No surrender

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July 2009 Automotive No surrender

Sergio Marchionne is taking on the troubled Chrysler brand and abandoned recent buyout talks for Opel. Are the wheels coming off his business plans? Richard Lofthouse reports

On the face of it, the chain-smoking, Canadian-Italian troubleshooter’s dreams are in tatters. Early in June, when Fiat’s 56-year-old CEO Sergio Marchionne flounced out of talks with the German government to acquire Opel, GM’s European arm, dubbing them “a soap opera,” it seemed, for a moment, that he had embarrassed Chancellor Merkel, leaving Opel vulnerable to a bid from Canadian parts conglomerate Magna along with Russia’s biggest bank, Sberbank, and Russian carmaker GAZ.

A notoriously shrewd negotiator, Marchionne’s departure from the talks looked for a moment like a ploy to get back to the table to consummate what he had described as a “marriage made in heaven”. If so, he was quickly disappointed. Strategically, there were political reasons for Berlin to cosy up to Moscow: Russia is Germany’s single largest export market and one of the fastest growing car markets in the world, notwithstanding current economic conditions. 


Although it will take until the end of the year for the smoke to clear, Marchionne is set to take the helm at Chrysler just as his wider ambitions were being thwarted. By his own judgement, Fiat is left needing another major acquisition or partner to sustain a 21st-century carmaker, just as management attention is diverted to the bankrupt Chrysler and Fiat’s own debt is being downgraded to junk status. It raises questions over the motivations of one of the most powerful business leaders Italy has ever produced.


When he became the boss of the entire tractors-to-finance Fiat Group, of which Fiat Auto is merely one unit, in 2004, Marchionne decried the mad economics of the global car industry. The qualified accountant and tax expert appeared to be turning around the car division to sell it, convinced that global overcapacity among carmakers made it a business to exit. Max Warburton, auto analyst at 
Sanford Bernstein, noted earlier this year that Marchionne is “the most rational of all 
CEOs from an investor or equity market point of view,” adding that “dressing it [Fiat Auto] up for sale would free good businesses like Iveco and CNH from the crappy business that is Fiat Auto”.


Yet in an interview with CNBC last year, Marchionne struck a messianic tone, insisting that when called upon by the Agnelli family to lead Fiat back to health, “it was 
like coming to help resurrect the national icon of Italy”. Of course, that pride is not expressed through tractors, and it is the car division (which includes Ferrari, Maserati, Alfa Romeo and Lancia) that has thrust Marchionne into the spotlight.


In spite of the fact that Marchionne previously revived such humdrum companies as Swiss certification firm SGS, he is not impervious to the charms of a sleek chassis: he is rumoured to have recently ‘liberated’ from Fiat’s private museum one of the last Lancia Delta’s for his own use, and crashed his Ferrari 599 GTB Fiorano on a Swiss highway in 2007, revealing a prancing horse passion he prefers to play down. In public, the black-sweater-wearing Marchionne prefers to strike a blue collar tone, eating pizza with the workers.


Recently seen in a multitude of photoshoots with the Fiat 500, a successful remake of the 1960 Cinquecento, Marchionne amazed the car industry earlier this year by first signing a partnership with bankrupt Chrysler, itself the failed partner of an earlier merger with Daimler, then stunned his opponents by suggesting that Fiat could easily swallow Opel as well.


The apparent megalomania was, in one sense, icily rational: the acquisitions would have made Fiat the world’s second largest carmaker after Toyota, with annual production exceeding 5.5 million cars, the level Marchionne believes is needed to make volume carmaking profitable. Having failed to find a buyer for Fiat, goes the theory, Marchionne was forced to go to the opposite extreme. 


Yet without the additional 1.7 million cars made each year by Opel, Fiat plus Chrysler equates just four million vehicles a year. Now scrabbling for an alternative partner, analysts point to possible tie-ups with France’s PSA Peugeot Citroën, Germany’s BMW or other remnants of GM such as Sweden’s Saab or GM in Latin America. Yet none of these options are without practical objections, quite apart from political sensitivities concerning jobs.


True, Marchionne, in effect, made the US government pay for the tie-up with Chrysler. In exchange for acquiring at one stroke a US distribution network for Fiat’s clutch of brands, all Chrysler got was a promise that Fiat would share its small-engine technology to reduce Chrysler’s dreadful fleet efficiency to Obama’s desired levels of gas mileage. 


Yet, say critics, Chrysler, in particular, typifies the overproduction and underpricing that Marchionne believes has crippled the car industry; by saving it, he might gain some advantage for Fiat, but put back the cause of the car industry as a whole. And with Opel now apparently falling into Russian hands, where does it leave Fiat within Europe?


Born in Chieti, Italy, in 1952, the son of a policeman, Marchionne’s family emigrated to Canada when he was 13 and he studied in Windsor, a short ferry ride from Detroit. It is to these Italian-American roots that Marchionne is now returning, although less from design than from circumstance. 


“We need to bring some sense to this industry,” he said last year. “The only thing you have to do is look at a chart that shows how much value we have collectively destroyed over the last 20 years. In every normal world, in every industry, if you saw a chart like that the very first thing you would say is, ‘Give me the names of the guys who did this. I want them out.’ We need to get smart and fix this.”


One of the decisive questions for 2009 is whether he can deliver on such clear-sighted promises, or whether he will go down in history as just one more car guy whose ambitions got caught up in a lousy business clouded by emotional attachments. 

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