I think I’m the only active, direct employee here; so I’ll add $.02 from the inside. It’s not what you’ll read in the print/radio/TV media. Their failing business models scarcely fund their local crime and mayhem coverage, let alone any deep-thought analysis. So modern business reporting is essentially paraphrasing press releases and has been since the days of the Daimler takeover.
In two sentences… Chrysler merging with another automaker, after being forced into a merger with FIAT, was as inevitable as death itself. The only variables now are quality of life and how long do we live? If you choose to read beyond that, it’s at your own risk.
OK, are we just down to the extra-credit students now? It’s a pretty open secret that the Agnelli family; which is as tied into FIAT as the Ford family is to Ford, has wanted to cash-out of the automobile business for a long time. They’ve already spun-off Ferrari and Magneti Marelli. (As a historical tidbit, FIAT is not a surname, it’s an acronym… Rough translation, Factory-Italian-Automobiles-Turin.) Quite honestly, I don’t blame them. My long-long-range forecast for the auto industry isn’t promising as auto companies are between a rock and a hard place. The more they autotomize their products and remove drivers from the equation, the more they commoditize their products. Commodities have very low profit margins. Yet if they resist technology, they fall behind and in some cases, risk be legislated out of business. The efficient packaging of the CUV/SUV/Minivan is the step just before lopping off the engine compartment, moving electric motors to individual wheels and placing the batteries under the floor. To expect any other shape is to think we’ll all go back to watching TV in your choice of Colonial, Provincial or Danish Modern wooden cabinets.
Just prior to being offered Chrysler by the Obama administration, no one was interested in buying FIAT. At one point in the early 2000s, GM had negotiated a deal to purchase them. Amazingly for GM, they pulled back from this folly and wasted $5 billion to get out of the deal. This sudden cash windfall and the faddish success of the FIAT 500 retro-car in Europe made them appear to be geniuses to Washington D.C. legislators who think businesses exist as day-care centers to help get their even stupider kids out of the basement. (Looking at you, Hunter Biden.) The groundwork for most of what made Chrysler successful post-2011 was done under Cerberus ownership starting in 2008. Re-contented products, Pentastar V6, and a few other things. You don’t steer the Titanic around an iceberg on a dime; meaning what appeared in 2011 took years to develop. But politically, the loans required to re-furbish Daimler’s deferred-maintenance factories had to be connected to a cute 40 MPG car so the coastal greenies would agree. Enter Exor (FIAT’s parent company) and Sergio Marchionne.
When fuel prices and credit markets stabilized (as the market always does), Chrysler was well-positioned to be profitable. Thus the push for Exor to cash-out began with Sergio even threatening to force GM to buy the newly-created FCA by mobilizing activist shareholders. Less forceful overtures were made to anyone who would listen for about a decade, regardless of “synergy”. So it was inevitable, and obviously not driven only by Sergio.
As to the deal itself… Could be worse. Renault would have been worse. They’re tied up with their own merger-related problems while their former CEO rots in a Japanese jail cell. Some have said Carlos Ghosen was set-up to lesson French influence over their partner, Nissan. Sort of like having your cop brother-in-law charge you with “resisting and disorderly” just before you divorce his sister. Who wants to marry into that mess?
If Carlos Tavares of Peugeot is smart, he’ll do almost nothing but collaborate on the future-commodities end of the business… driver-assists (autonomous), battery technology, infotainment/connectivity, while keeping the brands and platforms separate. What’s profitable in the U.S. doesn’t sell in Europe and vis-versa.
Of course all of this is possible without a financial tie-up. It’s done all the time. GM is partners with Honda on autonomous vehicles. Ford just announced a partnership with VW. BMW is lending expertise to Toyota for a sports car. In fact, just type “[car company] partners with” and Google will happily finish your sentence. And then see how many are partnered with Google as well.
So will there be fewer auto companies going forward, and will more of them merge? Yes. But as I said, that’s because the automobile is fast becoming a “mobility device”. The ONLY and MOST important variable that I consider to be in play relates to the rationale for maintaining a domestic auto industry. Unless you’d like to go bankrupt in the same style as the Soviet Union… Trying to keep pace with military weaponry without a viable consumer manufacturing base. OR perhaps go back to buying and reverse engineering weaponry from Germany as we did as recently as the 1920s, you need peacetime employment for hundreds-of-thousands; perhaps even millions of engineering disciplines. That’s not a guy up in Michigan installing a bolt into a hole at Ford, nor is it a woman in Tennessee putting a nut on a stud at Nissan. It’s no coincidence that TACOM (U.S. Army Tank-automotive & Armaments Command) is located across the street from GM’s R&D headquarters. Automobile design and production involves more disciplines than I could even cover without further boring you, but some of the glittery-ones would be robotics, combustion science, aerodynamics, fluid dynamics, electronics, machine tooling, encrypted software and artificial intelligence. This is just an off-hand sample of the 15,000 people I share a building with every day… at the smallest D3 R&D center. Now let me tell you what “foreign nameplate” auto companies don’t do in the United States… Everything I just mentioned.
Yes, they have facilities in the USA, but at best they are field offices with neither the headcount, capital equipment or scale to truly play a role if **** ever went down. The corresponding argument would be meeting a world history and 2nd amendment enthusiast, then asking if they’re OK with being limited to a .22 pistol because “it’s technically a firearm." Off-shore home offices have no intention of ever expanding to the levels seen in their homeland. I’d refer you back to an Automotive News article where the interviewed heads of R&D from foreign rivals said as much, despite the cost advantages of American professional/skilled labor. You may feel free to hang any label you wish; xenophobe, nativist, old fart, etc. upon me, but make sure you include “person who studies history and understands the mechanical development and production cycle”. That’s why you’ll never see me saying things like “It doesn’t matter anymore” or “I have no loyalty to American names”. In certain sectors, like consumer electronics, this may be true. It most certainly does not apply to the Auto Industry, even in the foreseeable future.
So let’s hope for the best!
