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Marchionne on moving from Turin

by Bill Cawthon on

sergio marchionneNews Analysis by Bill Cawthon

Reuters is reporting that the Italian government is upset and wants to question Sergio Marchionne, CEO of Fiat and Chrysler, over comments he made during a J.D. Power & Associates International Automotive Roundtable in San Francisco last Friday.

“Who knows? In the next two or three years, we could be looking at one entity,” Marchionne said. Then he dropped the bombshell heard half a world away: “It could be based here.”

Marchionne went on to say Fiat and Chrysler are looking at multiple possibilities and integrating operations must come first, but apparently all anyone heard was “It could be based here.”

Scorched cats might be an apt description of the Italian government’s reaction to Marchionne’s comments. After all, Fiat is not only Italy’s largest automaker, it’s also Fiat’s oldest automaker. This July 19, it will be 112 years since a group of investors formed Fabbrica Italiana Automobili Torino (Italian Automobile Factory of Turin) and the headquarters city hasn’t changed.

Welfare Minister Maurizio Sacconi said Marchionne would soon have what Saconni called “the chance to explain his comments.” Paolo Romani, Italy’s Industry Minister, told Italian television a Saturday meeting had been set up for Marchionne to meet with high-ranking government officials, including Italian Prime Minister Silvio Berlusconi. Romani said, “On Saturday I will ask Marchionne for the commitment to invest in our country and to remain here with heart and mind.”

Romani insists “The head of the carmaker must remain in Turin” and that the northern Italian city must retain control of all planning and strategic decisions.

Naturally, everyone is backpedaling. On Sunday, John Elkann, chairman of the board of Fiat SpA, called Sergio Chiamparino, the mayor of Turin, to reassure him the company’s headquarters would remain in Turin.

The current company line being dangled is that a merged company would have up to four management centers in Turin, Detroit, Brazil and, possibly, Asia. Russia might be another alternative but Turin would remain the center of the universe.

Fiat hasn’t even officially confirmed that it will purchase a controlling interest in Chrysler, let alone merge the two automakers or choose a home base for the new company. By everything that’s been said in recent months, the odds are overwhelmingly in favor of the acquisition and merger, but first there’s the matter of paying off or refinancing the loans from the U.S. and Canadian governments.

Now let’s get to the meat of the matter: Assume Fiat does buy a majority stake in Chrysler and does merge the two companies. The headquarters can be anywhere that Fiat’s board and management want it to be. Fiat is the only large-scale manufacturer in Italy that is not at least partially government-owned or a former state-sanctioned monopoly. It’s a private company, free to make its own decisions.

A strong case could be made for moving the headquarters to Brazil. It’s a high-growth market in which Fiat currently holds the leadership position. Despite all the attention given to China, it’s only one of the four BRIC (Brazil, China, India and Russia) markets that look to be the best bet for major growth in the coming decades. While everybody and their dog is jockeying for position in China, Fiat could do a neat end run around its competitors in the world market and establish a strong presence in Brazil.

Fiat also has a potential position in Russia; the Italian company’s relations date back to the former Soviet Union and the Fiat 124 that became the Lada.

A case could certainly be made for a headquarters in Auburn Hills. For all the negatives, the American business climate is much more open than the one in Italy, where unions are much tougher and often have government support. There’s no doubt Michigan would offer generous incentives; indeed many cities and states in the U.S. would offer generous incentives.

The UAW and CAW aren’t pussycats, but they are far easier to deal with than the CGIL-FIOM metalworkers’ union in Italy. FIOM’s members apparently would have given up their jobs, and thousands of non-FIOM-represented jobs, and seen more than a billion dollars in plant investments go to another country, rather than accept a new contract that required them to give up some of the current contract conditions.

Marchionne and Elkann take a multinational view of the business, not surprising when you consider their backgrounds. Marchionne was born in Italy, but moved to Canada when he was 14. He was educated and began his career in Canada and moved on to Switzerland until he became CEO of Fiat.

Elkann, the grandson of Giovanni Agnelli on his mother’s side, was born in New York City and grew up there and in Paris. His father was French; his stepfather was Russian. He didn’t move to Italy until he went to college.

Marchionne’s management team at Chrysler has three Fiat executives in senior management positions: Pietro Gorlier (head of Mopar), Gualberto Ranieri (corporate communications), and Paolo Ferrero (powertrain). Laura Soave, head of Fiat North America, is of Italian descent, but she’s from the Detroit area and came over from Volkswagen, which used to have its U.S. headquarters in Auburn Hills. The Chrysler brand is led by a Frenchman, Jeep by a Briton, and Dodge and Ram are run by, respectively, Americans from New York and Texas.

Marchionne wants to invest more than $27 billion in Italian production as part of his “Fabbrica Italiana” project. The new labor contracts at the Mirafiori and Pomigliano plants earned commitments for billions of dollars in upgrades. That means thousands of jobs and millions of euros in taxes are going to stay in Italy, no matter where the headquarters happen to wind up. Italy wins the big prize, but Marchionne wants it on his terms.

While Marchionne and Elkann may be smoothing troubled waters with extra virgin olive oil, there’s one thing that sticks in my mind. Sergio Marchionne is an accountant and an attorney. He is also a brilliant CEO, one of the best in the world. He is very conservative about predicting the future and big on underpromising and overdelivering. None of that paints a picture of a man who casually comments about anything of import in public, “shyster” remarks notwithstanding.

From a sole center of control in Turn, Marchionne and Elkann are now floating trial balloons about four management centers and it sounds to me like this is a plan that has been under consideration for a while. Once multiple command centers are accepted, which they most likely will be, Fiat’s management is free to shift decision making between any of them. Executives can be reassigned. The balance of power can shift gradually until perhaps the day comes when Fiat’s board announces the company will reorganize and list itself as a domestic corporation on the New York Stock Exchange (gaining a stock boost from automatic mutual fund buys). Or on BM&F Bovespa, the Brazilian exchange.

Marchionne’s ultimate goal is to make the combined Chrysler and Fiat one of the six largest automobile companies in the world. In the final analysis, all roads lead to that. It really doesn’t matter whether they lead to Turin, too.

Bill Cawthon grew up in the auto industry in the 1950s. His Dad worked for Chrysler and Bill spent a number of Saturdays down on the plant floor at Dodge Main in Hamtramck. Bill is also the U.S. market correspondent for just-auto.com, a British auto industry publication, and a member of the Texas Auto Writers Association, which has named the Jeep Grand Cherokee the “SUV of Texas” several times and named the Ram 1500 as the “Truck of Texas” two years running.

Bill has owned five Plymouths (including the only 1962 “Texan”), one Dodge and one Chrysler and is still trying to figure out how to justify a Wrangler. He also has owned at least one of every 1:87 scale model of a Chrysler product. You can reach him directly at (206) 888-7324 or by using the form.

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