LITTLE ROCK — Four months before Fiat agreed to take management control of Chrysler Group LLC, Chief Executive Officer Sergio Marchionne said he wanted to create one of the world’s top five automakers.
Speaking to 1,500 people in the auditorium at Fiat’s Turin, Italy, headquarters on Dec. 11, 2008, Marchionne said Fiat needed to forge alliances with other car companies to survivelong-term.
It hasn’t gone as planned. While Marchionne scooped up Chrysler, his efforts to acquire General Motor Co.’s Opel, Saaband South American operations last year went nowhere when GM decided to hang on to them or sell them to someone else.
“Marchionne’s vision was to create a large automotive group under the control of Fiat,” said Giuseppe Berta, a Fiat expert and business professor at Milan’s Bocconi University. “It’s going to be a lot harder now.”
Marchionne’s challenge is to match the success of Carlos Ghosn, who runs an alliance ofRenault SA and Nissan Motor Co. as chief executive officer of both companies, said Stephen Pope, chief global equity strategist at Cantor Fitzgerald in London. Ghosn’s 11-year-old Renault-Nissan partnership is the only major auto alliance that has worked, Pope said.
Keeping up with Ghosn could become harder for Marchionne in the wake of Renault-Nissan’s agreement in early April to share small-car and engine technology with Daimler AG, which makesMercedes cars.
At a news conference in Turin on April 21, Marchionne laid out his latest vision for the Fiat-Chrysler alliance. By integrating the two companies’ product development and distribution, and linking up with partners in Russia and China, he said, his enterprise would produce 6 million cars by 2014. Right now, Fiat and Chrysler can make about 3.3 million cars. Marchionne would have to add 2.7 million units.
“When we announced ouracquisition of Chrysler, our objective was clear,” said Marchionne, who also outlined plans to split Fiat’s industrial operations from automaking. “We wanted the international benefit of access to the [North American Free Trade Agreement] region. We were looking for an industrial partner with which to shore up Fiat’s business.”
While Chrysler reported a $143 million operating profit for the first three months of2009, analysts say those results could be fleeting.
“The accounting remains opaque, and current costs may not be sustainable,” said Max Warburton, a senior analyst at Bernstein Research in London.
Between March 2009 and March 2010, Chrysler’s U.S. market share fell 2 percentage points to 9.2 percent, according to Autodata Corp. in Woodcliff Lake, N.J. Over the same period Ford Motor Co.’s shares surged to 17.4 percent from 14.7 percent, and GM’s rose to 18.7 percent from 18.6 percent. Independent analyst Maryann Keller said Marchionne, 57, could miss his sales target of 1.1 million cars in the United States this year.
Ghosn, 56, set the modern standard for automotive turnarounds, leading Nissan to record profits of $3.6 billion on $66 billion in revenue 17 months after his arrival.
“The lead success story in auto-industry alliances is Renault-Nissan,” said Cantor Fitzgerald’s Pope. “He’s defied the odds. The Renault-Nissan alliance has become the benchmark.”
In the early going, Ghosn earned respect inside and outside the auto industry by setting short-term targets and vowing to resign if he didn’t meet them.
On Oct. 18, 1999, Ghosn announced the Nissan Revival Plan and vowed to be profitable by March 2001, to boost operating margins to 4.5 percent and cut debt in half by March 2003. Ghosn hit the latter two targets one year ahead of schedule.
By contrast, Marchionne’s vision for Chrysler as the linchpin of a new global auto alliance hit rough going almost immediately after he announced it.
Last May, seeking global scale, Marchionne expressed interest in acquiring GM’s European and South American assets. GM never formally offered to sell its South American operations, which included production and sales in Brazil and Argentina. The U.S. automaker declined Fiat’s offer for Opel and decided to sell the division to Magna, the Canadian auto-parts maker.
Then, last November, GMchanged course. Overruling Fritz Henderson, who was CEO at the time, the board decided to hang on to Opel. The directors argued that keeping the division would help GM maintain a strong presence in Europe.
Marchionne wound up with only Chrysler. Fiat obtained a 20 percent stake in exchange for technology and export opportunities. The United Auto Workers’ retiree health-care fund owns 67.7 percent, with the U.S. and Canadian governments holding the rest.
Marchionne’s defenders say it’s too early to rate his performance because he has been running Chrysler about 10 months. Stefano Aversa, co-president of AlixPartners LLP, which advised Fiat on a joint venture with GM, said Marchionne’s efforts won’t become visible until the end of the year when Chrysler will have released new versions of the Jeep Grand Cherokee, theChrysler 300 sedan and started plugging holes in the model lineup.
“He doesn’t have a magic wand,” said Aversa. “It’s premature to judge now.”
Marchionne faces a weak car market. Auto sales were booming in the United States when Ghosn launched his turnaround at Nissan. The international auto market is also more competitive than it was 11 years ago because car companies can produce 90 million vehicles worldwide, about 30 million more than there are buyers.
Chrysler is weaker than Nissan was when Ghosn arrived in 1999, said John Wolkonowicz, senior auto analyst at IHS Global Insight. Bent on cutting costs, Chrysler’s previous owner, Cerberus Capital Management LP, gutted the budgets for new vehicles. When Marchionne took over last June, Chrysler had few models in the development pipeline and no small, fuel-efficient cars. While Fiat’s 500 compact is to go onsale in Chrysler showrooms in December, new vehicles, about half to be built from Fiat designs, won’t appear until 2012.
Though Nissan was headed for its seventh annual loss in eight years when Ghosn took over, the company had a lineup of new models on which to build. What’s more, Renault, in taking a 36.8 percent stake in Nissan, injected $5.4 billion into the Japanese automaker.
“The table was set in many respects when Ghosn came on board,” said Michael Robinet, a senior analyst for CSM Worldwide Inc. in Troy, Mich.
Marchionne consolidated his reputation as a turnaround artist at SGS SA, the Genevabased product-testing company, and Fiat, which he joined as CEO in 2004. He returned Fiat to profit in 2005 after four years of losses by wringing about $2 billion out of GM to unravel an alliance between the two, laying off 19,000 workers, slashing product-development times to18 months from four years and introducing new models such as the Punto.
While analysts say Marchionne continues to find ways to cut costs at Chrysler, much of that work was done when he arrived in Detroit. The sixweek trip through Chapter 11 last spring, which Marchionne called a “washing machine” bankruptcy, left Chrysler a leaner entity. Chrysler shed eight factories, real estate, equipment leases and 789 U.S. dealerships.
Some analysts see difficult times continuing.
“We remain dubious that Fiat can deliver great new Chrysler product,” Bernstein analyst Warburton wrote in an April 15 report. “For 2010-11 all the company has, apart from the new Grand Cherokee, is somerefreshes and facelifts.”
While IHS Global Insight’s Wolkonowicz acknowledges that Marchionne has a “very tough assignment,” he said the man who turned around Fiat also could revive Chrysler.
“I think he’s doing everything humanly possible,” said Wolkonowicz. “He’s two people in one. He gets all of it.”
Ultimately, said Cantor Fitzgerald’s Pope, Marchionne will be measured against Ghosn, who declined to be interviewed about a competitor.
While sales at Renault-Nissan have suffered in the economic slump, analysts continue to praise the alliance’s architect.
“He’s got a world-classability to handle two big companies,” said Yoshihiro Okumura, who helps oversee the equivalent of $365 million at Chiba-gin Asset Management Co. in Tokyo. “I’m not sure if there are others who can follow him.”
When asked about Ghosn, Marchionne called himself “just a metal basher” and said: “He’s much better than I am.” Information for this article was provided by Makiko Kitamura and Keith Naughton of Bloomberg News.
Business, Pages 73 on 05/02/2010