Fiat Chrysler may have found a buyer in China, but who?

August 14, 2017

For nearly three years (and maybe longer), Fiat Chrysler CEO Sergio Marchionne has been looking for a pal, a partner to help him improve the FCA lineup and lay a strong foundation for the company's future.

After being rebuffed and left-swiped by a handful of potential soulmates, he may have finally found a match--in China

As you might recall, Marchionne's first obsession was General Motors, but CEO Mary Barra and her board wouldn't give him the time of day. For a while, there was talk of forcing a merger with GM, but eventually, Marchionne got the hint and moved on. 

Later, Marchionne pitched some woo to Apple and its burgeoning autonomous car program, but nothing seemed to come of it. Then again, that was around the time that Apple began to rethink its game plan. In Apple's shift from building self-driving vehicles to focusing solely on self-driving vehicle software, perhaps Marchionne's email got lost in the shuffle. 

Subsequently, he put the moves on Google's autonomous car program, then known as Waymo. That's yielded a moderately interesting partnership that continues to bear fruit, but it appears to be a casual, friends-with-benefits arrangement--not the profound commitment that Marchionne has in mind. The man has also attempted hook-ups with Uber, Amazon, and Volkswagen, none of which have yet panned out. 

And so, as one often does these days when the talk turns to money, Marchionne is turning to China.

Who and why?

Insiders report that several companies have approached FCA about a possible merger, including Dongfeng, Great Wall, Guangzhou Automobile Group, and Zhejiang Geely. None of those firms nor FCA has been willing to speak about the talks, though it appears at least one company made an offer that FCA rejected for being too low. 

The question of "why is this happening now?" is much easier to answer: pressure from the Chinese government.

Beijing wants its automakers to gain a foothold in the bustling U.S. auto market, but until recently, they've been unable to do so. That's due to a number of hurdles, including Chinese cars, which haven't risen to American standards; Chinese designs, which haven't appealed to U.S. consumers (sorry, Coda); or the companies' Chinese pedigree and negative preconceptions about the quality of Chinese manufacturing. 

Thanks to a range of international alliances and mergers (e.g. Geely's purchase of Volvo), Those hurdles have slowly been overcome. Chinese automakers now have the body of knowledge they need to make a go of it here. 

One thing they still don't have, though, is a mass-market brand in their portfolio. Sure, they could build a brand for themselves, but that's a big gamble with big risks. (Note, for example, that there's not so much talk of Geely launching its own cars here anymore.) It would be much smarter--and frankly, more cost-effective--for a Chinese company to purchase a mass-market brand that's already known in the U.S. 

FCA fits the bill nicely. For starters, despite its current European owners, FCA is still strongly associated with Detroit. More importantly, though, FCA has largely abandoned cars and refocused most of its attention on its popular line of Jeep and Ram SUVs and pickups. That could make those vehicles cheaper for eager Chinese consumers and serve as a perfect complement to a Chinese firm that would handle the manufacture of smaller cars.

What would this look like?

Until insiders leak more information about the secretive talks taking place between FCA and Chinese corporations, we'll only be able to guess at what's in the works. There's a lot of speculation about what might happen to high-end, low-volume FCA brands Alfa Romeo and Maserati, with some theorizing that they'll be spun off into their own company. However, one thing is pretty certain: the deal with FCA will probably take the form of a buy-out, not a partnership.

That's not necessarily Marchionne's idea. He appears open to a number of arrangements, so long as they're financially feasible. 

However, China is trying to grow its economy rapidly, and it's placing a fair degree of importance on the auto industry. A partnership would present a messier, less predictable growth model--not just because of the way revenue might work, but also because it would prevent Chinese regulators from calling the shots. For example, if China wants to continue aggressive development of eco-friendly autos, its objectives would carry more weight with a company fully owned by China rather than with one owned by Chinese investors in partnership with those from elsewhere. 

Stay tuned.

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