Marchionne says next deal could be after he's gone
MILAN (Bloomberg) -- Fiat Chrysler Automobiles CEO Sergio Marchionne, the mastermind of the merger that created the world’s seventh-largest carmaker, says another transformational deal probably won’t happen under his watch.
After publicly campaigning for a merger with General Motors Co. for most of last year, Marchionne has changed his tune as he prepares to retire at the end of 2018. Rather than pushing for another combination, the 63-year-old executive plans to focus on making Fiat Chrysler more competitive and achieve his ambitious targets, including increasing deliveries by about 50 percent in three years.
Following proposals from “non-ideal” partners, “we went back to concentrate on the 2018 plan which would boost Fiat Chrysler’s value and its position in a deal,” Marchionne said today after completing the spinoff of supercar maker Ferrari. “The difference is that it won’t be me to do it. It will be someone else’s duty.”
Without a suitable partner like GM on the horizon, Marchionne will now have to shift from dealmaker to car guy. The executive, a novice to the auto industry before taking charge of Fiat, has used his negotiating skills to transform the Italian automaker, which was at the brink of collapse when he took the helm in 2004.
In 2005, the former chief of Swiss testing company SGS SA secured a lifeline by strong-arming $2 billion out of GM. Then, in the midst of the financial crisis, he made a deal to salvage Chrysler from bankruptcy, giving both carmakers more strategic options. The spinoff of Ferrari was his latest coup, raising about 4 billion euros ($4.4 billion) for Fiat Chrysler and increasing the companies’ combined value, including the former supercar unit, to double what it was prior to the announcement in October 2014.
Marchionne now intends to focus on a 48 billion-euro ($52 billion) expansion plan through 2018. Slowing demand in China and a drop in Brazil’s car market has prompted cutbacks. New models for the Alfa Romeo and Maserati brands, which were meant to anchor a push into upscale cars, have been delayed as the spending emphasis shifts to fast-growing Jeep.
The Italian-Canadian executive, known for eschewing business suits for casual sweaters, has so far stuck to his 2018 targets, including boosting sales to 7 million vehicles by 2018. That’s almost 2 million more than market researcher IHS Automotive estimates for Fiat Chrysler deliveries. He said today that the company doesn’t need a partner to meet its goals.
Deals that were on the table provided only a “marginal” solution, Marchionne said, without identifying the potential partners. “We are not the only dummies in town. As long as there is a better alternative out there, we need to hold on and execute the plan to put ourselves in a better position to discuss it with the other party at the relevant time.”
Marchionne has been crusading for combinations for more than a year, highlighted by his April presentation called “Confessions of a Capital Junkie.” He argues that the auto industry wastes money by developing multiple versions of the same technology, such as emission and safety controls, and that combining would spread those costs across more vehicles.
His reasoning has been ignored, especially by his preferred partner. In June, GM CEO Mary Barra said the carmaker’s board vetted and rejected his proposal. That didn’t stop him from applying pressure by saying in August that a combination with GM could generate $30 billion a year in cash. But the chase for GM appears over for now.
“I met Mary Barra less than a month ago in Washington,” Marchionne said. “I don’t think I will have another coffee with her. It won’t happen again in the future.”