Fiat Chrysler CEO pushes for mergers after GM rebuff
DETROIT — Fiat Chrysler Automobiles stock was down early this week after weekend buzz following reports that General Motors is among the automakers that has rebuffed the automaker’s invitation for merger talks.
Add GM to the list of suitors not interested in the industry consolidation that FCA CEO Sergio Marchionne advocates globally.
On Saturday, the New York Times reported that Marchionne sent an email to General Motors CEO Mary Barra in March. Marchionne suggested that a combination of GM and Fiat Chrysler could cut billions of dollars in costs, but was quickly turned down.
Marchionne presented a 25-page analysis showing automakers are wasting billions in product development in conference call with analysts on April 30. Few may be taking Marchionne’s pleas for consolidation seriously, but analyst Adam Jonas of Morgan Stanley is not one of them.
“We don’t believe Mr. Marchionne and chairman John Elkann are weighing in on industry consolidation just to vent frustrations,” Jonas said in a report published this week. “We think they seriously want to be a part of the process. We think they may be successful in enticing other players to at least come to the table.”
It is a path Marchionne has pursued for years.
“I meet with CEOs all the time. We have always discussed the possibility of co-operating on particular issues,” Marchionne said last week after speaking at an industry event in Detroit. “What happens is most organizations pay lip service to this thing and then life goes on. The full extent of consolidation, if properly executed, will cure all of the ills. But you have to go the distance.”
Many analysts point out that major mergers and acquisitions always come with tremendous risk. Chrysler itself was part of a disastrous acquisition by Daimler AG in 1998 and Cerberus Capital Management in 2007 before Fiat acquired a controlling interest in 2009.
Since then, Marchionne has successfully built Fiat Chrysler Automobiles into the seventh-largest global automaker.
The automaker’s stock price has soared 77 per cent from $8.92 per share when it went public on Oct. 13 to more than $15 a share this week.
Marchionne wanted to list the automaker on the New York Stock Exchange so it could be better compared to its main competitors in North America: GM and Ford. However, FCA continues to lag in China, where GM is strong and Ford is expanding rapidly.
And the automaker’s market capitalization — the value of the company — is just $20.4 billion, or about $11 billion shy of upstart electric carmaker Tesla’s $31.3-billion market capitalization — even though Tesla is a fraction of the size of Fiat Chrysler.
Tesla sold just 17,150 cars in the U.S. last year while FCA US sold nearly 1.9 million cars and trucks.
Marchionne met with Apple chief executive Tim Cook and Tesla CEO and founder Elon Musk in a recent three-day trip to Silicon Valley. He said he is impressed with Musk and is open to exploring partnerships with Apple and Google.
Ultimately, though, Marchionne continues to say the global industry would benefit most from mergers between automakers.
“If you try to get to economies of scale … you need to go [automaker] for [automaker] initially,” Marchionne said last week. “That doesn’t mean you don’t do something with tie ups, with the Apples of the world or whoever else is available.”