Marchionne Wants a Partner but Says FCA Can Survive Alone ‘In Mediocrity’

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Debt and desperation? 100,000 Though FCA is last among major global automakers in net 80,000 cash/debt, CEO Sergio Marchionne points out that it started with 60,000 nothing after Chrysler came out of bankruptcy in 2009. “All the money that [we] make now is a question of rebuilding equity.” 40,000 20,000 0 TOYOTA* GENERAL VOLKSWAGENNISSAN* FORD HONDA* HYUNDAI RENAULT KIA MOTORS FCA

IN MILLIONS OF DOLLARS -20,000

* Industrial net cash/debt before post-retirement liabilities, 2014 Source: Sanford C. Bernstein & Co.

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SQUEEZE ON TRIAL Marchionne wants a partner but says FCA can survive alone ‘in mediocrity’

Larry P. Vellequette and Luca Ciferri pheric levels and FCA overall ringing up over five Jeep, he says, “is the biggest insurance policy I have [email protected] years of consecutive monthly sales gains in the U.S. because that brand was the best part of Chrysler by a ETROIT — Compared with its larger and Marchionne says if FCA continues “globalizing Jeep long, long stretch.” Analysts agree. They have pegged far richer global counterparts, Fiat at the speed of light” and developing Alfa Romeo and the value of Jeep at close to 60 percent of FCA’s total Chrysler Automobiles faces a set of other premium vehicles, it will have sufficient capital “ value after Ferrari is spun off. problems that appears almost insur- to survive for the long term. But to outsiders, including analysts, competitors mountable. ●●● and potential partners, FCA has issues. Lots of big is- FCA trails its competitors in profit mar- sues. Dgin, r&d spending, fuel economy, hybrid technology, Jeep “is the biggest Ⅲ Even after taking dramatic steps to increase its self-driving cars — you name it. At a time of unprece- insurance policy I have North American profit margin, including hiking dented capital investment needs in the auto industry, wholesale prices in the U.S., the margin remains well FCA is the only major carmaker in the world with because that brand was the behind those of competitors. more debt than cash. best part of Chrysler by a Ⅲ Among 23 cars, crossovers, SUVs, pickups and vans Ouch. FCA US sells, only three, the Jeep Wrangler, Cherokee So what’s the level of desperation? CEO Sergio Mar- long, long stretch.” and Grand Cherokee, aren’t outsold by a segment chionne insists FCA is not desperate at all, that the Sergio Marchionne competitor. company can survive on its own — “in medioc- Ⅲ Many of FCA’s top-selling vehicles ride on platforms rity.” Given a choice, he’d choose an- that would be considered out of date at other au- other path. He says FCA needs a “ tomakers. An example: The Dodge Charger and Chal- partner and that it’s a no-brainer lenger and Chrysler 300 are based on a Mercedes- who that partner should be: Benz platform first used by DaimlerChrysler in the General Motors. (See Page 1.) 2005 model year. Marchionne acknowl- Ⅲ No single FCA platform underpins edges extreme challenges more than 1 million vehicles a compared with larger year, increasing costs. global automakers. Many Ⅲ All FCA platforms are re- of them, he says, are be- works of architectures Mar- cause of the financial chionne found when he weakness and years of joined Fiat in 2004 and neglect as Chrysler was took over bankrupt coming out of its 2009 Chrysler in 2009. To meet bankruptcy. crash standards, each Six years later, it is still new model had to be feeling the effects, even with Jeep selling at stratos- see SQUEEZE, next page 20150831-NEWS--0005-NAT-CCI-AN_-- 8/28/2015 3:59 PM Page 1

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THE QUOTABLE SQUEEZE MARCHIONNE continued from previous page Recalls heavier than its predecessor. That means “I had a very tough conversation with higher fuel consumption as competitors our people yesterday as a result of launch lighter models on new platforms. some of the decisions that were taken So over time, the weight disadvantage in- out of [Vehicle Recall Committee] ... creases for FCA. Ⅲ we sat on bad leadership choices In 2014, FCA’s U.S. fleet averaged 21.1 “when people would not respond mpg, last among all volume automakers Bigland Kuniskis Manley Palmer properly to the challenge at the right in corporate average fuel economy, trail- time and with the right speed. Nothing ing full-line leader Nissan by 5.7 mpg. Ⅲ Today, with the exception of a $1.4 Sergio may stay till 2020, criminal, but not at our standard. I million LaFerrari, you can’t buy a hybrid told them, ‘If you sit on this, right, from any of FCA’s 11 brands. You can, you’re going to pay the price, and so however, purchase a battery-electric Fi- hunts for next top leader you need to go back in and you need at 500e in California and parts of Ore- Larry P. Vellequette chief Reid Bigland, 48; and CFO to identify those weak spots, and if gon, but if you do, FCA will lose about [email protected] Richard Palmer, 48. you can’t convert them, you need to $14,000 on the transaction, according to ergio Marchionne is 63 “I’ve got a crew of kids that are change them.’” Marchionne. and the first to admit that growing properly,” said Mar- Ⅲ While companies such as Toyota, he won’t stick around as chionne. “I think I will still be afraid North America Ford and Hyundai-Kia sell the same SCEO of Fiat Chrysler Auto- today to let them alone into the “Do I feel good about NAFTA? I do. products in China, the U.S. and Europe, mobiles forever. But he may remain woods because they’ll come back Do I think that we’re going to go FCA is still the sum of four regional and a bit longer than expected. with a [expletive] bloody nose and through disastrous conditions going marginally interconnected regions, with In May 2014, Marchionne said he no legs, but there’s going to be a forward? The answer is probably not. shrinking sales in economically stricken would remain in his role until 2018, point in time in which I’m going to But certainly not stellar, and I don’t Brazil and a negligible presence in Asia- but he told Automotive News in Au- have to let them go ... into the woods Pacific, at least for now. gust that he could hang on until alone and see what they can find.” see sort of phenomenal Ⅲ The group appears to have made no 2020. Marchionne recalled his first improvements in earnings going progress in connected car and au- “I can do this for another five days as CEO of Fiat S.p.A., which forward.” tonomous driving, which Marchionne years if you push me, right? Beyond had burned through a string of

calls a Pandora’s box of problems. that, I ain’t gonna do it, and I don’t CEOs before his arrival in 2004. Sta- Tesla CEO Elon Musk Ⅲ Finally, of all major global automak- want to,” he said. bility in top positions is important, “I underestimated Elon. I like him a ers, only FCA has a net debt — $8 billion. So who follows him into the hot which is why he said he tries to “es- lot. I like him, and I think he’s the real Every other company is in a net cash po- seat at FCA? tablish a culture where leadership deal as a disruptor. I think he sees sition. Marchionne said he spends six matters.” things that other people don’t see. Do

Marchionne acknowledges FCA’s weeks each year reviewing person- He said part of growing a leader- I think everything he says … will challenges. Work to do on hybrids? “Ab- nel files, on the lookout for talent in ship class includes allowing people materialize on his time frame with the solutely true.” Lower margins? “Ab- order to groom them for leader- to make mistakes and take respon- kind of industrial dynamics that he solutely true.” ship. sibility for them. sees? I think the chances are less As for FCA’s billions in net debt, Mar- “My purpose in life is to find the “I told them, ‘One of you is going than 50 [percent] … but his value to chionne said the company still is climb- Kuniskises of the world, the Man- to do what I do one day. I don’t “ me as an industry participant is that ing out of its Chrysler hole, having leys, the Biglands, the Palmers,” he know who that is, but one of you is bought out the UAW’s Voluntary Em- said. going to do it.’ he’s a phenomenal disruptor, and this ployees’ Beneficiary Association with He was referring to his top lieu- “When you sit in my shoes,” Mar- industry needs disruption — as much $11 billion in cash and repaid its gov- tenants — Dodge brand head Tim chionne said he told his underlings, as we all worry about that disruption.” ernment loans. It also had to sink bil- Kuniskis, 48; Jeep brand boss Mike “it’s all your fault, all of it. I can’t lions into modernizing “neglected” fac- Manley, 51; U.S. and Canada sales throw people under the bus.” c Disruptors and disruption tories that it got from Chrysler’s previ- “I think it’s healthy. I think it may ous owner, Cerberus. break a couple of bones, but it will As for catching up with electrification? reconstitute a much stronger It’s coming, he said, and largely “from FCA by the numbers organism. And so I invite them in. I the supplier base.” Hybridization will Global sales and revenue are on the rise at Fiat Chrysler. invite the Apples, I invite Uber, I invite be spread across the lineup, starting CHANGE FROM CHANGE FROM Google. They should all come, and next year with the next-generation JAN.-JUNE 2015 JAN.-JUNE 2014 2014 2013 we’re talking to them all.” Chrysler Town & Country minivan. Revenue* $63.9 billion +22.3% $110.4 billion +10.9% Marchionne said FCA will be compli- Unit shipments 2.3 million –0.26% 4.6 million +5.9% ant with tougher emission standards and will continue to buy greenhouse *$1.15 to 1 euro exchange rate Source: FCAGroup not everybody’s going to be successful. I gas credits as long as it is able. He said: think we have put in all the safeguards “The emissions standards, the green- the next-generation Alfa Romeo Giulia “It’s a big stretch,” Marchionne said. into that bet that we can, including the house gas emissions, CO2, all that stuff that was unveiled in June and will go on “The fastest recovery of Alfa is going to fact that I can stop the investment cycle we have in the plan, and our portfolio sale in 2016. be out of Europe. I can afford to [miss] if I want to.” will deliver compliance.” “The big bet, and the one that’s by de- by X number of cars in the U.S. and still The Giulia carries impressive perfor- finition the riskiest, is the relaunch of make it back up in Europe.” mance numbers but, more important Alfa bet Alfa,” Marchionne said. “And that’s why Alfa “is risky ... because a lot of good for FCA, rides on a new platform that And then, there is his big bet on Alfa I think we’ve gone underground for as people have tried see SQUEEZE, Romeo. long as we did with the car to make sure to do this Page 30 FCA has committed about $6 billion that we had a technological proposition stuff, and by to a massive engineering project to res- for the marketplace that was ... unas- definition The Alfa Romeo urrect the long-neglected Italian perfor- sailable. Giulia’s new mance brand. Alfa Romeo boss Harald “The Germans can all look at this [and platform can Wester has been asked to develop as say] this is another one of those mine- be used many as eight new Alfas from scratch strone solutions. This car is better than globally. and grow a brand that sold just 68,000 a German car. I’ve been driving German vehicles globally in 2014 to 400,000 sales cars all my life. That car technically is by 2018. better.” The first Alfa from Wester’s project is Still, 400,000 is a big number.

> Aug. 3: Six thinkers explore Sergio’s thesis - INDUSTRY ON a two-hour conversation, including video TRIAL ONLINE > Aug. 10: The capital crisis ... and its implications Follow the entire > Aug. 17: R&D spending: How much is wasted? series at autonews > Aug. 24: The case for consolidation >.com/industryontrial > This week: A matter of life or death for FCA? > Sept. 7: Four alternatives to mergers 20150831-NEWS--0030-NAT-CCI-AN_-- 8/28/2015 5:06 PM Page 1

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INDUSTRY ON TRIAL SQUEEZE continued from Page 5

can be used globally to underpin differ- FCA CEO Sergio Marchionne, left, says his relationship ent rear-wheel-drive cars, crossovers with UAW President Dennis Williams will help the two and SUVs for several brands. sides reach a new labor agreement. He also said all For example, at a dealer show in Las automakers have abused the UAW in the past. Vegas last week, Dodge showed a next- generation Charger and a convertible Barracuda that will be developed off the Giulia’s platform. Most of those future products — for Dodge, Jeep, Maserati and Chrysler, as well as Alfa — are still years away. For now, Marchionne must run FCA as it is and wait to see if his Alfa bet pays off.

Regional problems Waiting for Alfa might prove difficult. Since Fiat and Chrysler’s shotgun wed- ding in 2009, the combined company hasn’t seen a quarter when all of its global regions were firing on all cylin- ders. Early on, the North American Free Trade Agreement area was weak as the

automaker dumped billions into its lineup and its factories to restore years of neglect from Chrysler’s former own- ers. But just as North America was turn-

ing the corner, Europe collapsed. “All the money that I make now is a question of rebuilding equity. If I went “ BLOOMBERG to the public market and I raise 10 billion, 15 billion, debt levels would go down. A shared view on wealth sharing But I’ve got a significant Larry P. Vellequette And in colorful language, Marchionne said all automak- shareholder [the Agnelli [email protected] ers have abused the UAW in the past. “To be perfectly “ ergio Marchionne said he believes his honest, we’ve all [expletive] with the UAW, right? We were family] who’s got a 30 straightforward relationship with UAW Presi- threatened by them, so we took all the pickup trucks that percent stake in FCA.” dent Dennis Williams will help Fiat Chrysler we sell — and 90 percent of those pickup trucks are sold Sergio Marchionne Sreach a new labor agreement with its union. in this country, right — we took it away, and then we de- The Fiat Chrysler Automobiles CEO said the two men localized them” in Mexico, Marchionne said. Now, as Europe stabilizes, Mar- have a mutual understanding that will make a differ- “If you move the truck back here, which is [the chionne said FCA is “walking on eggs” ence as the two sides negotiate a new contract before UAW’s] domain, with all the cars that we get killed on because of a potential political vacuum the current one expires Sept. 14. somewhere else, we could actually make sense of this in Brazil, its largest market in Latin Marchionne said although he and Williams are not bloody industry and actually increase the number of America. And in Asia-Pacific and China personally close, “we share a view about the fact that, in people employed in this country, right, and really share in particular, sales of its high-end im- some fashion, to the extent that we are successful in wealth because we are making money,” he said. ported Maserati luxury cars are slowing creating wealth out of these car companies, real wealth, The CEO added: “What a wonderful idea, distributing substantially. then we should be able to distribute that.” cash when you have it.” a If he goes it alone, Marchionne’s global response plan is simple. It’s Jeep, which last year sold over 1 million vehicles for the first time in its history and this year is on track to hit 1.2 million. This summer, workers in Brazil began producing the Renegade subcompact Jeep helping to power FCA in Europe SUV in a massive new plant in Pernam- Luca Ciferri Back in 1988, Fiat Auto was fighting head-to-head with Volk- buco. FCA expects the Renegade to [email protected] swagen Group to be Europe’s No.1 automaker. Last year, FCA drive revenue and profit in Brazil. hanks to a strong start for the Jeep Renegade and its sales were less than a fourth of what VW sold — 767,858 vs. And later this year, Jeep and Chinese sibling, the Fiat 500X, Fiat Chrysler’s sales in Europe are 3,313,435. joint venture partner Guangzhou Auto- recovering faster than the overall market. Adding brands from the former Chrysler Group in 2011 did motive will begin building Cherokees T In the first half of 2015, FCA sales little to help Fiat’s fortunes in Europe, where for the Chinese market. Meanwhile, the rose by 13 percent to 472,825 vehicles in a only Jeep sells a significant volume. Indeed, Indian market soon will have locally market that includes the 28 countries of in the last nine months, Jeep has been the produced Renegades. the European Union, plus Switzerland, fastest growing brand in the region — up In the end, it comes down to re- Iceland and Norway. The overall 174 percent in the first half of 2015 sources, which is why Marchionne market grew 8.2 percent to 7.4 alone. wants a partner. FCA is still in a finan- million units. Ram and Dodge are not sold in cial hole. The Renegade added 27,590 Europe, while the Chrysler brand “All the money that I make now is a sales in the first half, while the is being discontinued after an ill-fat- question of rebuilding equity,” said Mar- 500X — launched early this year ed combination with Lancia. chionne. — accounted for 30,436 buyers Fiat, FCA’s flagship brand in Eu- “If I went to the public market and I in the same period, according rope, also has a lot of ground to re- raise 10 billion, 15 billion, debt levels to JATO Dynamics. gain. would go down. But I’ve got a significant But FCA has far to go to regain The Fiat brand ranked ninth in shareholder [the Agnelli family] who’s got the ground lost in the last the first half, behind Audi, BMW a 30 percent stake in FCA. decade due to lack of new- and Mercedes-Benz and margin- “If I went to him,” Marchionne said, product launches. Last year, ally ahead of VW Group’s value “and I said, ‘By the way, let’s go out FCA was surpassed by brand, Skoda. c there and raise 20 billion so I can cure Hyundai-Kia, sliding to the No. all those ills,’ he’s going to look at me 8 spot among auto groups in Jeep Renegade sales in Europe and say, ‘That’s really nice, but ... .” c Europe. hit 27,590 in the first half.