Fiat Chrysler Gives Up on Merger Talk -- for Now

Fiat Chrysler CEO Sergio Marchionne spoke to leaders of the United Auto Workers union on Tuesday. Marchionne said he isn't actively seeking a merger partner for FCA at the moment. Source: Fiat Chrysler.

Fiat Chrysler Automobiles CEO Sergio Marchionne said on Tuesday he isn't actively seeking a merger partner for the company.

That's a change -- at least in tone -- from earlier reports that Marchionne had approached General Motors about a possible merger. GM rebuffed Marchionne's offer, but some reports had suggested FCA was exploring the possibility of a hostile bid for GM in an effort to force the issue.

But Marchionne continues to insist that auto-industry consolidation is necessary and inevitable, and that he's simply waiting for the right opportunity.

How is this all going to play out?

Marchionne wants consolidation -- but apparently not right nowMarchionne made big headlines when he took over FCA's first-quarter earnings call to issue an unprecedented plea for industry consolidation. In his view, the costs of developing new vehicles has become too steep, and profit margins too thin. As he sees it, the only way to improve the situation is to seek greater economies of scale -- or put another way, to have fewer, larger automakers.

Marchionne seemed almost to be putting FCA up for sale. Analysts and investors were skeptical, and concerned. But one big question lingered: Who would be willing to merge with Fiat Chrysler? Only German arch-rival Volkswagen seemed like a fit -- and both parties have repeatedly denied interest.

We subsequently learned that Marchionne had approached GM and been rebuffed. GM CEO Mary Barra has said repeatedly that she isn't interested in a merger, and for good reasons. Barra and her team are in the midst of a major effort to make better use of GM's already-massive scale, one that is expected to yield significant results -- but not for several years.

But GM is already one of the world's three largest automakers. Fiat Chrysler isn't -- and that's the problem.

FCA's global sales and footprint are probably big enough to ensure good profits -- in theory. But the reality has been different. Right now, FCA's U.S. operations aren't nearly as profitable as they should be, and it has a relatively small presence in China.

In Europe, Fiat's traditional stronghold, the company has been pounded by arch-rival Volkswagen, which has used aggressive pricing to capture market share during years of tough economic conditions.

Why the merger talk if FCA's plan is really working? Last year, Marchionne rolled out a five-year plan to boost FCA's sales and profits. The plan includes a global expansion of the Jeep brand as well as a big push into luxury cars, with FCA's Alfa Romeo and Maserati brands.

The all-new Alfa Romeo Giulia, revealed last month, is the first of several new mass-market Alfas expected over the next couple of years. The Giulia is expected to challenge BMW's 3-Series. Source: Fiat Chrysler.

A slew of new Alfa Romeos are expected over the next couple of years. Meanwhile, the small new Jeep Renegade is off to a good start in Europe, and plans are under way to greatly expand the Jeep brand's presence in China.

It all appears to be going more or less as Marchionne said it would last year. That's why the sudden merger talk was so disconcerting to analysts and investors.

It was also disconcerting to FCA's workers. There's no way to see a merger of FCA and GM working out well (financially speaking) without a lot of factories closing, both in the U.S. and abroad.

That's why Marchionne felt he needed to reassure the UAW on Tuesday. But unless FCA chooses a merger partner with little or no U.S. presence, it's hard to see how that promise can be kept. Will FCA ultimately agree to be devoured by Volkswagen, the one merger partner that might not want to close its U.S. factories? Or does Marchionne have another surprise up his sleeve? Apparently, we'll have to wait to find out.

The article Fiat Chrysler Gives Up on Merger Talk -- for Now originally appeared on

John Rosevear owns shares of General Motors. The Motley Fool recommends BMW and General Motors. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Copyright 1995 - 2015 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.