Fiat Chrysler still searching for a future after turbulent year

By Alvise Armellini Time of article published Jul 19, 2019

Share this article:

Rome - With the shock death of its dominant chief executive Sergio Marchionne and a failed attempt to merge with Renault, the past 12 months have been tough for Fiat Chrysler Automobiles (FCA).

And the road ahead won't be easier for the Italo-American carmaker, the world's seventh-largest, as it faces rapid industry changes with slumping sales and an outdated model line-up.

FCA has no electric or hybrid models in its regular line-up, and one of its flagship models, the Fiat 500 city car, was first launched 12 years ago.

"The FCA group has stabilised financially. Nevertheless, FCA is still a 'second-tier' automaker," says Professor Stefan Reindl, director of the IfA car industry research institute in Germany.

He identifies FCA's main weaknesses as having a "limited sales volume," a "lack of a globalisation strategy" and being a laggard on new technologies.

The company is trying to catch up: last week it started tooling its historic Mirafiori plant in Turin to produce an electric 500, and on autonomous driving it is cooperating with Google spinoff Waymo.

Globally, FCA sells less than 5 million cars a year and makes more than 90 percent of its profits in North America, thanks to strong demand for its Jeep SUVs and RAM pick-ups.

But it is nearly absent from China, the world's biggest car market, it is losing ground in Europe, and seems to have yet again failed to revive its storied Alfa Romeo brand.

In the first half of 2019, Alfa sales in Europe fell year-on-year by more than 40 percent. The Fiat brand, largely relying on the iconic 500 model, lost 10 percent.

"In my view, they cannot go on for long like this," says Giuseppe Berta, a contemporary history professor at Milan's Bocconi university and former Fiat archives director.

Marchionne, who died on July 25, 2018, after a mysterious illness that was kept secret until the end, left an important legacy at FCA.

"He was the man who single-handedly saved Fiat and Chrysler from near certain bankruptcy," says Gian Luca Pellegrini, the editor of Quattroruote, Italy's main motoring magazine.

Confessions of a capital Junkie

Leading Fiat from 2004 and Chrysler from 2009, Marchionne revived two former basket cases and created FCA, a global company which, however, remains vulnerable.

He had two major objectives, which he prioritised over investing in new models: eliminating FCA's debts and finding a merger partner. He succeeded with the first target, not with the second.

In a famous 2015 presentation, Marchionne said carmakers wasted too much money on research and development (R&D), and needed to merge to achieve economies of scale and improve profitability.

The presentation was called "Confessions of a Capital Junkie."

Failed marriage proposals

Marchionne failed in repeated marriage propositions to General Motors, and last month FCA had no better luck with Renault, calling off a merger offer after resistance from the French government.

"Mergers are hard to do and manage. To go ahead you need the right conditions, and it is important to know how to say 'no' when they are not there," FCA Chairman John Elkann told La Stampa daily on July 10.

According to Berta, a merger or an alliance with another carmaker is the only way for FCA to find the resources it badly needs for developing new technologies and products.

Otherwise shareholders - starting from the Agnelli family who founded Fiat and still controls FCA - would have to fund the investments themselves, and they have proven unwilling to do so, Berta says.

As evidence, he cites the fact that when FCA made 2 million euros in May from selling its car-parts subsidiary Magneti Marelli, the money was given to shareholders as dividend, rather than reinvested in R&D.

"To use a metaphor, FCA is like a car that could go very fast but does not have enough fuel," says Professor Francesco Zirpoli, a car industry expert at Venice's Ca' Foscari University.

Who will it turn to next?

While it is unclear who FCA could turn to next for a merger, several analysts are suggesting that a partnership with a Chinese competitor could help the company finally break into China.

For sure, FCA needs to adapt to a challenging environment.

Tightening emission standards, the onset of electric and self-driving cars, and the spread of car sharing rather than car ownership, will result in "a perfect storm" for the industry, Zirpoli predicts.

"The next 5-10 years will be the most demanding time since the invention of the car," says Professor Ferdinand Dudenhoeffer of the Center for Automotive Research at the University of Duisburg-Essen.

"Either you merge or co-operate, or you'll leave the car market."


Share this article:

Related Articles