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Looking back on the FCA+GM deal

by David Zatz on

For months, if not years, Sergio Marchionne was pursuing a big deal with General Motors, mainly in the media — hoping to persuade GM stockholders that management should accede to a partnership that would reduce both companies’ risk and investments.

One Allpar source claimed that the goal was not a merger, but an alliance; GM would be ideal partly because they have shared platforms in the past (the Ram ProMaster City, Fiat 500X, Jeep Renegade and Jeep Compass are all on GM-Fiat platforms), and partly because the companies have some, but not complete, overlap along with geographical proximity.

Marchionne was mainly hoping to share the cost of engineering on major programs — think of a Chrysler CUV sharing an architecture with a Buick Enclave, but with a different engine, body, and tuning. GM also has access to ten-speed automatics, developed with Ford, that could be less expensive than ZF’s eight-speeds.

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It would be, in essence (and in our source’s words), “a Diamond Star Motors (DSM) for the modern day to save money.” The alliance could resolve production issues, soaking up GM’s excess capacity and allowing FCA to have a wider range — just as DSM built Chrysler’s coupes, while Mitsubishi supplied small pickups, entry-level cars, and the Stealth.

What would GM get out of it? Its capacity utilization would shoot up, providing more revenue from fixed costs; it would have larger economies of scale and presumably revenue coming in from sales of parts; there would be cross-fertilization of ideas with FCA; and GM would presumably have access to some of FCA’s better products, such as the L cars and perhaps even some Maserati or Alfa Romeo designs to help Cadillac and Buick rise up in the world.

Pundits constantly suggest that FCA wants to hook up with Volkswagen, but Volkswagen doesn’t have the platforms that FCA needs; GM does. GM has also gained more experience in key technologies such as combining aluminum and steel, electric cars, and direct injection, where FCA is working hard to make up for lost time.

As we all know, GM spurned FCA; engineer-turned-CEO Mary Barra has stated numerous times that the company is focused on internal processes and opportunities, and does not wish to play the M&A game or enter into any but very limited partnerships. Sergio Marchionne followed, saying multiple times that since there was no viable partnership, FCA would focus on getting its act together and going it alone.

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