Fiat Chrysler CEO Marchionne hopes to complete giant deal before stepping down

Article by Andrew Christian, on April 19, 2015

Before Sergio Marchionne, the CEO of Fiat Chrysler, steps down in 2019, he wants to be able to strengthen his legacy and leave the company stronger than before he was in it, according to a Reuters’ report citing sources. To accomplish that, Marchionne is now looking for a huge deal that may possibly be in the U.S.

However, reports say that the company (No. 7 largest automaker in the world) is struggling to reach a deal with anyone. It has big debts under its belt and is barely able to break even in Europe. Its aim to revamp Alfa Romeo will also require a ton of cash to attain.

Several sources say that General Motors is being targeted by Marchionne and Fiat's founding Agnelli family since Fiat Chrysler already has a foundation in the U.S. market but has a weakness in Asia.

GM has done well in Asia and the U.S. automaker also wants to further its expansion in Europe after its plan to merge with PSA failed. However, it doesn’t look like this is going to happen as a GM spokesman said that it is concentrating on its own strategy.

A source at a U.S. bank said that GM is “really not interested." A banker close to PSA Peugeot Citroen and General Motors said that Marchionne has not been subtle in planting the 'for sale' banner has been sending out feelers in order to have many options.

So far, no company has seriously taken Marchionne up to start talks. Marchionne has been hinting that he hopes to begin an alliance to kick-start consolidation in the industry to share capital costs and fund development of cleaner cars and features like self-driving.

Last month, Marchionne had said that it would be “technically feasible” to have a tie-up with either GM or Ford. But nothing’s on the table yet. Another source said that the FCA is focused on the U.S. Marchionne remains hopeful though that there will be a major development before 2018.

A banker said that an opinion is shared among industry executives that Marchionne is dropping hints about some interest in order to build a bidding war.

In the last six months, FCA's Milan-listed shares climbed by 120% but the company is believed to be fragile underneath and is nearing the end of its best years. Investors applauded Fiat's buyout of Chrysler, the transfer of its primary listing to New York and FCA's move to spin-off Ferrari and distribute the bulk of the luxury unit's shares to FCA investors.

However, FCA has high debts and just a 3.4% operating margin -- a key measure of profitability -- compared with 5.4% for its peer average, according to Thomson Reuters data. FCA needs to have an alliance to cope with challenges such as a weakness in Asia, an ambitious turnaround plan and an over-dependence on a North American market that is almost at its peak.

FCA’s portfolio is weak when it comes to electrification and connectivity services. It will have to spend 48 billion euros ($52 billion) to produce new Jeeps and Maseratis and to undergo a massive Alfa Romeo revamp.

According to industry analysts, they are doubtful that Marchionne will be able to get to the high 60% sales jump to 7 million cars he hopes to achieve by 2018. Last year, FCA posted sales of 4.6 million vehicles, just 6% higher than 2013 sales.

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