Sergio Marchionne sees Fiat Chrysler Automobiles as the new No. 1 in the global auto industry

Article by Andrew Christian, on October 12, 2014

Fiat Chrysler Automobiles, the new merger between two big carmakers would result to the creation a new No. 1 in the global auto industry, said chief executive Sergio Marchionne in a joint interview for Bloomberg Businessweek with Chairman John Elkann.

Marchionne remarked that a new No. 1 – larger than current topnotch Toyota Motor Corp. – is needed by the auto industry, which he said is still very fragmented for the amount of capital required to develop and build new vehicles.

But not all mergers lasted. For instance, Chrysler’s former partner Daimler AG sold it at a loss as culture clashes limited the range of what could be saved from the merger. Similar issues discouraged Volkswagen AG and Suzuki Motor Corp. to work together. But as the competition in the industry gets more intense, carmakers find it more appealing to combine.

Their willingness to merge is further driven by tighter requirements for cleaner vehicles as well as by increasing demand by consumers for more advanced features and technologies. Add that to the fact that car sales are expected to surge globally by around 3.5 percent annually through 2017.

Richard Hilgert, an analyst at Morningstar Inc., remarked that the level of competition, capital needs and cyclical nature of the auto industry would result to more mergers and acquisitions, as carmakers strive for economies of scale to keep prices down.

Elkann quipped that FCA will be ready to participate in the consolidation process “if it makes sense.” He remarked that the process could happen over the next five to 10 years. Both Elkann and Marchionne remarked that FCA will look opportunistically at combinations with other carmakers having operations outside Europe.

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