Marchionne Fuels The Inevitable Breakup Of Fiat Chrysler – Forbes
It increasingly looks like Fiat Chrysler CEO Sergio Marchionne is fueling interest in selling or spinning off the company’s brands as a way of maximizing shareholder value and finding new management leadership before he retires in 2019.
Trade weekly Automotive News reported Monday that the automaker rebuffed a bid by an unnamed Chinese automaker to buy the company. The weekly also reported that representatives from Fiat Chrysler Automobiles recently met with counterparts at Great Wall Motor Co., and that Chinese delegations were seen last week at FCA’s Auburn Hills U.S. headquarters.
Since Monday, AutoNews has reported that Chinese automakers Geely (which owns Volvo) is not interested, and Reuters has reported that Dongfeng Motor Group is also not pursuing FCA.
Though Great Wall has not been verified as a true suitor that made an actual offer for FCA, Automotive News reported that “an” offer was refused by FCA for being too low. It would not be unlike FCA’s senior management to leak an unsuccessful offer in the hopes of stirring interest by other Chinese automakers, or even automakers in Europe such as Volkswagen, Peugeot or Renault.
Marchionne has been public for two years about his desire to sell the company or merge, or form a substantial alliance such as that which is enjoyed by Renault-Nissan. He was even public about approaching General Motors, trying to convince CEO Mary Barra that a merger with FCA was in both companies’ interest. He seemed to be courting Barra in the daily news pages.
Marchionne has often said that he does not think FCA will thrive on its own, especially as the demands of costly technology climb. “I never close any doors. I may shamelessly try and knock again … on the GM door or any door if I thought it was a good thing for the business. Absolutely, without even blinking,” Marchionne told reporters at the Geneva car show.
By far, the most valuable asset in the FCA stable for any company is Jeep. The SUV brand has long been the jewel in the crown of this company, going back to when Chrysler acquired American Motors in the 1980s. When Daimler bought Chrysler in the 1990s, it was chiefly to get its hands on Jeep. When Cerberus Capital took over the company from Daimler, the firm had its sights set on expanding Jeep’s global distribution while it wound down the company’s passenger car businesses. FCA has executed that plan, growing the former military brand’s distribution and sales through Europe and the Middle East.
Automotive industry analyst at Morgan Stanley Adam Jonas recently suggested the Jeep brand itself was actually worth more than its parent company, Fiat Chrysler. Specifically, he put Jeep’s value at 120% of FCA’s market capitalization. The other brand that is extremely profitable and valuable is Ram pickups, with sales and popularity growing each year. Put the two brands together, and it becomes a no-brainer for FCA to break the company’s brands up. And by itself, Chrysler’s minivan business is valuable to certain companies, like Hyundai or potentially Ford.
The casualties of what appears to be an inevitable breakup of FCA become the Chrysler and Dodge brands, neither one of which would be missed very much. Witness the lack of lasting handwringing over Oldsmobile, Pontiac, Saab and Saturn, as well as Mercury. “If someone is willing to spend the money, it’s hard to think of a better way to make a splash in the U.S., and world auto market than acquiring Jeep and Ram,” says marketing consultant Dennis Keene of a potential Chinese takeover of Chrysler-Dodge-Jeep-Ram brands. “The tricky part, though, becomes managing those brands if you don’t have any car business at all to meet the corporate average fuel economy standards (CAFE) in the U.S.”
Jeep sold 1.4 million highly profitable vehicles last year. Marchionne is also said to favor spinning off Maserati and Alfa Romeo brands, which have comparatively lower sales and market share, but bundling the brands for sale without other FCA assets will maximize the return to the Agnelli Family.
FCA shares closed Monday up 8.53% to $12.60 on the initial Automotive News article, and have been trading in that neighborhood this week. Its shares are up 37% on the year.