May 5, 2015—Fiat Chrysler CEO Sergio Marchionne stated that the automotive industry is unsustainable, according to a report in the Detroit Free Press.
Marchionne delivered a 25-page presentation entitled “Confessions of a Capital Junkie,” saying, in part, that automakers have heavily invested in how they develop and produce cars and some companies have had to borrow money from the government. After all of this, the industry’s return on investment has lagged behind almost every single other industry.
“We have failed, I think, collectively as an industry to deliver value,” Marchionne said during a conference call with Wall Street analysts.
This unconventional approach and formal presentation by Marchionne indicates that the company may be up for sale, Van Conway, president of Conway McKenzie, told the Free Press.
The message may have scared off investors as the FCA stock priced dropped 77 cents after the presentation.
The automotive industry’s failure to perform as well as other industries is reflected in the auto manufacturer’s stock prices. The presentation also pointed out the escalating costs that automakers are facing along with stricter emissions regulations, escalating regulatory costs related to recalls and the need to keep up with technology developments. Marchionne believes these escalating costs may force automakers to consider partnerships. He stated that a deal with Ford or General Motors would be “technically feasible.” Many commentators have said that Marchionne may want to cap off his career with one last merger.
Marchionne implied he is not signaling that FCA is for sale. He is, however, open to unconventional partnerships with companies like Apple or Google although nothing seems to be presently in the works.
Top executives at Ford, General Motors, Toyota, Renault-Nissan, and Peugeot have all recently said that they have no interest in purchasing or merging with FCA.
“We’re already in that top tier. We have a well-articulated plan and we are not going to entertain anything that would distract us from achieving that plan,” GM GEO Mary Barr said in response to a question on her view of consolidation.
Many analysts applauded Marchionne's call for industry consolidation while questioning what automaker might be a good match for FCA. Others are left unclear of what Marchionne was trying to do.
Max Warburton, of Berstein Research, questioned why, if Marchionne believed there should be fewer automotive manufacturers in the world, did Fiat purchase Chrysler in 2009?
“There are probably five or 10 men who can make this (consolidation) happen, and you probably have them all on speed dial,” Warburton said, according to the Free Press. “I come away from this call thinking what exactly was that all about?”
