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Why is Fiat-Chrysler CEO obsessed with mergers?

Fiat Chrysler Automobiles NV CEO Sergio Marchionne is no longer satisfied with his current “happy marriage.” He has been busy extending olive branches to multinational corporations, according to numerous media reports, touting the importance of consolidation.

It seems that Marchionne is suffering from a phobia. He is extremely anxious about the current global auto industry. In his eyes, only tie-ups with other multinational companies can alleviate his fear and worries, and consolidation is the only way out to ensure survival.

Earlier, Marchionne forecasted that only a handful of auto companies could survive in the future. These survivors would include an American, a German, a European-Japanese plus an American, a Japanese, a Chinese and a European company.

There seems to be no answer yet about which Chinese company may survive.

When Marchionne made the prediction, the global auto market was in a crisis. The European market was in dire straits and the U.S. market was overtaken by China. In his opinion, only the tie-ups amongst multinational corporations could augment product ranges and attain economies of scale to sustain growth.

Marchionne’s thought was nothing new. It was a fashion in the auto industry during the 1990s.

There were a host of mergers and acquisitions among which the most famous was the Daimler-Chrysler tie-up. Their marriage was branded as the most successful M&A case at the turn of the 21st century.

But the decade-long cross-country marriage went nowhere, with Chrysler bearing the brunt of the failure.

Marchionne wants to return to the M&A trend of the 1990s now that the world boasts more automakers than before. Past history tells us that except for the Fiat-Chrysler merger, there have been no other cases of cross-national mergers that have made real progress.

Marchionne emailed GM CEO Mary Barra, suggesting that a merged GM and Fiat-Chrysler would save billions of dollars in cost and create an automotive giant, according to reports in New York Times and Times.

GM ranks 6th among global automakers on the Forbes Global 2000 list. The merged Fiat-Chrysler ranks only the 13th. Although Fiat-Chrysler ranks 5th in global sales, its $755 million profit puts the company at 6th from the last amongst the 28 auto companies.

This underperforming profit proves that the Fiat-Chrysler marriage is not a success. At the very least, so far, we cannot say it is successful yet. Marchionne is therefore eager to merge with other multinational corporations to ensure profitability.

It is reported that Marchionne not only contacted GM, but also visited Apple’s CEO Tim Cook and Tesla’s CEO Elon Musk. Bloomberg reported that Fiat-Chrysler is open to a combination with GM or Ford Motor. Marchionne reportedly said that a deal with either of the companies would be “technically feasible,” so they could share the cost of production and development.

Although Marchionne said he never had talks with Volkswagen AG about a tie-up, some German media reported that the then chairman of the supervisory board Ferdinand Piech and the chairman of Fiat-Chrysler John Elkann talked about the possibility of purchasing some or all of Fiat-Chrysler’s shares.

Other potential rumored partners include France’s Peugeot-Citroën and Japan’s Mazda.

According to historical experience, the global automotive industry is unlikely to witness another round of mega-mergers. So, it is difficult for Marchionne to see major progress in his consolidation plans. Even though some consolidations may happen, Fiat-Chrysler may not be the initiator.

Moreover, there have been dramatic changes ongoing in the global auto industry over the past two or three years. New energy and smart vehicles have seen fast development, which makes today’s auto industry not the same as the past anymore.

Thus, those who may change the auto industry landscape may not be the long-established automakers. Other forces outside the traditional manufacturers may decide on the future.

(Rewritten by Kun Xu based on author’s article published on qq2976948763)

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