Fiat Chrysler’s search for merger partner stumbles
Record penalty over response to safety issues in the U.S. weakens company’s prospects
MUNICH— Fiat Chrysler Automobiles NV’s search for a merger partner suffered a setback after the Italian-American automaker was reprimanded with a record $105 million (U.S.) penalty for its delayed handling of safety defects in the U.S.
On top of tarnishing the image of Fiat Chrysler cars and trucks, the conditions of the punishment, including an estimated $7.5 billion to buy back defective vehicles, make it even less likely that another automaker will take up chief executive officer Sergio Marchionne’s call to link up.
“Does this news lessen the attractiveness of this company? Sure, it does in some sense,” said Arndt Ellinghorst, a London-based analyst with Evercore ISI. “But we generally don’t think that Fiat is an attractive candidate for a merger in any case.”
Marchionne has been pushing for consolidation in the auto industry to share the cost of developing new technologies and boost returns. But with Fiat Chrysler burdened with11.4 billion euros in net debt ($16.5 billion U.S.) and lacking a large presence in growing Asian markets, automakers including General Motors Co. have passed. The sales pitch will be tougher now.
Fiat Chrysler’s shares fell 6.9 per cent to 13 euros in Milan, the biggest drop since Oct. 14 and making it the worst performer on the Euro Stoxx autos and parts index. The company declined to comment on the effects of the punishment.
Under the penalty agreement, which follows years of wrangling over safety issues, Fiat Chrysler faces heightened regulatory scrutiny. The company, which initially refused in 2013 to fix Jeeps linked to fire deaths, is required to hire an independent auditor for three years to make sure it no longer delays recalls.
The new approach seems to already have had an impact. On Friday, Fiat Chrysler recalled about 1.4 million cars and trucks vulnerable to hacking.
The move follows a report by Wired magazine about software programmers who were able to take over a Jeep Cherokee. And then on Saturday, it announced a recall of 1.7 million Ram trucks to replace air bags that may deploy inadvertently.
“It’s a negative piece of news because it hurts Fiat Chrysler’s reputation,” said Hans-Peter Wodniok, a Frankfurt- based analyst at Fairesearch. But even without the setback, “I don’t really see any mergers for Fiat.”