Marchionne Warns On China And EVsBy Bill Visnic August 4, 2011
Prior to raising a Defcon-4 media uproar with an off-handed remark insinuating he had set a retirement date, Sergio Marchionne, CEO for Fiat S.p.A. and Chrysler Group LLC, told a packed house at the Center for Automotive Research (CAR) Management Briefing Seminars Wednesday that the European market is halfway house of political, industrial and economic futility, over-emphasizing electric vehicles as a singular solution to alternative propulsion is a mistake and that a strengthening Chrysler is regaining the faith of the public at large and, more importantly, our customers.
Marchionne also had cautionary words about the escalating capabilities and ambitions of Chinas automakers, saying automakers in the mature markets of the U.S. and Europe need to prepare to confront the challenge presented by China. Even assuming China were to export only 10 percent of what it produces, the risk we face in our home markets is enormous, warned Marchionne in a speech that was simultaneously hopeful and foreboding. We cannot afford to be unprepared for the ascent of China, reassuring ourselves of our invincibility, he implored. Rather, we need to continue to work to make our industrial base more competitive, because the day of reckoning inevitably is coming. The risk we face in our home markets is enormous. He added that Chrysler and Fiat should have in place a joint-venture assembly plant in China at least by 2014, the final year of his 5-year turnaround plan for Chrysler.
It is favorite Marchionne theme, addressing inefficiencies in the industrial and economic sectors, and he used the speech (left) at the northern-Michigan conference as a pulpit to chastise on European political practices. He said that while auto industry and government took drastic action to restructure itself, the European industry still needs to address deeply-rooted structural problems and that recent policies put some national players in a more advantageous position than others, creating an environment that is artificially preserving unproductive (auto-industry) capacity.
Marchionne also teed off on what he perceives as a current over-emphasis on electric-vehicle development. Now that hydrogen has fallen out of fashion, it is electricitys turn to be viewed as a panacea, he said. Judging from the recent debate, particularly in Europe, there is a risk that regulatory focus will shift to this being the sole technological solution. But if regulators focus on promoting this solution alone, he continued, the outcome is absolutely predictable: capital overspend and sub-optimal results.
Instead, Marchionne advised a balanced approach that leverages all available alternative-fuel technologies, specifically mentioning compressed natural gas and continued optimization of the internal-combustion engine. It is for these reasons that we believe government regulations will have the greatest technological impact if they are technology-neutral, he concluded. The cost of electrification versus the installed capacity for conventional powertrains is going to make a large conversion to electrification cost-prohibitive, he said. Marchionne later called the industrys agreement with the Obama administration on a 54.5-miles-per-gallon Corporate Average Fuel Economy standard by 2025 an incredible stimulus for the American car industry. I think we can get this done.
Mosiac, Not A Merger
In a post-speech session with the media, Marchionne, who took charge at Fiat in 2004 and was named Chrysler CEO in 2009, was quick to downplay a comment made after his speech, in which he said the future of the Chrysler and Fiat alliance would be determined by the guy after me, I think after 2015, hopefully. Maybe a year later. Chrysler will be here after me." He subsequently qualified the comment by saying, "I technically can go beyond 2015. I wouldn't focus on the date. I would focus on the process. The comment nonetheless was red meat to the daily media and wire services. Italian journalists tried to explain the context to editors an ocean away and Fiats stock price took a slight swoon.
Marchionne then went on to explain that when his successor is named, that person is likely to come from the just-formed Group Executive Council, as the company believes his successor needs to come from the inside. He called the evolving Chrysler and Fiat alliance a mosaic of interacting influences rather than a merger. The differences between Fiat and Chrysler are the strength of the partnership, he assured. Marchionne emphasized an underlying humility in the alliance that he believes assures a healthy, cooperative atmosphere which was not the case in Chryslers previous ownerships. There is nothing that Chrysler wants that it cannot have from Fiat, he said, and it should be the same way on the other side.