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Marchionne Getting Help to Push GM Merger?

by Bill Cawthon on

The Wall Street Journal, citing unnamed sources, reported that Fiat Chrysler Automobiles CEO Sergio Marchionne has turned to financial markets to help him persuade General Motors to merge.

FCA-Anyone-Merger-Web

While FCA’s advances have been publicly rebuffed by GM executives, Mr. Marchionne (likely supported by FCA Chairman John Elkann) is apparently hoping that activist investors such as hedge funds will be able to turn the tide in his favor, just as a consortium led by former Auto Task Force member Harry Wilson was able to persuade GM to dip into its cash holdings and spend billions on a stock buyback.

The Journal’s sources said that Mr. Marchionne has not yet found a willing matchmaker on Wall Street.

Despite his assertion that industry consolidation could lead to billions of dollars in savings, Mr. Marchionne has had no luck in attracting a new mate for Fiat Chrysler. Top executives from Ford, Volkswagen, the Renault-Nissan Alliance, and PSA Peugeot-Citroen have all said they are not interested in joining forces.

Financial analysts have written that Mr. Marchionne’s relentless pursuit of a merger is a sign of desperation. Fiat Chrysler carries a hefty debt load, contributing to slim margins (less than half those at GM), and faces the prospect of an industry downturn as well as the costs of meeting regulatory requirements in the U.S. and Europe.  The Journal noted that Fiat Chrysler declined to comment.

Karl Brauer, a senior analyst with KBB.com, commented, “A GM-FCA merger doesn’t seem like the most effective use of either company’s assets. Both companies have a strong lineup of trucks and SUVs, which are their largest drivers of sales and profit. Furthermore, GM already has an advantage over FCA in terms of successful small cars and hybrid vehicles, and they are finalizing a 200-mile range, fully electric car that will be priced around $35,000. These are areas where FCA is behind GM and would need to invest heavily to catch up. The Jeep brand is a very desirable asset that any other global automaker, including GM, would like to have, but there’s little else FCA can offer GM. A merger with a European, Japanese or Korean automaker, including Volkswagen, Honda or Hyundai, would be a much better use of FCA’s assets.”

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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