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FCAU up on China rumor

by David Zatz on

FCA stock (FCAU) has shot up on rumors that the company would be taken over by a Chinese business, gaining over a dollar per share overnight (from $11.61 to $12.62).

Chinese companies have amassed billions of dollars as global manufacturing has moved to the country, which has the advantages of a new, well-developed infrastructure, government support, cheap labor, few environmental or worker safety rules, subsidized shipping, and instant access to armies of manufacturing engineers.

FCA has proven that it can make profits, but has been chronically short of cash. The company has put off replacements to some of its cars and the launch of new crossovers; the list of cancelled projects includes the second generation Dart and 200, and the Chrysler 100 and Tipo-based Neon, while two Chrysler crossovers seem to have been postponed. The company has relied on ZF for automatic transmission designs, and is only now starting to replace its larger four-cylinder engines.

While many Chrysler, Dodge, Jeep, and Ram buyers are aghast at the thought of a Chinese takeover, most car buyers do not seem to care, if muted reactions to a GM crossover and high-end Volvo are any indication.

There are other possibilities beyond a takeover. FCA could be looking at selling older tooling and intellectual property, including current cars that are about to be replaced, the recently deceased Compass, Dart, Patriot, and 200, or a parts division such as Magneti Marelli or Comau.

Likewise, FCA may be discussing Chinese investment but not Chinese control — such as the purchase of 10% of FCA — or even the sale of its share of joint ventures in the country. They could even be discussing the relaunch of an existing brand with Chinese manufacturing, starting with FCA designs and moving to Chinese engineering (as IBM did with Lenovo).

At this point, all remains rumor — though Wall Street seems to think it’s a credible rumor, and Automotive News does not tend to run sensationalized gossip.

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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