Fiat Chrysler still feels the urge to merge (but does anyone else?)

April 18, 2016

Last summer, the auto world was buzzing over Fiat Chrysler CEO Sergio Marchionne and his vigorous attempts to pair FCA with another automaker--namely, General Motors. Fall and winter seem to have cooled Marchionne's passions, but apparently, spring has sprung, and the urge to merge is strong once more.

This time, though, the call for commingling is coming from FCA's chairman, John Elkann. In a letter sent to shareholders of Exor SpA (the investment firm through which Elkann's family holds a 44 percent stake in FCA), the chair spoke about the massive savings that FCA could realize if it were to merge with a larger automaker. 

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How massive would those savings be? Elkann estimates somewhere in the $10 billion range. Annually.

And those savings could continue for some time. Though the auto media and consumers often focus their attention on sparkly, new, disruptive technology like fully electric powertrains and autonomous driving systems, Elkann soberly reminds readers of his 16-page letter that the transition away from conventional combustion-engine vehicles will take decades. During that time, countless technologies will be tried and touted, and many will fail.

In other words, the road leading the auto industry to its all-electric, driverless future (if, indeed, that comes to pass) will be fraught with challenges, and returns on investment may be elusive. Meanwhile, there is much, much more money to be made on cars as we know them today. Elkann points to a recent McKinsey report, which suggests that even by conservative estimates, auto sales will grow from $2.5 trillion today to $4 trillion by 2030 -- and as others have suggested, most of those cars will run on gas.

Joining forces

The question then becomes, if the automotive industry follows the path set out by other industries and becomes increasingly consolidated, with whom will FCA merge?

We're glad you asked--and so is Marchionne.

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On Friday, he addressed this very question when speaking with reporters in Amsterdam, prior to an FCA shareholders meeting. His top pick? GM, but seeing as it's not interested, he thinks Ford, Toyota, and Volkswagen would do, too. (Ford later issued a firm but polite "thanks, but no thanks".) Hyundai was also mentioned as a distant possibility.

However, Marchionne was also careful to note that FCA's moment for merging has passed, for now. He's leaving that task for the next CEO, who's due to arrive in 2018.

Our take

Marchionne took a lot of heat last year over his failed attempt to merge with GM. Observers weren't really surprised that he'd proposed it, they were more concerned about the way he went about it, going so far as to consider a hostile takeover of GM. That struck some as extreme.

But the fact remains that consolidation is increasingly common in the business world, and there's no reason to think that tie-ups won't shape the future of the auto industry, too. FCA knows that.

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Before it carries out such a plan, though, it probably ought to put its own house in order--something that FCA is, in fact, in the process of doing. Back in January, the company announced a renewed focus on Jeep and Ram models, the discontinuation of slow-selling Chrysler and Dodge cars, and a slowing of the Alfa Romeo roll-out in America.

In other words, it seems that FCA is finally doing what other automakers like Ford and GM did after the Great Recession, making itself lean, mean, and focused on what it does best. And what it does best at the moment is trucks and SUVs.

Many of us think that FCA would be a great partner for a strong car-maker--perhaps one without a strong truck or SUV lineup. Volkswagen fits the bill nicely, though the company has rebuffed FCA's advances before. Could the German company's current troubles cause it to reconsider? Stay tuned.

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