Why are Sergio Marchionne and his rivals disagree about consolidation

According to automotive reviewers Luca Ciferri and Larry P. Vellequette of Fiat Chrysler Automobiles, the constant call from CEO Sergio Marchionne to the car manufacturers to join and grow is still unanswered. S.Marchionne is of the opinion that the car industry is fragmented, when producers billions of sums of useless investments in research and technology, which destroys the proceeds for shareholders. He believes that manufacturers should now connect, because they will be followed by disastrous consequences. The main target for S.Marchionne has become General Motors, but the leaders of this manufacturer ignore martial arts from S.Marchionne.

At the Motor Show in Frankfurt, General Motors manager Mary Barra said that both the manufacturer's management and external consultants have carefully considered the possibility of merging General Motors and Fiat Chrysler Automobiles. According to the manager, a careful review of all was concluded that it would not be advantageous for shareholders of General Motors.

Sergio Marchionne

Carlos Ghosn, head of the Renault Nissan Alliance, partly agrees with Mrs Marchionne and believes that smaller manufacturers should enter into alliances and work with larger players on the market, as this will only allow them to invest heavily in more fuel efficient engines, intelligent technologies and automated car & # 39; s. However, Mr Ghosn is skeptical about mergers because they are often unsuccessful.

Carlos Tavares, head of PSA / Peugeot-Citroën, notes that the manufacturer has the ability to reduce the cost of purchasing components and to divide the costs of research and deployment into a larger number of cars, but it must be weighed against a firm flexibility. C.Tavares recognizes that he has not yet reached the optimal size and flexibility ratio, and insists that managers should concentrate more on the use of available resources, not just on growth. According to him, saving is now important: more needs to be done with fewer resources.

Fiat 500e logo

Lars Wrebo, head of purchasing and production at Volvo Cars, finds the size no advantage. According to him, General Motors would never have gone bankrupt if size was the key. He believes that Volvo Cars is even superior to rivals when it is relatively small, because it can make decisions faster.

Mr Marchionne, however, ignores these views and remains of the opinion that consolidation is the answer to most questions. He does not intend to give up the merger with the idea of ​​General Motors and believes that, according to his calculations, the advantages of such a merger are too great to allow this possibility to be released by the wind. In an interview with Automotive News, he said that in this situation it would be unreasonable not to become a partner.

Chrysler Town & Country

S.Marchionne argues that the result of the merger between Fiat Chrysler Automobiles and General Motors would not be a slight increase in margins, but a "cataclysmic shift in performance". He says after analyzing each product, factory and region, making assumptions about which architectures and engines could survive, and concluded that the only advantageous partner for General Motors is its manufacturer.

According to S.Marchionne, the combined profit of Fiat Chrysler Automobiles and General Motors would be significantly higher than that obtained separately. He believes that such a merged manufacturer can earn around 30 billion. Dollars (€ 27 billion) per year, i.e. about 20% more than these two manufacturers plan to receive this year. The head of the market research firm Evercore ISI, Arndt Ellinghorst, says that such a plan is reasonably realistic, as this year the profit of Fiat Chrysler Automobiles and General Motors for interest, taxes, depreciation and amortization (EBITDA) will amount to approximately 25 billion. Dollar (€ 23 billion), so we can expect to receive $ 30 billion in assessments of possible synergetic effects and market conditions in the US. dollar (EUR 27 billion) profit.

Jeep Grand Cherokee

Nevertheless, the leaders of General Motors disagree with the alternatives that S.Marchionne proposes. They doubt his claims to synergy and believe that the deal with Fiat Chrysler Automobiles is not a good idea. One General Motors manager at a high level wonders why their company should save Fiat Chrysler Automobiles. The merger with Fiat Chrysler Automobiles is the largest American manufacturer interested in no more than another bankruptcy procedure. Nevertheless, the administration and management of General Motors examined the possibility of a merger for two months and decided that this idea would cause a lot of distraction, complications due to cultural differences between companies and an overestimation of potential profit expectations. A representative from General Motors has noticed that the merger with Fiat Chrysler Automobiles immediately entails many risks and extra costs, and that the potential benefits lie somewhere in the future.

Sanford C. Bernstein analyst Max Warburton notes that joining General Motors and Fiat Chrysler Automobiles seems to be a nightmare for managing and organizing operations, but if so, who would succeed then it is only S.Marchionne . S.Marchionne himself does not let himself down and does not intend to enter into a merger with General Motors in any way. Meanwhile Barra rejects the arguments of S.Marchionne and believes that the size of General Motors is still sufficient, the manufacturer is now struggling to "make contact with himself" – increasing internal integration. S.Marchionne recognizes that the merger would present a number of challenges, but believes that the benefits are too high to be ignored.

While Mr Marchionne talks about mutual benefits, larger and considerably richer manufacturers are in a better position than Fiat Chrysler Automobiles, who have been hit by serious problems. This manufacturer is lagging behind its competitors for all parameters: profit margins, investment in research and technology, fuel consumption, hybrid cars, progress in autonomous driving, etc. At the moment the car industry is facing a huge investment need, and Fiat Chrysler Automobiles is the only one of the largest car manufacturers whose debt exceeds the available funds.

Yet Marchionne does not agree that aggressive spells are only an expression of despair, and says that Fiat Chrysler Automobiles can survive on its own. Because of the difficult situation, he accuses the poor Chrysler of helping after 2009. bankruptcy, but analysts, competitors and potential partners see more problems. First of all, Fiat Chrysler Automobiles has a net debt of $ 8bn from the world's 11 largest manufacturers. Dollars (EUR 7 billion). In addition, the most popular models of this manufacturer use such platforms, which others have already written off as obsolete. Fiat Chrysler Automobiles does not produce more than 1 million units on a single platform. car & # 39; s, which increases costs.

Fiat 500X

All Fiat Chrysler Automobiles platforms are only upgraded versions of the platforms that were launched in 2004. S.Marchionne found Fiat and in 2009 it took over from the bankrupt Chrysler. With the implementation of safety requirements, the weight of each new model increases, resulting in higher fuel consumption. In the meantime, rivals are creating lighter cars, so the weight difference is steadily increasing. In addition, none of the brands of this manufacturer actually offer hybrid models. Admittedly, the Fiat 500e can be purchased in the states of California and Oregon, but each purchase brings an impressive 14,000 to the manufacturer. Dollars (EUR 13 thousand).

Toyota Motor, Ford Motor and Hyundai – Kia mainly sells the same cars in China, the United States and Europe, while Fiat Chrysler Automobiles is still a collection of many smaller regions. The sales of the manufacturer on the Brazilian market are downwards and the Asian activities are underdeveloped.

S.Marchionne acknowledges these problems with Fiat Chrysler Automobiles and hopes to solve them. The head of the huge investment demand and limited financial strength is looking for a partner who already has the necessary technology or at least develops it. However, the options available to General Motors for the time being are very obscure.

October 29, 2015 The input is under the heading "Analyze"

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