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FCA+GM: Clearing misconceptions

by David Zatz on

Yesterday, Automotive News reported that reporter Larry Vellequette had been invited to a long, rare personal interview with Fiat Chrysler (FCA) chief Sergio Marchionne. The main topic was a merger with GM; Mr. Marchionne said that the numbers were far too good to pass up the opportunity, since the two companies are so close in what they make.

fca+GM+SMCombining would allow them to leap forward in new technologies research, while slashing the number of components and designs they would need, from subcompacts to pickups.

GM executives are extremely reluctant to even talk to Sergio Marchionne by phone, presumably fearing his reputation as a negotiator — to which Mr. Marchionne suggested they bring the most fearsome negotiator they could find to even the playing field.

He also said that FCA did not want to do a hostile takeover, but that the result would be “cataclysmic changes in performance.” He estimated (and showed Mr. Vellequette evidence for) $30 billion per year in cash with sales of 17 million unit sales.

Since then, Facebook, and Allpar/Disqus conversations have been full of objections, many assuming that GM would take over Chrysler. While that could be true, the fact is that the opposite is equally likely. Chrysler is vibrant and full of dedicated people; GM seems set in its ways. It recalls the Chrysler Corporation takeover of AMC, which resulted in Chrysler adopting AMC’s engineering chief and engineering methods, which resulted in a corporate renaissance. The Chrysler golden age of the 1990s in sales, profits, and critical acclaim all came from acquiring AMC people, who had been used to doing more with less — and suddenly found themselves awash in riches, comparatively.

Mr. Marchionne already said that they would not lose any manufacturing jobs, and given FCA’s chronic shortage of American engineers, they would likely lose few engineers, as well. FCA would gain the GM ten-speed (shared with Ford), more electric-car technology, more hybrid parents, and, mostly economies of scale. The Pentastar would likely triumph over most GM sixes, being both newer and more efficient; the Hemi is another question, its days being somewhat numbered due to emissions issues. GM’s four cylinders are likely more appropriate for the future than Chrysler’s, though FCA has already started work on replacements.

Sergio MarchionneThere is little question but that the Jeep line would continue in its entirety, other than the current Compass and Patriot, while GM’s large SUVs would survive. Dodge’s car line is already slated for replacement and Viper for at least temporary retirement; Corvette is unassailable.

There is room for brand differentiation as well.  Pontiac is long dead and Dodge’s only direct competitor at GM, with Dodge’s current direction. GMC is a low-sales, upscale truck provider, while Ram and Chevy Truck both have their adherents; they would likely move to Ram’s basic design since it’s been almost universally proclaimed superior, but Chevy would have their own spin and dedicated customers. Chrysler makes minivans and GM does not. The list goes on.

The Chrysler brand is the only real question mark, but one can see it sitting between Chevrolet and a more upscale Buick — since GM has been trying to push Buick upwards for some time. Mr. Marchionne claimed that no GM brand has real “DNA,” while all FCA brands do, a good sign for Chrysler, Dodge, Ram, and Jeep.

Geographically, GM is well placed in some areas where FCA struggles, and vice versa.

A hostile takeover is still not beyond question. Mr. Marchionne said more than once that the FCA board could not ignore the potential of the combination with GM, and said, “An attack on GM, properly structured, properly financed, it cannot be refused.”

As for the government and antitrust issues — they would not apply now. Imports account for around half the market, and Ford is still a force; even in pickups, GM and Ram together would not exert control over the market, with Ford, Toyota, and Nissan together as a counterweight. The government has not done much antitrust work lately, and is unlikely to object. The main issue may be hatred by Mopar fans of “Government Motors” (the U.S. government holds absolutely no stock in GM today), and hatred by GM fans of FCA and the idea of Italian ownership, even with FCA being listed on the NYSE and having its real headquarters, well, somewhere. However, like “Government Motors,” that too is likely to pass.

See the full story at Automotive News. Also see prior Allpar coverage.

The Sergio Marchionne photos are copyrighted by Marc Rozman and used by permission. 

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