying a man?
Congratulations to President Trump on signing the new USMCA agreement between U.S., Mexico and canada. This agreement replaces NAFTA.
https://mobile.twitter.com/realDonaldTrump/status/1068491952696557575
Sorry, Sean Szymkowski, you were proven wrong…NAFTA renegotiated, NAFTA changes to USMCA, and both Mexico and Canada had to give in the Trump.
Do,
You’re very obviously another delusional Trumptard. Must be rough to live in ignorance with stupidity ruling your life.
Every legitimate news source has reported that changes to the agreement are minor, the name probably being the most significant. But this is typical Trump, screaming, name calling, claiming what a great negotiator he is, and delivering nothing. MAGATS eat it up like ravenous dogs who then loudly proclaim their love for Trump kibble.
Grifter gotta grift.
Except FCA expanded from Europe into USA, India and Africa. GM is going the other way. So no really.
After Maximum Bob Lutz, Marchionne is my favorite hero/visionary in the auto world. His passing was a sudden and terrible loss. My favorite quote of his was when he would tell shareholders that it would be better for him to invest their money in the financial markets than his own company’s plants. What a guy! A philosophy major! And those sweaters- forget suits!
Visionary Bob Lutz leading GM to bankruptcy….
Sorry to say this but Mrs Barra od not even 10% of the format Sergio was. Leading one of the biggest automaker requires vision and not just plant management experience
Sergio may have been right, but the application of industry consolidation is much easier said than done.
First, you must get the government’s approval and convince them that this is in no way the formation of a monopoly. You must then attempt to trim down your brands and vehicle lineups. Again, easier said than done because why would either GM or FCA, in this example, want to kill off profitable brands, even if they stand the potential of competing internally with one-another? And when it comes to vehicle nameplates, how do you decide which model to kill off if you’re dealing with something like the Ram, Silverado, or Sierra?
Finally, you must find a way to ensure that there is no internal competition within the organization, as this leads to poor employee morale, which in turn causes the products to suffer. The tense relationship between Hyundai and Kia, the downfall of British Leyland, and the current infighting within the VW Group between Volkswagen and Skoda have made me increasingly skeptical that consolidation works when applied in the real world.
Powertrain and platform collaboration is one thing, but a full-on merger is something else.
@Alexander Carabitses interesting comments you made about the relationship between Volkswagen and Skoda as well as Hyundai/Kia. Do you have any articles I can read up on this? Not insulting you, I just wanted to read about it for myself.
@VoteBleach2020 As far and Hyundai and Kia are concerned, I have only heard an account from Autoline, which spoke to a Hyundai executive several years back about the relationship between the two brands. His words were, “We hate them twice” and he referred to corporate meetings and the showroom. I wouldn’t call it a hostile relationship by any means but it does seem like it’s not quite a match made in heaven.
As far as VW and Skoda are concerned, I have a link to a Reuters article from October 2017 about the issue:
https://www.reuters.com/article/us-volkswagen-skoda-exclusive/exclusive-vw-seeks-to-curb-competition-from-skoda-sources-idUSKCN1C91EC
I hope this helps.
Definitely an interesting read. Makes me wonder why VW group even bought Skoda in the first place. What benefit does having more than one mainstream brand serve? GM also owns Vauxhall, Holden and at one point Saab. Owning Opel was ok because all GM small cars and SUVs are based off an Opel designed platform, but what benefit did the other 3 brands bring to GM? And likewise for VW and their SEAT and Skoda Mark’s. From an outsider’s perspective, it seems like more money wasted on marketing and design.
It took an innovative Canadian to show Detroit how to run a car company. Little FCA is now outselling Ford in the US and Jeep and Ram are proving to be class leading products. GM is shrinking like a violet in the hot dry sun.
Mergio was right, of course about the need for consolidation. The devil is always in the details.
But what did FCA have that GM needed? A 20 year old Mercedes RWD platform? Defunct FWD economy cars? Dart and 200 always reviewed poorly against Cruze and Malibu. Some underwhelming FWD crossovers like Journey?
RAM? How would GM use RAM in light of Silverado/Sierra? They couldn’t.
Nope. The only thing GM could use from FCA was the Jeep brand. If Mary made any mistake, it was not attempting an aggressive merger where all of Dodge and Chrysler went away (except perhaps the Pacifica) and then fold Jeep under GM.
But as we all know, he would never have agreed for an arrangement like that, and GM could not have pulled it off in a hostile takeover.
All he REALLY wanted was Mary’s Money.
FCA is alive because of RAM and Jeep. Those golden gooses have to keep laying eggs, else, FCA will go bankrupt or shrink to the point it gets bought.
This is real pompous talk especially considering that the US auto industry is worth next to nothing. Today GM, Ford and FCA (I know FCA isn’t American) are worth 57, 37 and 26 Billion in market cap respectively. By comparison, Apple, Amazon and Google are all hovering around 1 trillion each.
Toyota is at 176B. Significantly more than all 3 combined.
General Motors’ restructuring demonstrates that GM CEO Mary Barra is out of touch with the direction of the market and General Motors’ Board of Directors need to seriously consider replacing Barra because she gave the green light to expensive programs like Cadillac’s CT6 which is a big money loser as GM spent tens of millions in the development on the CT6’s advance architecture and yet it’s for a vehicle that Americans don’t want, even worst is the fact that GM hasn’t been able to integrate the technology developed in the CT6 program into other vehicles as GM needs to hire an independent counsel to investigate future GM programs on the drawing board which may be a big waste of money as well.
Wrong!
The CT6 was well underway well before Barra was even in the picture.