Big Changes Coming for Fiat as Industry Races to ConsolidateBy Michelle Krebs April 20, 2010
Fiat S.p.A. CEO Sergio Marchionne is preparing to detail Wednesday a five-year plan for how Fiat intends to proceed in a beaten-down and stiltingly recovering global auto industry that Marchionne believes must contract to a handful of ultra-large-scale players.
Fiat's moves already may be underway. Fiat confirmed it would announce at a press conference Tuesday that Fiat Group chairman Luca Cordoro de Montezemolo is resigning as Fiat Group chairman. John Elkann, Fiat vice chairman, will succeed him.
Elkann, 34, is the grandson of former Fiat chairman Giovanni Agnelli and is chairman of the Agnelli family holding company, Exor Spa, which controls 30 percent of Fiat.
Montezemolo said he announced his resignation on the eve of the automaker's 2010-2014 business plan meeting because he had "completed the assignment given to him by the core shareholder in May 2004." Some sources have suggested Montezemolo is considering a move into Italian politics. He will remain on the Fiat Group board of directors and as chairman of the Group's Ferrari unit, where he started his career with the company in the 1970s.
But Montezemolo's departure could be the springboard for other drastic organizational and structural changes at Fiat as Marchionne lays out a framework for navigating what will be a challenging next half-decade for the company. First, in terms of how Fiat will continue to manage its managing partnership role with Chrysler LLC, and longer-term, how Fiat will grow to an industrial scale Marchionne believes is critical to survive in the global auto industry.
CEO's Predictions Coming True
Marchionne has repeatedly said the industry inevitably will consolidate to a half-dozen or so mega-automakers that can produce a minimum of 5.5 to six million vehicles annually.
After acquiring the 20-percent stake in Chrysler (which can rise to 35 percent after reaching certain investment milestones established by the U.S. government), Marchionne made a serious play last summer to acquire the Adam Opel AG operations of General Motors Co. GM eventually came to the conclusion it was vital to retain Opel and its European operations, leaving Fiat-Chrysler to continue to operate well short of Marchionne's automaking volume target.
Earlier this month, the industry witnessed an event many believed gave symbolic credence to Marchionne's predictions of inevitable consolidation: Daimler AG, maker of Mercedes-Benz entered a partnership with the Nissan-Renault alliance, an agreement that included small cross-equity ownership stakes in one another. The agreement set the stage for joint development of certain car classes, light commercial vehicles and technology and powertrain sharing.
Last December, Volkswagen AG spent $2.5 billion to load up with a 20-percent stake in Japan minicar-specialist Suzuki Motor Corp. in a deal that was considered a precursor to an eventual full takeover. Volkswagen is on its own size-enhancement drive as the company arranges the pieces it believes will help it surpass Toyota Motor Corp. as the world's largest automaker. Suzuki typically produces well in excess of 2 million vehicles annually.
And although it did little to expand VW's volume capabilities, it should not be forgotten that VW also ended up absorbing Porsche AG after a protracted control battle in which Porsche initially attempted to seize control of VW.
Independence At Risk?
Although Fiat's plans for the next five years are not yet detailed, Marchionne's roadmap certainly includes a linkup or other kind of business venture that can deliver the volume the CEO deems so vital to guaranteeing global competitiveness.
Fiat's actual ambitions for joining with or acquiring another automaker aren't likely to be extolled in the five-year plan Marchionne unveils tomorrow - it's entirely likely Fiat itself doesn't yet know how its ministrations to grow will proceed.
But as larger makers such as VW and Nissan continue to make acquisitions and alliances, attention and speculation will heat up for historically fierce independents such as BMW AG and Honda Motor Co. Ltd., neither of which currently operate with deep or wide-ranging automaking or technology-sharing alliances with other manufacturers.
Other automakers of interest will include Mazda Motor Corp., currently in the process of severing its ties with Ford Motor Co., and France's PSA Peugeot-Citroen, which Marchionne has identified as the next automaker likely to announce a significant alliance. Some have speculated that in mentioning PSA, it is in fact the company on which Marchionne now has set his sights.
The final wild card is China and the fast-expanding Asian region. Any new large-scale industry merger - one involving Fiat or not - could hinge on synergies and needs for manufacturing in that region. China and the developing Asian markets are universally seen as yielding almost all of the global growth opportunities for the foreseeable future. - Bill Visnic, Senior Editor
Photos by Fiat
1 - Fiat-Chrysler CEO Sergio Marchionne is making big changes at the company.
2 - John Elkann moves from Fiat vice chairman to chairman.
3 - Luca Cordoro de Montezemolo (left) is resigning as Fiat Group chairman.