Howes: Sergio seeks ‘cataclysmic’ change in FCA-GM deal
The global auto industry’s shrewdest dealmaker is stepping on the gas, again.
In a pointed interview with Automotive News, Fiat Chrysler Automobiles NV CEO Sergio Marchionne said his coveted merger with General Motors Co. would generate $30 billion in pre-tax earnings annually and signaled that his campaign to partner with Detroit’s No. 1 automaker is far from over.
“It would be unconscionable not to force a partner,” he told the influential industry publication, denying any hostile intent. “We’re not talking about marginal improvement in margins. We’re talking about cataclysmic changes in performance, just huge. I’ve gone through product by product, plant by plant, area by area, and I’ve analyzed them all.
“I’ve obviously made some arbitrary assumptions about which architectures survive, which engines survive, and the only deal that offers them the same benefits as we potentially get ... is us.”
This is extraordinary stuff. Not because Marchionne clearly has studied deeply the benefits that certain combinations — more a merger with GM than tie-ups with either Volkswagen AG or Renault-Nissan — would deliver FCA and its controlling shareholder, Exor SpA.
But because he’s readily making the case in public, just two weeks before the United Auto Workers’ contracts with Detroit’s automakers expire and despite the fact he and his debt-laden company don’t appear to have the financial resources or the leverage of GM shareholders (including the union’s health-care trust) to close a deal.
He’s also insinuating that GM’s executive team and board of directors are shirking their fiduciary responsibility by repeatedly rebuffing any discussion of a merger with FCA — a charge GM and ranking officials summarily reject.
“Our management and board are always working to maximize shareholder value,” GM responded in a statement Monday. “After we completed a thorough review of a possible merger with FCA, we concluded that executing our current plan is the best way to create value for GM stockholders.”
Marchionne’s not buying it, calling GM’s serial rejections an “abject refusal to engage.” At some point, the capital markets “won’t understand” why GM is “rejecting the discussion. You may reject the deal, but you can’t reject the discussion.”
Actually, GM can reject the discussion, unless influential constituencies, be they large shareholders or industry analysts warming to Marchionne’s industrial logic, pressure GM leaders to a negotiating table they clearly want to avoid. So far, that isn’t happening.
“If you’re refusing to talk to me,” he told Automotive News, “and you have seen nothing, you either think you’re above it all, or you think the capital markets are full of schmucks that owe you something.”
That is one distinct possibility, given GM’s long (and mostly pre-Chapter 11) history of burning through prodigious sums of capital and slow-walking overtures implying abrupt detours in strategy or imperiling the job security of sitting executives.
But it’s not the only possibility inside a company whose board and executive team are populated with Wall Street veterans like President Dan Ammann and Steve Girsky, a director and former vice chairman. They’re two of the three principals who led the effort more than two years ago to study a previous merger feeler from what now is FCA.
Even as Marchionne pushes publicly for a GM deal, the audience of investors and industry analysts that could bolster his case and pressure GM leadership into merger talks remains largely disinterested in the prospect of a merger with one of the industry’s smaller players.
That could signal many things, including the fact that GM’s operating margins and return on invested capital — to name two critical markers of fiscal performance — are running stronger than FCA, a contrast more likely to support GM’s contention to avoid a merger than embrace what Marchionne is selling.
A public campaign to lure GM to the bargaining table could be two things at the same time: one, a legit attempt to persuade GM to more fully explore a tie-up and, second, a bid to leverage a better deal from another would-be partner (VW or Renault-Nissan) by signaling that GM is in play, too.
In the middle of it all sits the UAW and its president, Dennis Williams, a longtime acquaintance of Marchionne. His increasingly pointed push for a deal conveys an unsettling desperation to the union. A weak FCA is not in the best interest of the UAW, its members or the broader Detroit community — a fact Marchionne would not deny.
That’s why, amid national contract talks, Williams assigned a team to study the manufacturing footprints of GM and FCA in North America and determine whether a combination would make plant closings and job cuts likely.
With the exception of full-size trucks, the union team concluded that “it looks like the footprint would work.” But union leadership remains unconvinced a GM-FCA merger makes sense or would be in the best interest of members.
A big hurdle is history, a record showing that promises made are seldom kept after the dealmaking is done. Among the burdens Marchionne faces in this massive sales job, that’s at the top of the list.
Daniel.Howes@detroitnews.com
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Daniel Howes’ column runs Tuesdays, Thursdays and Fridays and can be found at http://detroitnews.com/staff/27151.