Car Rivals Dismiss Fiat Chrysler's New Call for Merger


Fiat Chrysler Automobiles (NYSE:FCAU) has reignited its calls for a merger, arguing that combining forces with one of the auto industry’s “big guys” will slash costs and strengthen the company’s car-making business.

CEO Sergio Marchionne began a public push for a merger in 2015, laying out his case in a presentation titled “Confessions of a Capital Junkie.” In the April 2015 report, he made a direct pitch to investors that consolidation in the auto industry is necessary to counter increasing costs. Marchionne specifically named General Motors (NYSE:GM) as the ideal partner for Fiat Chrysler, but GM officially rejected the overture in June. He later acknowledged that Fiat Chrysler wouldn’t pursue a hostile takeover attempt, instead focusing on its own growth plans.

That doesn’t mean Marchionne has given up entirely.

Marchionne, whose term at Fiat Chrysler will end in 2018, mentioned Toyota (NYSE:TM), Volkswagen and Ford (NYSE:F) as other potential merger partners on Friday.

“The door (on M&A) has never closed, the need to consolidate does not go away,” Marchionne said at Fiat Chrysler’s annual shareholder meeting in Amsterdam, according to Reuters.

“As we consistently have said, Ford has no plan or interest other than to continue to accelerate our One Ford plan, deliver product excellence and drive innovation in every part of our business,” Ford said in a statement.

Toyota declined to comment. A Volkswagen spokesperson didn’t immediately respond to a request for comment.

While major Korean automakers like Hyundai would also be logical choices, Marchionne discounted the possibility. “The Koreans don’t get married,” he added.

Fiat Chrysler Chairman John Elkann added his own thoughts on the topic in a letter to Exor shareholders. Elkann, head of the Agnelli family’s holding company, said Fiat Chrysler could book annual savings of nearly $10 billion if it merges with a larger player, based on internal analysis.

“But you need two to tango and most of our competitors are busy with the great opportunities that technological disruption has to offer,” Elkann wrote.

Elkann believes automakers should focus on maximizing the return on their investment in car manufacturing before jumping into new businesses. Citing data from consulting firm McKinsey & Co., he noted that traditional vehicles will remain king even if self-driving cars take off. McKinsey estimates that in a “high-disruption scenario,” just 15% of new cars will be completely autonomous.

Ticker Security Last Change Change %
FCAU n.a. n.a. n.a. n.a.
GM GENERAL MOTORS CO. 33.71 -0.03 -0.09%
F FORD MOTOR CO. 11.51 +0.10 +0.83%
TM TOYOTA MOTOR CORP. 136.65 +0.78 +0.57%

Elkann further likened the current state of the industry to Ford’s direction under former CEO Jacques Nasser, who spoke of turning the “boring old car maker” into a “consumer-products and services company.”

“Ultimately even in a high disruption scenario, new car sales will increase from $2.75 trillion in 2015 to $4 trillion in 2030, which is still a massive industry! Boring old car makers need to figure out how to make this profitable and guard against falling into the 1990 trap of ignoring that business while chasing profits in other parts of the value chain,” Elkann wrote.

Elkann is a member of the Agnelli family, which founded Fiat. Exor owns a 30% stake in Fiat Chrysler and controls 44% of its voting rights.