Fiat eyes role in carmaking alliance

Publication date: 24 April 2009

While other car company chiefs hunker down to survive their industry’s worst downturn in decades, Sergio Marchionne on Thursday put himself forward as a leader of its next phase of consolidation.

When investment analysts quizzed him about reports that Fiat was among the potential suitors for General Motors’ European arm, he said only that there had been “no direct conversations with Opel”, the German unit that forms the core of GM’s business on the continent, in which GM is selling a controlling stake.

Instead, Mr Marchionne asked them to focus on the bigger picture in an industry in which too many production plants are chasing the same business.

“When you stand back and look at the automotive landscape, you recognise the fact that there is a structural imbalance between the ability to produce and demand,” he said.

Fiat, which produces more than 2m cars a year, aimed to secure 5m to 6m units of annual production to justify its investments.

Assuming Fiat were to secure partnerships with Chrysler and Opel, the production volume would give Mr Marchionne the roughly 6m volumes he seeks.

Without commenting on Opel, Mr Marchionne said Fiat planned to be part of a “consolidation exercise” with other global carmakers, including those in Europe, whose carmakers had capacity to produce 1m more cars than they needed.

He said: “The market conditions to do that are here, and Fiat is a willing player.”

However, industry insiders and Fiat itself warned that no deal was imminent, and it is among at least seven industrial and financial groups to have flagged preliminary interest in a stake in GM’s European business.

Word that Fiat might be a suitor for Opel comes as it rushes to complete a partnership agreed in January with Chrysler, now in the final phase of negotiations before a US government-set deadline less than a week from now. Mr Marchionne, who has spent much of the past month in the US, flew to Washington on Thursday for further meetings with the US Treasury-led taskforce on saving Chrysler.

With some analysts already warning of the Chrysler talks’ drain on Mr Marchionne’s time, a tie-up with Opel could stretch him further. The notion of a tie-up is doubly surprising, given Fiat’s ill-fated five-year partnership with GM that ended rancorously in 2005, with the Detroit carmaker paying its Italian partner $2bn to exit a put option arrangement. However, the two companies still jointly own an engine plant in Poland that supplies Opel.

An alliance with GM in Europe could serve as an insurance policy of sorts for Fiat if its talks to take a 20 per cent stake in Chrysler fail. Unlike the 10-year-old alliance between Renault and Nissan or the since-dissolved merger of Daimler and Chrysler, a tie-up of Fiat and Opel would marry two producers with similar and complementary operations on the same continent.

“The industrial logic of Fiat/Opel is quite compelling,” said Max Warburton, industry analyst with Sanford Bernstein. GM’s 10 European plants are mostly in the north of the continent; Fiat’s nine are in Italy, France, Turkey, and Poland. Outside Europe, it has factories in Brazil, Argentina and India. However, Opel’s powerful works council fears large job losses due to big overlaps between the two carmakers. GM has stressed that it has three plants too many in Europe.

Addressing the point, Mr Marchionne on Thursday said there were “other ways” to cut industry capacity without closing plants. Radical downsizing of the type seen in the US was “not in the culture of European society”, he said.

A link between Fiat and Opel would also face high antitrust hurdles in Europe and South America, where the two companies’ combined business would make them dominant players.

However, with GM’s European operations running low on cash, putting more than 50,000 jobs at risk, antitrust authorities would be “out of their minds” to veto a tie-up, said Mr Warburton.

Source: The Financial Times