Fiat Chrysler CEO Marchionne is really pushing his luck with hopeless GM merger talk

Sergio MarchionneReuters/Paolo BonaMerge with me! Or else!

Fiat Chrysler Automobiles CEO Sergio Marchionne is pushing his luck beyond anything the auto industry has seen before.

Marchionne has for the past few months been re-pounding a drum he’s already beaten to a pulp: that there needs to be consolidation among global car makers, to eliminate ruinous development and manufacturing redundancies.

Basically, he’s exasperated that a bunch of automakers all make essentially the same cars and trucks.

It’s not that he doesn’t have a point. But for the most part, no one is listening. Or if they have been listening, they’re getting sort of sick of continuing to listen. They want Sergio to let it go and move on to more interesting things, like the upcoming spinoff of FCA-owned Ferrari via an IPO later this year.

Now he’s set his sights on essentially forcing General Motors to merge with FCA. Marchionne reportedly emailed GM CEO Mary Barra out of the blue last month proposing a conjoining. Barra acknowledged that Marchionne had contacted GM, but she maintains that the largest US car maker isn’t interested in tying up with FCA.

Now, reports have surfaced that Marchionne is talking to activists investors about agitating for a GM-FCA merger. The Wall Street Journal’s Eric Sylvers has the story:

His pursuit of outside investors is only the latest move in Mr. Marchionne’s drive to find a partner for the Italian-American auto maker, which logged $US108 billion in sales in its most recent fiscal year. But contacts with activist investors — only months after GM agreed to hedge fund demands to buy back billions of dollars in stock — have yet to land a patron, [sources] said. A similar strategy could be employed with at least one European auto maker, they added.

This is possibly the worst idea in the history of the car business — unless maybe you’re Marchionne and you’re worried that FCA has recovered as much as it can from its 2009 bailout and bankruptcy and is now confronted by competitors with better financials.

There never really has been much enthusiasm for mergers among the Detroit automakers. GM, Ford, and Chrysler have existed independently for decades. Obviously, it’s not like GM had have many, many opportunities to merge with Chrysler in the past, oh … 50 years! Let us not forget that Chrysler was bailed out in 1980 before being bailed out again after the financial crisis.

Furthermore, although GM might be interested in picking up FCA’s best brand, Jeep, Barra & Co. are now running a slimmed-down GM. After its own 2009 bailout and bankruptcy, GM shed numerous brands, from Saturn to Hummer. GM now consists of Chevy, Buick, GMC, and Cadillac — a much leaner version of the colossus that once aimed to capture 25% of the US market.

It’s hard to figure out how merging with FCA would unlock value in GM that isn’t currently roaming free. Quite the opposite, a GM-FCA merger would create an unholy mash-up of brands and cultures, and likely introduce the management struggle to end all management struggles. “GMFCA” would not be run, in all likelihood, by Mary Barra. Not while Sergio Marchionne can still turn a key in an ignition and put his foot on an accelerator.

GM CEO Mary BarraREUTERS/Rebecca CookNo thanks, Sergio.

Marchionne has been on quite a tear of late. Last year, he deposed longtime Ferrari Chairman Luca di Montezemolo and put himself in charge of the Prancing Stallion. It’s expected that 2016 will witness the announcement that Ferrari is building, heretically, a luxury SUV and ramping up production to 10,000 vehicles annually from the current 7,000.

FCA staged an IPO in 2014, and the stock has steadily ascended since last fall, getting within striking distance of doubling the $US11 offering price. The Ferrari IPO is expected to value the Italian car maker at between $US7-10 billion.

Marchionne’s chutzpah is legendary. Chrysler was left for dead after the financial crisis, but the government decided to let it live and offloaded the entire problem on Marchionne, who practiced “bailout capitalism,” convincing the Obama Administration to loan him $US6 billion make the deal happen (Fiat and Chrysler paid back the loan prior to fully merging). That’s right, Marchionne got Chrysler, effectively, by bringing nothing but a willingness to tackle the turnaround.

It’s not out of the question that activist investors will be able to pressure GM to take Marchionne more seriously. But given the dismal history of mergers in the industry, it hard to see how history would somehow be re-written here.

Marchionne-MontezemoloFabrice Coffrini/AFPFormer Ferrari Chairman Luca di Montezemolo (right), one of Marchionne’s victims in 2014.

Marchionne has been accused of desperation with all this consolidation talk. But in truth, he’s been talking this talk for years. The problem now is that the industry is booming and the pressure is on Marchionne to bolster FCA’s margins; gangbusters sales aren’t converting into impressive profits.

GM, meanwhile, is currently trying to avoid adding any new factory capacity, preferring to heed Marchionne’s wisdom and run lean. Adding Chrysler’s capacity is illogical, and on top of it, GM’s quality is on average superior to FCA’s.

In this context, apart from what could go down in the boardroom, it’s difficult to see why GM would see any gain from joining with FCA. Even getting Jeep is questionable — GM doesn’t lack for truck and SUV brands. And remember, the company just reduced the number of brands it needs to support, a very wise decision that, in 2015, has enabled the car maker to see a 20% US market share on the horizon, something that seemed impossible just two years ago.

All that said, Marchionne is Marchionne. He will be heard out. Even if ultimately nobody really wants to listen.

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