Sergio Marchionne is gone, but his playbook for ‘capital junkies’ rules the day
John Elkann, scion of Italy’s Agnelli family who controls Fiat Chrysler Automobiles, the carmaker behind Jeep and Alfa Romeo, is once again seeking a deal that would strengthen the group through an alliance or merger with a rival.
Peugeot owner PSA is keen to be considered. The French carmaker can pride itself on the generally positive outcome of its 2017 deal to acquire the European business of General Motors.
The Wall Street Journal reported late last week of an approach to FCA earlier this year, which it said was rebuffed and no longer active. DD’s understanding is that the situation is more complicated.
What is true is that in addition to PSA, Elkann (pictured above) and his inner circle have also met Korean and Chinese* carmakers, the Financial Times reported on Sunday.
(*Good luck with Cfius, the Trump administration and other regulators, DD sources say, about the prospects of a Chinese tie-up.)
By exploring consolidation, Elkann is tapping a playbook developed by FCA’s former chief executive, the late Sergio Marchionne, who implored carmakers to tie up and avoid duplicating research and development spending.
His hopes for another great deal — after the meshing of Fiat and Chrysler — never materialised. If you want to go deeper, read his presentation “Confessions of a Capital Junkie” from 2015 here, which still rules the day.
With a squeeze coming to the global car industry as sales in the US and China fall, Elkann has renewed the company’s search for a partner.
Any deal could see Exor, the Agnelli’s holding company, cede control of the business in exchange for being part of a larger, stronger entity. Such a transaction would be a seminal moment for a family whose identity and legacy is tied to the Fiat brand.
That carmakers need greater scale to survive is no surprise, as sales stagnate and costs from meeting new emissions standards and developing electric vehicles keep rising. Even the world’s largest carmakers are seeking alliances.
Last week Toyota unveiled further steps to partner with Suzuki, including sharing hybrid technology and some limited cross-manufacturing, while Ford and Volkswagen announced a “global alliance” in January.
FCA is searching not just for scale; it wants to plug gaps in its technical expertise, beginning with electric vehicles. The company last summer pledged to spend €9bn on battery technology and vehicles by 2022.
Getting into a deal with a leader in the field, such as Volkswagen with its openness to licensing its electric technology, would allow it to sidestep hefty development costs.
This is where PSA, led by the ferociously cost-disciplined Carlos Tavares, falls down. The company is also regarded as slow in electric, despite it preparing to launch its first battery car this summer.