Sergio Marchionne at the Detroit Auto Show: 2014

Sergio Marchionne was group-interviewed (with a webcast) at the Detroit Auto Show in January 2014. We have probably mis-spelled some reporters’ names; in some cases, we edited the questions for length and coherence.

With the final combining of Fiat and Chrysler, [when should we know where the headquarters is, and what is the timetable]?

It’s my sincere hope that we’ll be able to close this transaction hopefully within the next seven days, and money will pass and life will move on, which I think is an important prerequisite for the discussion, at least for me giving you an answer on your question. I think we need to be very careful when we try to define headquarters for car companies, because the way in which we have a structure of a company of a size of even Fiat/Chrysler, we have operations across the world. We have by definition distributed commercial delegations across most of these areas. So where the headquarters sits is almost an irrelevant issue because the decision-making is relegated to the various regions.

There’s not a single doubt that because of the dominance of Chrysler and the combined entity, that the US is going to play a big role. We count for more than 50% of the combined volumes of Fiat/Chrysler going forward. I think the Italian jurisdiction has, because of history and because of technical capacity, has the right to manage the development of the premium brands of both Alfa Romeo and Maserati, which have their DNA in their country and I think will continue to constitute a large area of emphasis. That’s not to neglect Latin America, which in the Fiat world, as Chrysler has, represents a significant generator of profits and marketing position for the brand.

FCMSo headquarters, as such, is a bad term because it really has to do with where we position ourselves from a capital market standpoint. Where do we get the best reception to our market that needs to provide financial resources to the financing group going forward? That’s a decision the board needs to make, and it will hopefully make it in January 29th when it meets to review the results including the issues of unnamed domiciling and so on. But headquarters is, I think, especially in our world, a bit of an antiquated word that I'm not sure exists in its application. I spend a lot of time on airplanes as you well know, and the group executive council travels. It makes it decisions in various parts of the world. So wherever that group meets, it’s where decision-making is actually executed.

Dave Lanelle with TB20. There’s been [a lot of] talk about the turnaround of the American auto industry. I’d just like your thoughts as to where you see the American auto industry.

sergio marchionneForget about my role in this and the fact that I had an opportunity to lead Chrysler through this, but it is a phenomenal success story. When you look back at the dark days of 2009 and you look at where we are today, for those of you who are old enough to remember the 2008 and 2009 auto show, if you came here you could actually smell the stench of death on the stands. If you go out there today, that is the last thing that will pop into your mind, because we are looking at a completely different world, a world where at least two of the three American participants went through a near-death experience. And they’ve come back in a vibrant way with renewed leadership and a renewed emphasis on product.

There’s not a single guy out there, to be perfectly honest, and I include my colleagues out at Ford and General Motors, who would today be ashamed, embarrassed, feel inadequate in matching the quality of vehicles that come out of the United States against anybody in a competitive class, regardless of origin. So this has been a five-year travel which has had phenomenal results. We should count our blessings. The experiment has worked.

I think we need to protect what we’ve got now; we can’t screw it up. We can’t come back to the ill-advised commercial practices of pre-2009. You know, things that led to the demise of the auto industry in the past. I think we have to learn from everything that’s happened in the past and build for what we’ve got today. Today’s a good day. It’s the final confirmation of the fact that the experiment worked. We didn’t deliver Frankensteins at the end. These are real-life people. They walk. Lazarus has risen. Count our blessings and move on from here.

Phillip LeBlan from CBC Television in Canada. Moving forward, an advisor of Canadian and Ontario government said if Canada wants to maintain a part of production, they’re going to have to pay if they want to play. Is that how it’s going to work moving forward? You’re going to move production and shift it where there are more incentives for example?

With all due respect to the choice of language that you've made, I think there may be a slightly excessive way of describing the choices. And this is not just true of Chrysler; it’s true of every auto maker and it’s true of everybody else who runs a multi-national. That whenever we’re confronted with choices, we need to be able to make choices that are defensible on economic grounds. And I think the world, especially in car making, is a flat world. And I think we have opportunities and proposals, propositions that have been made from other jurisdictions who are interested in establishing or increasing production capacity in their environments, who are willing to provide a set of economic conditions to facilitate other continuation or the expansion of those facilities in their jurisdiction.

windsor plant

Canada is no different in this. I can tell you this as a Canadian, we have seen a substantial deterioration in the number of installation facilities in Canada on the automotive side over the last 20 years. When I was growing up in Toronto back in the 60s and 70s and you look at the number of cars that were being produced in the jurisdiction at the time and you compare them to today, there’s been a substantial drop in the number of plants and the number of people that have been attached to this business.

So we need to come to the realization that this has happened and I think we need to make sure that we don’t make matters worse and we continue to nurture what we have and we encourage investments in the jurisdiction going forward. In no way different than any other jurisdiction across the world would do. So there’s nothing peculiar coming across the Canadian side. It’s just part of a global environment, and the requirements that are imposed on the various governments to make sure they attract investment.

Matt Miller, Bloomberg TV. What’s your vision for when we’re going to be able to get Alfa Romeos here? How many are we going to get?

2015 and we’ll make as many as you can buy. There’s a brand new portfolio of products that’s coming out of Alfa Romeo that’s coming out in 2015. I made the comment to the Italian press this morning. We need to go back to the DNA of Alfa. The DNA of Alfa is relatively clear, meaning incredibly lightweight, incredibly good-looking cars that have phenomenal engines. We need to go back to giving you that choice. Let us work quietly.

4C supercar

Where will we get them? Will we have Alfa Romeo dealerships? Chrysler dealerships?

you'll have an Alfa Romeo dealership to buy from and you'll stop lusting after them. Hopefully you'll redirect your lust to better uses.

He has no problem with that.

He doesn’t? Good, that makes me feel a lot better.

Rob Porsenski, WTLO TV in Toledo, Ohio so you know what I'm going to ask you about. As far as the Toledo-built Jeeps, the Cherokee and the Wrangler, talk about expectations for this year and where do things stand as far as redesigning the Wrangler?

Let me deal with the most contentious part of what you said, which is redesigning the Wrangler. That’s a term that I've forbidden from usage inside the house. I think redesign the Wrangler is the riskiest thing you could do. So if you’re talking about substantially upgrading the Wrangler to reflect the advancement in technology that we’ve had since its original launch, the answer is yes. If we take away any of the capabilities of the Wrangler, I think we’ll kill that product.

water fording

I've had heated debates, by the way, inside the house about whether we should have a removable door or not have a removable door on the Wrangler; whether we should be able to knock down the windshield in the Wrangler or not knock it down. I don’t know how many people who own Wranglers have ever done that. I know I've never done it on mine, but I've been told there are a number of people that actually do that to the vehicle so we can’t remove any of those attributes on the Wrangler, and yet we’ve got to be able to do two things.

One, bring about a substantial light weighting of the vehicle because we’ve got to take some weight out. And secondly, we’ve got to improve its powertrain capabilities so it can do a variety of things with the rest of the powertrain story that we have within the Fiat/Chrysler world. And in the process, I think we’ll update design and style, but without touching the fundamental elements of the Wrangler. you've got to be very, very careful. You can update it, but you can’t change it. If you take the nature of the Wrangler out, you'll kill it.

So that work is well under way. We’re going to make probably the final decision on this within the first quarter of this year and implementation is less than 24 months away. So I feel relatively comfortable that we’ve found sort of the solution to the puzzle.

The biggest issue that we have with the Wrangler, as you well know, is capacity limitations. We can’t make enough. I've also made it clear that I think the response that we’ve had from the workforce of the Wrangler plant has been nothing less than phenomenal. These people have worked around the clock. They’ve done incredible things to try to get us all the Wranglers we need.

TNAP overview

We’re still looking for ways to increase the output of that plant because one of the commitments we’ve made is never to produce a Wrangler outside of Toledo. So whatever Wranglers are going to be made are going to be made there as long as I'm the CEO. They’ll not be built anywhere else. So I don’t know whether it gives you all the comfort you need on the Wrangler.

The Cherokee is, in its beginning, is in the early phases of its market introduction. The numbers that have come in out of December after we unleashed the product in the marketplace are more than encouraging. I still don’t think we have the right market share of that segment after a month in market, so let’s see what happens in 2014. I think that we need to grab a much larger market share of the D segment of the mid-size SUV market. I think that car can do it; it has all the prerequisites to get it done. So we’re going to be spending a lot of resources now to position the Cherokee properly. And we’ve done very little international, as you know, to try to pick the Cherokee out. So the story will be told in 2014, but whatever I've told you has got incredibly positive implications for Toledo both on the Wrangler and Cherokee side.

Jeff Vahn with WXYZ TV in Detroit. At Chrysler, there’s the lack of electric or hybrid vehicle. Is that something you might unveil in the future?

I'm saying this for the purpose of providing clarity on the topic of electrics, Chrysler does have an electric. It has the 500e, which is being sold mainly in California, but it is a car in which I have openly acknowledged that I lose $14,000 every time I sell one. And that number, by the way, is reflective of the same level of pain that most people who make electric cars have been living under for a while because nobody has been able to make a return-on-investment ever.

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So one of the reasons why we’ve done it is for a variety of compliance reasons, and also to insure that we have adequate exposure to that technology within the house. We’ve done it, it’s painful and we’ve paid the price. I don’t want you to think we are neglecting part of the technology solutions in order to build our portfolio. That was not for . . . clearly two reasons: compliance on one side, and secondly, experience with running a full-electric vehicle. There’s not a single doubt in my mind that as we move forward in trying to get to 2025 standards in terms of emissions that we will need to provide hybrid solutions as part of the solution offering in our mix, and we have done a lot of work to try and determine which of the vehicles in our fleet are the most appropriate recipients of hybrid technology and the solution that’s come up to now is the most likely first application of that hybrid know-how is going to be the new minivan that will come into the market hopefully in ’16 or the early part of ’17.

Minivans will be the first recipients of the technology.

Reporter: 2016?

Whenever the car gets launched, and I'm going back by memory now, but I think it’s 2016 just to put that to bed.

Mata Gabra Salesit from CBC Windsor. Speaking of the minivan, has the minivan program been approved and is a universal platform part of that design and will Windsor be the plant producing it?

The answer is yes to your first two questions. The answer is not final on the third.

And what will that be based on? When will we know?

It’s based on the evaluation of the economic case about where it is that we make the minivan.

Is that part of the discussion tomorrow when you meet with [inaudible]?

It will be one of the discussions that we will be having with the Canadian government officials that are visiting today and tomorrow.

And the other part of the discussion? What else will you be discussing with them?

CBC. No, just a variety of things. No, we’re going to discuss the car business. That’s what they’re interested in finding out, our views about how they can help develop the industry in Canada and so on. It goes beyond the minivan discussion. Look, we’ve had very good dialogue with the government officials so far. Let’s continue that track.

Tracy Samilton, Michigan Radio. So this morning I heard this rumor that you’re going to be in charge of Fiat and Chrysler for the next three years.

Are you disappointed?

I could not be more excited.

Thank you very much. I was going to be heartbroken. I was willing to change my mind.

No, no, don’t. Please don’t. So what’s on your to-do list for that three year period at least?

Well, once we get rid of this issue about governance names and everything else which hopefully will be done within January, I think the two big challenges for us in addition to making sure the machine runs and runs efficiently both here and elsewhere is the internationalization of Jeep. And that’s something that is incredibly close to my heart.

We need to take this everywhere by preserving as many of the US installations as we can preserve. I mean we have been clear on this. I think Wranglers will not be made . . . as long as it’s on my watch, Wranglers will never be made anywhere outside the US. And I think the other car I'm incredibly affectionate towards is the Grand Cherokee out of Jefferson, so we will fight tooth and nail before anybody gets the right to make that car anywhere else.

jefferson avenue north

In cars which are in-between those two extremes, the likelihood of us being able to maintain national production for export reasons is relatively small. So if we go to China, we’ll have to end up producing the Cherokee, not the Grand Cherokee, in some type of joint venture with the Chinese. We’re discussing now with our Fiat colleagues the industrialization of a Jeep in the Brazilian market, the new installation that is being opened up for 2015.

So that’s a big issue. The objective is to sell a million Jeeps this year. Just to give you an idea, we sold 732,000 cars in 2013. We’re going to get to a million which is nearly a 50% increase over 2013 within one year. And we need to take that number and make it grow substantially. I'm not going to give you any numbers until May, but we need to take that number across the world and really find out how far we can take Jeep. It is an incredibly brand. I think it’s an incredibly unexploited international potential and we need to take it there. So that’s my first to-do list on my agenda.

The second, obviously, is the development of Alfa and to bring it back. I lost my guy, what did he call it? He had some hormonal imbalance. Lust. He’s already left I guess. I feel like I've been used and thrown away. He was lusting after Alfa Romeo so I need to satisfy his lust.

Hi, Charlie Volgelheim from Motor Trend Audio. Just to finish off the conversation on alternative fuels, you touched on electric and hybrids. If you could talk about diesel and where they fit in the different brands and anything else that comes to mind under alternative?

There are two things associated with diesel. One is the additional cost of diesel technology. As you all know, it’s relatively large and painful in the application outside of a certain class of vehicles which can absorb the cost differential and for which consumers are willing to pay because of the additional mileage considerations you get out of its applications. So in our world, the rollout, and I'm excluding for a moment what we do in Europe where there’s a very widespread application of diesel. If we focus on NAFTA, the larger vehicles, the larger vehicles, the Grand Cherokee and the Ram 1500, are both the recipients of the diesel. The commercial van which is coming into the marketplace, the new ProMaster, is also the recipient of a diesel application and Fiat has got a variety of diesel solutions that are available for installation in other products.

diesel engineOur calculations that have benefited the pros and cons given were CAFE and the objectives in 2025. The benefit of diesel is going to probably run its course by around 2018 unless we find some way of bringing down the emission implications, the emissions associated with diesel beyond what is currently available. And the question is at what cost does that reduction come about? And if it gets to be prohibitively expensive then it may be that 2018 may be shown as being the sunset year for a wider application of diesel than we’ve got today.

Our guys continue to work pretty diligently at trying to find ways to improve the emission profile of diesels. Give us some time. We’re in the marketplace now with the Grand Cherokee and the Grand Cherokee has had great success with its diesel version. The Ram 1500 is going . . . what’s today? 13th? It’s going to go into production in eight days. So we’ll have it in distribution across the US hopefully by the beginning of February. So let’s see how these things go. Certainly the know-how capability and willingness of the combined Fiat/Chrysler entity to bring diesel to the US this year, we know it and we understand it. Fiat in its history was a big developer of diesel. We’ll see whether we get traction in the market. I like the technology. I like it very much.

You know, for people . . . I had the discussion with somebody. When we won the truck of the year with Motor Trend, I think somebody drove a Ram 1500 for 700 miles with one tank of gas. When you start looking at that kind of performance, you realize before we start being negative on diesel, let’s make sure we understand its applications fully. It’s a phenomenal technology which is relatively inexpensive given the benefits associated with mileage and emissions.

Justin High with Yahoo! Autos. Whether you call it Fiat/Chrysler, Chrysler Fiat or what have you, will your fully merged company have the scale that you need to survive in the next several years?

Survive? Sure. Whether we’re going to be in the medium to long-term in the optimum range is unclear to me. We’ve got some guys now that are over the nine million mark and it’s getting to be actually a crowded group of people between Toyota and GM and Volkswagen and there’s a bunch of other guys that are underneath us. I was actually, before I came into the meeting, for different reasons, I was looking at that scale. And if you’re a small guy, if you’re making a couple million cars a year and you’re not in that top rank, you should start worrying because being a guppy in a world full of sharks is not a good thing.

You can be small and beautiful when you sell Ferraris at $290,000 apiece. You can’t be small and beautiful when you’re trying to sell four-door sedans in the mass market. It’s going to end up being pretty painful sooner or later. I'm not sure the so-called shakeout or the rationalization of the industry is over. We intend to play whatever role we can find in that reassessment of positions, but it will take time. It’s not the 2014 issue. But in its current state, we’re fine for now.

Lisa Geiten from 13 ABC in Toledo. Back to the Cherokee and the Wrangler, of course, you mentioned you’d like to see some more increased activity with the Cherokee, obviously very new on the market. What do you think has to happen in order for you to be more pleased with those numbers?

This is purely a commercial issue because the car is there. The car exists in the sense it is the best SUV in the segment. So I have zero doubts, notwithstanding our growing pains of getting the transmission released which was incredibly painful for all of us. All those issues are behind us now. The car is a superb car. I was walking over this morning and I saw the Mopar version on the Mopar stand. I mean it is truly a Jeep. It’s got phenomenal off-road capabilities. I think the onus is on us now to penetrate the market and sell it. It’s properly priced and the brand is worth everything.

On the Wrangler side, as you said, you have to have some sort of increase in production. That could involve people and the actual physical plant. Have you made the decision whether there could be a physical expansion of that plant in Toledo?

It’s possible but I haven’t made the determination. We’ve got to be very, very careful about how we expand that plant. It’s not been easy. Because of the way the plant was constructed with body shops not belonging to the structure, we’ve got to be very careful about how we get that done. We’re devoting time to this issue, trust me, and we’re protecting mother goose in the interim. We can’t screw up production of the Wrangler; it’s too important to all of us.

Pete Lango, AM 800. I wanted to follow up a little on the minivan because you mentioned that you’re meeting with the minister and you have expectations. Can you give us some sense of what you need to hear from the Canadian government in order to keep that minivan plant operating in Windsor?

I think what we need to hear is the fact that we all recognize the importance of the size of the investment in Windsor. These are projects that run for decades. This minivan has been in Windsor now for all I don’t, 25 years? 30? 30 years. I mean the longevity of the project extends beyond any sort of normal planning period, and we’ve got to make sure the economics supporting the investment are right. My advice is for all of us to do the right thing, whatever that is. I have no preconceptions as to what that answer is.

sergio-minivans 

In terms of the program itself, we heard in 2014 a couple of years ago, then we heard maybe it’ll be a Dodge, maybe it’ll be a Chrysler. Town & Country may go away. Have you made those decisions yet about the minivan program?

Yes.

And what are they?

The first vehicle out is a Chrysler. What comes out as a Dodge is not something that I'm willing to answer right now.

Michelle Meleski, CTV Windsor. you've put a number on a one billion dollar investment in the Windsor plant. I didn’t hear that today so far. Can you elaborate on that? Where’s that coming from?

And you won’t hear it because the number is much larger than that.

So are you looking at a large, large scale investment in Windsor similar to Sterling Heights?

There’s a large scale investment required to do the minivan. I didn’t say in Windsor; I said there’s a large scale investment required to do the minivan. It’s in excess of a billion.

And even though Windsor’s got the longevity and quality products . . .

It’s probably got one of the best workforces around. We all understand this. Let’s work our way through channels. The problem with discussing economic opportunities in public and on television is it’s not proper for the other guy. He’s not here. Let’s wait until we have that meeting.

Carol Masser with Bloomberg. If I go back, when you secured full control of Chrysler, I think so much of the reporting was about what a great deal it was for Fiat. You don’t think so?

I think it was an adequate deal given the risks associated with everybody of not closing it. Look, when things happen people always have an ability to evaluate it on some standard. You listen to bankers and everything else. Then there’s an industrial reality that says the machine is running and it’s not running the way it’s supposed to run because ownership is not unified. There were some very negative consequences associated with the non-combination of Fiat/Chrysler which ultimately would’ve hurt both Fiat and Chrysler. So I think everybody came to their senses and said let’s do the right thing and make the deal happen. So in deals like this, there is no victor. Common sense prevails. Unfortunately, in deals like this, because of the complexity of the ownership, it took a lot longer than it would’ve normally taken.

Did it work out better though than you initially thought?

It worked out within the range of terms that I expected.

Penn Foxer at Bloomberg Radio. You’re one of the few executives who runs a major US corporation and a non-US, Italian corporation at the same time. What have you learned from each experience so far that you wish you could transplant?

That’s a loaded question. That’s one way to make enemies in one jurisdiction isn’t it?

You could say contestant number one and contestant two.

sergio marchionne interviewedOkay, I’ll say contestant one and two. No, one of the things by the way which has been . . . and I go back to what I said. Somebody asked me what my assessment was of the experience of what I'm seeing in the show. I think there’s something to be learned from the American experience. And I don’t mean this just vis-à-vis the Italian or European context, but what happens when you execute proper reshaping of industry. You look back three or four years later and you say my god, I can’t believe I looked that bad and beaten up in 2009 and today I'm spending like a million bucks.

There is a silver lining in all these processes. They’re painful. They’re necessary because unfortunately you need to reset the rules in order to try and move forward. The European car industry, and this is not an Italian comment but it’s a comment about the European industry in general, has been incredibly reluctant to engage in the type of reshaping that has allowed the American car industry to resurrect from the ashes of a very unpleasant past. And I find it . . . I find it sometimes very discouraging that I'm not able to get European politicians to understand the benefits of this process, and that we look at very short-term gains or what appear to be short-term gains and we forget what the potential long-term upside is from doing these things. So who knows? Maybe there is.

Do they recognize the technological pull that’s going to push them down that river no matter what?

Yeah, the problem is people who try and defend positions based on ideology or because of political convenience will never realize that technology will have pushed them until after the event. So I sincerely hope that people are smarter than this.

Also see: 2014 Detroit Auto Show • Other interviewsSergio Marchionne, 2013. Thanks, Davis Bynum.

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