Fiat Chrysler boss Sergio Marchionne is hoping for a big deal, possibly in the United States, to plug the carmaker's weaknesses and cement his legacy before stepping down in early 2019, sources familiar with the situation said.
However, the world's seventh-largest carmaker, which has one of the highest debt piles in the industry, barely breaks even in Europe and is expected to burn cash for years to revamp its neglected Alfa Romeo brand, may struggle to find a partner.
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Marchionne and Fiat's founding Agnelli family are showing particular interest in General Motors, several sources say, as the U.S. market has been core to FCA for years, GM is strong in Asia where FCA is weak and the U.S. carmaker is keen to expand in Europe after its move to tie up with PSA failed.
But a GM spokesman said the company was focused on executing its own strategy while one person at a U.S. bank close to the matter said GM is "really not interested".
"Marchionne has clearly planted the 'for sale' banner," a banker close to PSA Peugeot Citroen and General Motors said. "He's been sending out feelers everywhere in an attempt to create optionalities, but so far no one is biting."
Marchionne, who has dropped increasingly blunt hints that he wants an alliance to jumpstart consolidation in the industry to share capital costs and fund development of cleaner cars and features such as self-driving, said last month a tie-up with GM and Ford would be "technically feasible".
The 62-year-old said nothing was on the table now, however.
An FCA spokesman declined to comment but a source outside the company who is familiar with its strategy said: "The U.S. is where FCA is focusing now. Marchionne is doing a lot of work on his last deal and something will happen before 2018."
Some industry executives said Marchionne's recent comments may have been an attempt to create a bidding war by suggesting greater interest than exists.
"Sergio is a great poker player: all the noise he is making aims at hiding the fact that in reality FCA's golden years are nearing an end," another banker close to the industry said.
FCA's Milan-listed shares rose 120 percent in the last six months but underneath is a fragile firm. Investors were inspired by Fiat's buyout of Chrysler, the move of its primary listing to New York and FCA's decision to spin-off Ferrari and distribute the bulk of the luxury unit's shares to FCA investors.
But FCA has an operating margin - a measure of profitability - of only 3.4 percent, compared with 5.4 percent for its peer average, according to Thomson Reuters data, and high debt.
FCA needs an alliance to address challenges including a gap in Asia, an ambitious turnaround plan and an over-reliance on a North American market that is nearing its peak. Its portfolio is also weak on electrification and connectivity services.
It also plans to spend 48 billion euros ($52 billion) to build new Jeeps and Maseratis and revamp Alfa Romeo. Most industry analysts doubt that Marchionne will reach the steep 60 percent sales ramp-up to 7 million cars he envisions by 2018. FCA sold 4.6 million vehicles last year, up 6 percent on 2013.
Still, FCA has some attractive assets: its Jeep brand has global allure and the RAM brand offers a strong foothold in the U.S. pickup market. Alfa Romeo, once developed, could become a strong competitor to Volkswagen's Audi, although the German firm will not be keen on a full takeover, one of the people said.
TALKING TO MANY
Last year separate media reports, both denied, suggested FCA was talking to Volkswagen and PSA about a tie-up. PSA chief Carlos Tavares said last month it was too early to talk about a merger, wanting to focus on his own recovery first.
Marchionne said in March he could buy or sell, adding he was talking to many companies. While Volkswagen was not his preferred target, he said he could imagine collaborating with the German carmaker. Volkswagen declined to comment.
A tie-up with GM "makes a lot of sense in terms of geographical synergies and global market share," according to the person at a U.S. bank close to the matter. But several sources also said there were significant obstacles including cutting overlaps in western Europe and the United States that would likely fuel opposition from unions and politicians.
The two formed an alliance in 2000, cooperating on engines and components but relations soured as Fiat's losses mounted. In 2005, GM had to pay Fiat $2 billion not to exercise an option to sell its auto division to the U.S. carmaker and "there's been bad blood since", one person familiar with the matter said.
Fiat bid to buy GM's European unit Opel in 2009, but lost to a rival before GM abandoned the sale process altogether.
While it seems unlikely that GM would change its mind about an alliance with FCA, bankers are reviewing possible merger scenarios with Marchionne, one of few CEOs to have managed a successful auto industry tie-up in recent years.
"The question is whether this industry will deliver an opportunity for a deal like this," Marchionne said. "It is my hope that it happens before 2018 and that somebody starts this process because once it's started others will follow." ($1 = 0.9185 euros) (Additional reporting by Anjuli Davies in London, Arno Schuetze in Frankfurt, Ben Klaymann and Joe White in Detroit and Andreas Cremer in Berlin; Writing by Agnieszka Flak; editing by Anna Willard)