FCA CEO still pursuing GM

31 Aug 2015 | Author: | No comments yet »

Fiat Chrysler CEO Fuels Talk of GM Merger.

Marchionne has publicly pushed for consolidation, citing rising production costs among other reasons, ever since overseeing the merger of Fiat and Chrysler.Sergio Marchionne, CEO of Fiat Chrysler Automobiles, said the potential profits and savings that would result from a merger with General Motors are too big for the rival automaker to ignore. Marchoinne, in a story published Sunday evening by Automotive News, asserts that a merger between the two automakers could generate up to $30 billion annually in earnings before taxes, amortization and depreciation.

In a new report from industry publication Automotive News, Marchionne did not go as far as saying FCA would embark on a hostile bid. “There are varying degrees of hugs,” he added. But the Italian-Canadian CEO said “it would be unconscionable not to force a partner,” and he added that FCA’s board must put pressure on GM to engage in discussions. Since then, Barra has said both publicly and privately the Detroit automaker has no interest in exploring the idea. “We already have scale and we are leveraging that scale,” Barra said in June. “When you look at the last several years we have been merging with ourselves.” By mid-summer, it appeared that Marchionne was backing away from the idea — at least in the near future. Consumers typically flock to dealer lots on the traditional last weekend of summer as the model year is changing over, drawn by new designs or discounts on outgoing vehicles.

Since the bankruptcy of Chrysler LLC, Reid Bigland, who heads sales for the company’s Michigan-based unit, has benefited from a growing U.S. market that rebounded from 10.4 million vehicles sold in 2009 to an almost 17 million pace this year. At the same time, Chief Executive Officer Sergio Marchionne has expanded the Jeep lineup, split off Ram trucks as its own brand, added Fiat and Maserati to the family and improved the car lineup with the Dodge Dart and Chrysler 200. “FCA accomplished something that nobody would have predicted a few years ago — to have five-plus years of sales increases — even in an accelerating market,” said Karl Brauer, senior analyst with Irvine, California-based Kelley Blue Book. “It’s an impressive feat and reflects very well on Sergio.” A messy calendar and a choppy stretch on stock markets won’t alter what’s been driving auto sales in 2015 to the highest levels in at least a decade, Brauer said. After we completed a thorough review of a possible merger with FCA, we concluded that executing our current plan is the best way to create value for GM stockholders,” GM said in an emailed statement Sunday. The average of 12 analyst estimates is for a 17.3 million light-vehicle selling rate for August, the same as a year earlier. “All the fundamentals that drive vehicle purchases are still relatively strong if not exceptionally strong,” Brauer said. “Nothing’s changed. Last year August looked great and September got short shrift and this year August is taking the hit.” Automakers report August sales results Tuesday.

They’ll probably post a 3.3 percent decline in deliveries of cars and light trucks to about 1.53 million, the average estimate from five analysts surveyed by Bloomberg. I don’t have enough capacity today, why would I do it?” Marchionne said in July. “(A merger) has zero to do with distribution, zero to do with brand structure and nothing to do with anything. Toyota Motor Corp. may have led the decliners, with analysts estimating a 10 percent drop in monthly sales, followed by Volkswagen AG’s VW and Audi brands, which may see a combined 7.5 percent fall, and a 7 percent projected slide for Honda Motor Co. Deliveries for Detroit-based General Motors Co., reducing its sales to rental-car companies, may have fallen 2.6 percent and Ford Motor Co.’s may have slid 0.2 percent. If your distribution networks are different, why do you need to go kill brands?” Marchionne’s pursuit of GM became public shortly after he presented Wall Street analysts with a presentation he called “Confessions of a Capital Junkie.” In it, Marchionne argued that the automotive industry consumes billions of capital investment annually at a rate that exceeds most other industries.

One possible deterrent for shoppers could be the turbulent stock markets: When consumers feel their savings is at risk, they often pull back on large and discretionary purchases. And, Marchionne argued, the pace of that capital consumption will increase in the coming years as automakers work furiously to develop new infotainment technology, meet stricter environmental regulations, develop alternative fuel vehicles and technology for autonomous vehicles. In August, Exor reached an agreement to acquire PartnerRe, a global reinsurance company, for $6.9 billion after launching an unsolicited bid for the company earlier in the year that overcame a existing bid from another company. Shares in the Italian-American automaker, which is based in London, rose 24 percent this year through Friday, more than any U.S. automaker, including Tesla Motors Inc., which gained half that much.

The company’s Auburn Hills, Michigan-based FCA US unit remains the most dependent on truck sales of any full-line automaker in the U.S. market, which has worked well in 2015. The parent company raised its full-year earnings forecast last month on the strength of the Jeep brand. “Our trucks and Jeeps are selling well, but it has been difficult selling the car lines — and we have cash-back on them,” said Jim Hardick, managing partner of Moritz Dealerships, which owns Chevrolet, Kia and Chrysler-Jeep-Dodge-Ram outlets in Fort Worth, Texas.

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