FCA's Sergio Says Spinning Off Magneti Marelli is His Best Option

Fiat Chrysler is trying to work some financial magic to make itself look more appetizing to prospective investors. However, few buyers are likely to be interested in the whole of FCA. Its North American half has proven adept at assembling sport utility vehicles and Jeep would be a tasty morsel for any company hoping to expand its portfolio. But the Italian arm’s focus on smaller automobiles could get in the way of a potential deal — especially if the buyer already has their own.

CEO Sergio Marchionne wants the company to be purchased by an established automaker, but there are precious few that would want everything it has to offer. One possible solution is to separate subsidiaries from the core group. Marchionne says that might be the best solution for dealing with component supplier Magneti Marelli.

FCA has been of the mind that streamlining the business is the best way to attract investors without harming subsidiaries. After all, it worked well enough for Ferrari. The brand was spun off from FCA in late 2015, and its stock valuation embarked upon a rocket ride to the moon the following month.

According to Reuters, Marchionne said Magneti Marelli would likely follow Ferrari’s path towards becoming a separate entity, with remaining shares distributed to FCA’s existing shareholders.

“We will press ahead with [a separation] in 2018, it will be part of the business plan we will present next year,” he told journalists during an event in Rovereto, Italy. He also indicated there are no present plans for a merger or sale, but said FCA is focused on its debt-elimination plan and will be cash positive sometime next year.

Magneti Marelli could be a large part of that. Currently valued at roughly $6 billion, the parts manufacturer could be more useful to Fiat Chrysler as a sacrificial lamb.

However, Marchionne didn’t have anything definitive to say about Alfa Romeo and Maserati’s future. While it has been rumored that the two brands would eventually be cut from the group to improve the likelihood of a buyout, Marchionne said it was too early to make assumptions. He indicated that the two could stay with FCA through 2022, but didn’t want to speculate further.

FCA has been the subject of numerous takeover rumors over the last few weeks. Its share price has increased significantly in August after reported interest from several Chinese automakers. Those claims were swiftly followed by talk of the company joining with South Korea’s Hyundai.

While Marchionne hasn’t made it a secret that he’s looking for a buyer, he shrugged off claims about any potential deal in Asia. He said FCA would stay the course and focus on profitability. “Given the way the euro is moving, we’re going to do nothing,” he said.

Indicating that business is going well, he mentioned FCA would not be raising targets when it releases its third-quarter results — pointing to market uncertainty as the primary reason. He also voiced his worry that some automakers are taking too narrow a view of the future and throwing too much behind electrification without considering the ramifications.

“It’s too early to assume that by itself electrification will solve the problem,” he said. “It won’t.”

Instead, Marchionne said automakers would be wise to remain flexible and implement a range of solutions with an eye for new technologies. He believes the industry has been slow to embrace modern industrial sciences and could suffer for it in the long run. “The biggest fear that I see is that [the automotive industry] will be left behind,” he explained.

[Images: Magneti Marelli]