September 4, 2015
To say that Sergio Marchionne (pictured) really wants to finalize a merger between Fiat Chrysler Automobiles and General Motors might be an understatement. The FCA CEO has practically dared GM, along with other automakers, to join forces with him. However, his mission to create the ultimate union between automakers has gone unfulfilled, at least thus far. Now it appears that Marchionne will likely have to wait until early 2016, when FCA is expected to sell part of its shares in Ferrari, before revisiting a potential deal with GM. FCA recently announced that 10 percent of Ferrari stock would be available to investors in an IPO, with 80 percent of the remaining stock being retained by FCA and the other 10 percent to Ferrari scion Piero Ferrari. According to reports, the available Ferrari shares can generate as much as $3.3 billion for FCA, which would boost the valuation of the company and put it in position to finance a takeover of GM. The Agnelli family, FCA’s dominant shareholder, is said to be fully committed to the sell off of Ferrari, as it would add needed funds to the company coffers and enable them to retain control of FCA. With that said, make no mistake about it—it’s Marchionne who’s running the show for FCA. Since being handed the reins of the company by FCA chairman and Agnelli family heir John Elkann in 2004, Marchionne has distinguished himself with an in-your-face managerial style that garnered increased attention and scrutiny for both him and Fiat Chrysler. Marchionne: The Man and the Merger Marchionne’s motivations for a merger with GM are fairly straightforward. He believes, with some justification, that FCA and GM would be a good match due to a shared multi-brand strategy and a history of previous merger talks (they almost joined forces a decade ago until GM pulled out of negotiations). Among members of the automotive press, Marchionne is renowned for his zeal in pursuing mergers with other automakers. In his time as CEO, Marchionne has made FCA the world’s seventh-largest automaker, thanks in large part to the absorption of Chrysler last year. FCA can also count Ferrari and Maserati as two luxury brands in its automobile stable. Marchionne has consistently sounded the clarion call for industry consolidation, believing that such mergers save automakers money in the long run by allowing them to consolidate their technological know-how, rather than independently developing repetitive platforms. But his urgings have gone unheeded by many industry giants, including Toyota, Ford and, yes, GM. Some industry wags have accused FCA, which has been plagued by its own high-profile PR problems, of pursuing a merger with GM in order to prop up its own flagging brand. However, in a somewhat surprising reversal, it’s Marchionne who wants to absorb GM rather than the other way around. Recently, the bombastic FCA CEO has centered on GM due to a perceived leadership deficit at the latter company. Mary Barra, GM’s first female CEO, has come under fire from critics who think she hasn’t done enough to address GM’s massive safety fails (which, to be fair, largely predate her administration). Whether those criticisms are fair or not, the perception among some is that GM’s woes may scare the company into accepting FCA as a partner. As in the animal kingdom, where smaller, more agile hunters attack bigger, vulnerable prey, FCA’s strategy has been to aggressively pressure GM into a merger until it acquiesces. So far the strategy has been unsuccessful, but over the long haul FCA hopes to wear down one of the bigger automotive companies like GM until it relents. “Like a Bear”: Marchionne’s Grizzly Relationship with GM In a recent interview with Automotive News, Marchionne was characteristically blunt about his prospects of getting GM to embrace his vision of a merger between the two automakers. “There are varying degrees of hugs. I can hug you nicely, I can hug you tightly, I can hug you like a bear,” he said. In other words, Marchionne recognizes that it’s in his company’s best interest to play nice with GM, but is also willing to play rough if necessary. After crunching the figures, Marchionne argues that a FCA/GM merger would generate as much as $30 million per year to the conglomerated automaker. For its part, however, GM doesn’t see the immediate imperative to merge with FCA. In fact, an anonymous GM executive rhetorically asked Automotive News why they would bail out FCA, inferring that the Italian automaker would be the primary beneficiaries of the union. According to Marchionne, GM has rebuffed his previous attempts to discuss a merger, a stance that perplexes the FCA head honcho. "You may reject the deal but you can't reject the discussion,” he said. “If you're refusing to talk to me, and you have seen nothing, you either think you're above it all, or you think the capital markets are full of schmucks that owe you something.” While Marchionne is, by his own admission, a tough negotiator, the fact that GM won’t even review his figures, let alone give him a meeting, is a bit perplexing given GM’s current position in the auto marketplace. In explaining her company’s actions, Barra recently remarked that GM is still “merging with itself”—a statement that, while technically true, couldn’t have inspired much confidence in the shareholders given that it’s been several years since the federal government bailed out GM after declaring bankruptcy in 2009. According to the influential auto analyst Arndt Ellinghorst, there are currently three courses of action FCA could take in effecting a merger: a friendly merger, which seems unlikely given GM’s overt lack of interest in such a prospect; a hostile takeover, which seems feasible with GM’s current depressed stock; or an outright buy-out of GM by FCA, which would likely bring about “a price rally like hell” that would effectively box out FCA. Regardless of the end result, Ellinghorst believes a FCA/GM merger is inevitable. “If it's an ongoing theme that keeps getting discussed, at one point it can't go away,” he said. Regardless of how things shake out, you can always rely on Auto Publishers to keep you up-to-date the always intriguing goings-on over at Fiat Chrysler Automobiles. Image Credit: Autoblog