Fiat CEO, Sergio Marchionne, has grand plans to transform the global automotive landscape – putting Fiat at the top of a conglomerate that would likely create the second largest automaker in the world.
Ever since the onset of the global financial crisis last year, Marchionne has been prophesying a dramatic transformation in the automotive landscape, insisting that only seven or eight major manufacturers the world over would remain – roughly two or three each in Japan, Europe and the US. His belief is that the current way of doing business in the automotive industry is fundamentally flawed, and no longer economically viable. The only way to survive, therefore, and effectively offset fixed costs, is platform sharing between three or four different brands – with each brand clothing a particular platform in a manner befitting its individual style and personality.
Well, Mr. Marchionne now aims to make this a self fulfilling prophecy by putting Fiat at the top of a new company that would include Fiat, Chrysler and Opel, which would produce 7 million cars annually around the world – second only to Toyota. Fiat is slated to take a 20% stake in Chrysler once it remerges from bankruptcy court in the near future, which it plans to subsequently increase to 35% if everything goes according to plan.
Fiat is now negotiating intensely with GM and the German government to buy out GM’s European arm, which consist of Opel / Vauxhall and Saab. Also in the race for Opel / Vauxhall is Canadian-based auto parts maker, Magna International, which is favoured in many influential quarters of Germany that believe Fiat would eliminate too many jobs within the country – and also possibly shut down plants, which is something that hasn’t happened in Germany since 1945.
Speaking of car plants, between Fiat and GM Europe, there are plenty – Fiat has 11 plants in Europe and employs almost 40,000 people, while GM has 10 plants in Europe and employs almost 55,000 people. Mr. Marchionne has given his assurance that no plants would be shut down. But he has said that they would have to be made more efficient, which would lead to some redundancy in terms of number of workers. Furthermore, he points out that any job losses would be shared between Opel and Fiat. Another sticking point in the negotiations, though, is the magnitude of short-term loan guarantees that the German government is willing to offer Opel’s suitor.
Purely from an outside perspective, the synergies between a Fiat and Chrysler unification appear to be easier to spot – simply because Fiat and Chrysler have little or no overlap in terms of product. Chrysler would give Fiat instant access to the worlds’ largest car market, while Fiat would provide Chrysler with the product and technology needed to survive in this environmentally conscious age. The synergies are more complex in the case of Fiat and Opel, where the overlap in terms of product is far greater, as they have a number of competing products. Moreover, the track record for mammoth alliances in the automotive world is not encouraging – simply look at the Daimler Chrysler merger, which managed to destroy billions of dollars in value on both sides of the Atlantic.
The difference in this case, of course, is that Mr. Marchionne won’t be paying billions of dollars for either Chrysler or Opel – billions that he would then have to recoup through savings generated by projected synergies somewhere down the line. The beauty in this case is that he would be getting the assets of both manufactures for little or no outlay. His objective would simply be to run the new company in the most holistic and effective way possible.
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Nevertheless, Mr. Marchionne will face an uphill battle to say the least as he aims to build one of the biggest car companies in history amidst the many bankruptcies around him. What’s more, he’s jeopardizing all the hard work that’s taken place under his leadership over the past several years to completely turn around the fortunes of Italy’s industrial giant – Fiat. That being said, if anyone can pull of something this big, its Sergio Marchionne. But, is he a gutsy visionary or delusional captain of industry? Gutsy, yes – visionary of delusional, only time will tell…. |
