Fiat S.p.A. will not be able to reach an operating margin of 7 percent to 7.7 percent targeted by sister carmaker Chrysler because Europe has not cut capacity, CEO Sergio Marchionne said.
Marchionne, who leads Fiat and Chrysler, expects the two carmakers to reach 5.5 million car sales a year "certainly before 2014," with half from Chrysler, in which Fiat currently has a 20 percent stake.
He said the Chrysler brand and Fiat's Lancia marque will function as one brand in the future.
Marchionne spoke with Staff Reporter Luca Ciferri at Fiat headquarters in Turin, Italy, on Nov. 21.
In November 2008, you predicted that within 24 months, just six volume automakers would survive worldwide. A year later, Fiat-Chrysler is still the only step toward this consolidation.
I am relatively decent at calling directional moves; I may not be absolutely accurate on calling the exact timing of that shift. I don't doubt that we need to move in that direction, but a lot of it depends on a variety of factors outside of my control. The retention of Opel by General Motors is one affirmation of the fact that mass does matter.
In my remarks to the Chrysler people when I took over on June 10, I said everything that Fiat has is at the disposal of Chrysler, and so the speed with which we execute this alliance is now really being seen.
The fact that we are going to be launching the first A-segment car less than 18 months after the alliance was created is an indication of the speed at which this cooperation is working. Not only are we going to introduce an A-segment car, but it's going to be locally produced in NAFTA. And the engines will be locally produced in NAFTA, so we have overcome all the homologation issues associated with the transfer of the platform into the U.S. at record time.
Your five-year plan forecasts that Chrysler's operating margin will peak at 7 to 7.7 percent of revenues in 2014. In November 2006, you predicted that Fiat Group Automobiles' operating margin would peak at 4.5 to 5.3 percent in 2010. How could Chrysler's post-global recession peak profitability be 50 percent higher than Fiat Group's pre-global recession assumptions?
For one very simple reason: The Obama administration has done what Europe has been unwilling to do. In November 2006, when I announced Fiat targets for 2010, those margins would have reflected a competitive state of the European car industry which today continues to be unrectified.
In Europe, structural overcapacity has not been addressed, and nationalistic interests continue to prevail over the overall health of the industry. The Obama administration, like it or not, has forced a restructuring on this industry where the emerging companies, post-bankruptcy, are going to be much better suited to drive returns on capital which are adequate with the risks that are being taken.
So I do think that a decent business on the car side which is run efficiently can produce 7 to 7.7 percent in the United States. Is that number possible in the European marketplace given what exists as an industrial landscape? The answer is no.
When you wear your Chrysler hat, you are the CEO of a private company controlled by the U.S. Treasury Department.
That is untrue. Chrysler is not controlled by the U.S. Treasury. The U.S. Treasury is the primary, and to this day probably the only, lender to Chrysler. We have a unique relationship with them, but they are not a controlling interest in Chrysler. There is an independent board that oversees the operations at Chrysler.
Our plans, our doings, our interface with the U.S. Treasury and with Fiat are subject to the supervisory role of a board of directors, and they are exercising that right. This is not being done on behalf of the U.S. Treasury; it is being done in order to protect all the interests of the shareholders and the other stakeholders in Chrysler. The biggest shareholder today of Chrysler is the voluntary employees' beneficiary association, a health care trust that has a completely different set of objectives.
When something is good for Chrysler but it isn't good for Fiat, or vice versa, how do you resolve the conflict?
The only thing I can do is make stuff available out of Fiat. And that I do. So I open doors and I make sure that the contacts happen. I leave to other people to assess the adequacy of the commercial arrangement between Chrysler and Fiat. There are committees on the management team that are designed to deal with that relationship. And they have direct responsibility to the board, to the people who are not conflicted from the arrangement.
You recently said Fiat and Chrysler together would reach the 5.5-million-unit-a-year level you consider critical for survival. You say Chrysler will be a 2.8 million animal in 2014. When could the 5.5 million target be reached?
Certainly before 2014. I mean, the writing is on the wall, right? Half of it is coming out of Chrysler. More [information] on the Fiat side will come on an investors' day we are planning for the first quarter of 2010.
Renault-Nissan CEO Carlos Ghosn predicts that pure electric vehicles will cover 10 percent of global demand by 2020. All his competitors' predictions are in the low single percentage digits. What is your view on the future of EVs?
We're going to continue to work on this, but we need to resolve the issue of economies of scale and storage of energy. In the absence of a technically viable solution to this problem, I think that this technology will have a limited purview. That's why we identified in the Chrysler plan the first application on a light commercial vehicle, because that marketplace can tolerate the limited performance of electric vehicles which are not universally acceptable. If you want to drive from Chicago all the way down to Florida, you are not going to be able to do it on an electric vehicle unless you intend to stop and recharge as you go through.
In the organizations you head, there are no chief operating officers -- just strong governing bodies made by the top 15 to 25 executives. Is this going to change, with more delegating to a new breed of COOs?
No, I think the structure works well. The problem with pulling layers between me and the management team is you end up filtering information which is useless, so you might as well throw all the garbage on the table and we'll clean it up as a team.
So far you have moved just a handful of Fiat executives to Chrysler. Is this going to change?
Can we expect Chrysler executives to join Fiat?
I hope that I can bring Chrysler people here. I think it would be good for them. It would be good for Fiat. There's talent there; you can't underestimate it.
Is there a specific sector in which you already see people potentially moving from Auburn Hills to Turin?
One area is gas powertrains. Chrysler is much better than we are at this, so far.
Another is creativity. The creativity we saw on the Nov. 4 presentation was an indication of what their organization was capable of doing. One of the things that I reviewed today was the advertising approach to the United States. It is amazing as to the level of creativity that sits within small organizations spread out across the U.S. I mean, it's just all over the place.
The video we showed on Nov. 4 on the DNA of the Chrysler brand came out of an organization Chrysler had never interfaced with before. I think we need to be able to try and get to those pools of talent and give them access to our house.