Marchionne: Volkswagen might buy Fiat Chrysler to protect itself

March 8, 2017

Fiat Chrysler Automobiles' CEO Sergio Marchionne is still on the lookout for a business partner. He has a hunch, though, that the partner may come looking for him.

Speaking on the floor of the Geneva Motor Show earlier this week, Marchionne indicated that he'd be open to pursuing a merger with General Motors once more, even though GM rebuffed his advances in the past.

However, in light of GM's newly announced plans to sell off its two big European brands, Opel and Vauxhall, Marchionne said that a tie-up with GM was a little less attractive than it had been. After all, FCA does a fair bit of business in Europe, and it would certainly like a mate capable of expanding its footprint on the Continent.

And so, we floated the idea that FCA might revisit its failed pairing with PSA, since PSA will be the new owner of Opel/Vauxhall. But in further comments from Geneva, Marchionne said that he's got his eye on PSA's big competition: Volkswagen, the largest automaker in Europe.

In fact, Marchionne said he wouldn't be surprised if Volkswagen became the pursuer and came a-knocking at his door. Specifically, he stated that "I have no doubt that at the relevant time VW may show up and have a chat."

What's in it for each? 

Merging with Volkswagen would give Marchionne and FCA several important things. Obviously, it would boost FCA's presence in Europe, which might or might not be a huge benefit, since growth in the European auto market is a moderately shaky bet.

It would also give FCA what Marchionne wants most: economies of scale. By merging research, development, and production with Volkswagen, both companies could cut costs, improve profit margins, and widen their distribution options.

In some ways, though, merging with FCA would generate the biggest benefits for Volkswagen, especially here in America. 

For starters, FCA could help improve Volkswagen's image among Americans--an image that's been seriously tarnished by the ongoing Dieselgate scandal. Though FCA has image problems itself due to the iffy quality of its vehicles and a potential diesel scandal of its own, it's got plenty of fans here in the U.S., especially among Jeep owners.

And that brings us to the second benefit that FCA offers Volkswagen: an existing lineup of SUVs and pickups.

Even before Dieselgate's first headline broke in September 2015, Volkswagen and its mass-market VW brand were struggling in the U.S. because VW's product portfolio was so heavily weighted toward cars. Today, VW offers just two utility vehicles in America, one of which--the Touareg--is priced higher than its competitors. At the moment, VW sells no trucks or minivans in the States.

To be fair, FCA's car sales aren't exactly stellar, either. However, it has a strong lineup of SUVs with Jeep, not to mention Ram pickups and the new Chrysler Pacifica minivan, which has earned raves from many reviewers.

What's lacking?

As mentioned above, both FCA and Volkswagen have problems with consumer perceptions around product quality. A merger would do little if anything to improve the real or perceived reliability of either company's vehicles.

Also, neither company has been at the vanguard of next-generation technology--specifically electrification or self-driving software (though Volkswagen's Audi brand was more forward-thinking than other brands in the FCA and Volkswagen portfolios).

A merger wouldn't give either company much in the way of battery technology that the other doesn't have. However, FCA's relatively new partnership with Waymo (formerly Google's self-driving car project) could yield bleed-over benefits in autonomous tech for Volkswagen.

Our take 

In parts of the Western world, there's a growing unease with globalization. You see it in political speeches and person-on-the-street interviews: people who are anxious about corporations moving jobs to other countries and about the the increasing flow of people--both legally and illegally--across national boundaries.

Those concerns are natural, and they're to be expected. Planet Earth is in a state of transition, with advances in transportation and communications making the world much smaller, metaphorically, than it was just a few decades ago.

But globalization is a long-term trend, and short of some major, international catastrophe, it's not likely to reverse. Marchionne knows that, and Volkswagen's CEO Matthias Muller knows it, too. At this point, it seems inevitable that each will engineer some kind of corporate merger in the near future. The only question is: will they marry one-another?

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