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Have “Merger Mania” Comments Hurt Sales?

by David Zatz on

It has now been several weeks since Sergio Marchionne set loose a storm of commentary by saying that the industry still needed to consolidate, pointing to the rising costs of automotive engineering and the essential similarity of key parts.

Marchionne-ChryslerLogo-Web

Any of this could have been stated in 1970. Each of the Big Three had a similar straight six engine, each had similar small V8s and large V8s, and similar transmissions. There were some that were better, some that were worse, but none that were so far beyond comparison that a customer would buy the car to get the part — like people later did to get Cummins diesels in their pickups. At the time, the automakers were also facing their first pollution and safety restrictions, as well — kicking and screaming over seat belts, evaporation recovery systems, reflective sidelamps, etc.

Perhaps a technology sharing agreement with GM would have saved Chrysler from near-bankruptcy, but probably not. It would probably have just lost some customers and key competencies.

The point today, though, is that these comments, and, more important, emails sent to General Motors — and publicly leaked by GM executives, most likely to divert attention from an increasingly high death ignition switch death toll — hit the public consciousness.

It has gotten to the point where many potential customers are ruling Chrysler and Dodge (mostly Chrysler) out, because they think FCA US will end up becoming part of General Motors, with the death of the two car brands coming soon afterwards.

That probably would not happen even in the event of a merger. The Chrysler brand is admittedly the weakest link right now; Dodge has a strong identity and would surely be retained by GM-FIAT, and since Ram is technically stronger than Chevy in pickups and has a strong sales rate, it might stay as well, perhaps pushing GMC into the ditch instead. Jeep is unique and would certainly be kept and perhaps even strengthened by GM.

Technology sharing

That said, we know there will be no merger. What we don’t know is what terms FCA wanted from General Motors, and whether they wanted to merge, take over GM, sell to GM, or just start technology sharing. If we are talking about technology sharing, here are some of the areas where we think FCA would be interested in GM:

  • Ten speed automatic transmissions with lower cost and royalties than ZF eight speeds
  • Aluminum manufacturing
  • Small, modern V8 engines
  • Direct injection
  • Electric propulsion
  • Large four-cylinder engines

Chevy Volt

And some of the areas where GM might benefit from FCA:

  • Electric propulsion and hybrids (Chrysler does have its own technology, but has not used it much because they would lose money)
  • Using composites á la Alfa Romeo 4C
  • Large V8 and modern V6 engines
  • Dual clutch automatics
  • Small four-cylinder engines
  • Diesels
  • Telematics

GM also has a large reserve of technology that they either don’t use or don’t use much nowadays, like heads-up displays.

FCA could, of course, develop all this… at a major cost in both time and money.

The big “but…”

But the end result of all the publicity, again, is that many people seem to have decided to avoid an FCA vehicle, resulting in increasingly high incentives which counter the trend of lower and lower incentives by the former Chrysler brands.

This is costing FCA a great deal of cash at a time when it really can’t afford it, during the launch of a major “new” brand and the possible refitting of the Dodge Challenger and Charger, Chrysler 300, Dodge Journey, and such, not to mention ongoing work such as the new Wrangler, new minivans, revised Darts, etc.

FCA

What’s more, FCA must be having a hard time attracting the best and brightest new engineers, particularly in indirect fields (programming, for example), when people are not sure if they’d be laid off a few months after starting work.

When it comes right down to it, Sergio Marchionne would prefer the massive cash reserves of the 1998 Chrysler Corporation to the massive debt FCA now carries.

It all comes down to cutting costs and if that means losing some internal capabilities, well, the company doesn’t have some capabilities now anyway. Years of slash and burn management at Chrysler Group coupled with Fiat specializing in areas irrelevant to Chrysler Group needs, not to mention their own history of fiscal issues, have taken their toll.

At the moment, though, the publicity makes a deal much harder — and also makes working without a deal harder. Fortunately, Chrysler Group is still generating cash — and, hopefully, Alfa Romeo will not flop, or if it does, its failure will still leave enough viable engineering work for the former Chrysler Group and Maserati to pick up the pieces and minimize the impact.

David Zatz founded Allpar in 1998 (based on a site he had begun in 1993-94), after years of writing reviews for retail trades. He has been quoted by the New York Times, the Daily Telegraph, the Detroit News, and USA Today. Before making Allpar a full-time career, he was a consultant in organizational psychology. You can reach him by using our contact form (much preferred) or by calling (313) 766-2304


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