By on September 1, 2015

sergio-marchionne

Farmers are the ultimate craftsman when it comes to small-scale production. The level of management needed to stay competitive and above the high water line is, simply put, astounding. Consolidation in certain areas of agriculture has lead to factory farming, the widespread adoption of automation and genetically modified seeds that keep seed producers competitive. Private farmers are constantly at war with the market and their own budgets.

The agriculture industry has wholly transformed itself over the last 100 years. The automotive industry, which has only really existed for that same period of time, has seen similar levels of change. We are now building more cars, trucks, SUVs, crossovers, trikes and quadracycles than ever before, just like we are growing more food than we’ve ever seen in human history.

But, there’s one major stumbling block ahead — and Sergio Marchionne sees it.

Marchionne, at this point in his tenure as CEO of one of the largest automobile manufacturers in the world, is a farmer with a cliff-side plot of land. He’s also the only farmer in his town with a massive debt bill to pay and no cash on hand to clear the ledger.

The reality of farming is, at the point of sale, the vast majority of consumers couldn’t care less where their produce is grown. On a macro level, produce buyers will purchase strawberries in the middle of winter, even if they are grown in Mexico. Locally, during in-season months, as long as those strawberries are juicy and ripe, produce buyers don’t check the label to figure out where they were grown. Sure, there are those who buy organic, gluten-free options at the grocery store — and they are a statistically significant in their numbers to deserve a whole aisle devoted to their tastes — but the rest of us are completely apathetic.

The same goes for cars.

Car enthusiasts — us folks who write, comment, drive, wrench on, wash and generally love our cars — are one percent of the overall consumer market. The other 99 percent of people are totally agnostic to the efforts of automotive research, engineering, manufacturing and branding, with a few exceptions for those who want to “Buy American!” or some other loyalties of varying degrees. Enthusiasts do buy a very specific type of product, and automakers are more than willing to provide those products to the degree they are demanded on the market, but we still only get a single aisle in a vast dealer lot.

Corn enthusiasts, if there is such a thing, might see the agriculture industry thusly:

“The General Farms corn stays fresh much, much longer than the new American-Italian corn from Marchionne Farms,” a connoisseur of corn might say.

“But, the Marchionne Farms’ Hellcat Corn tastes better,” an equally loyal corn enthusiast might rebuff.

The other 99 percent of corn buyers are, well, not talking about corn. They don’t care where it comes from. They don’t care who made it. They look at the corn in the produce aisles, figure out the best deal for their needs, and buy the corn that makes the most sense — a combination of number of ears of corn and how much it costs. All the while, corn enthusiasts are trying to push their corn consuming friends one way or another. Sometimes they succeed in their suggestions, but not enough to make a real market impact. (See: SKYACTIV Corn.)

Standing at the cliff’s edge of his farm, Marchionne — with a hefty bank note on his mind — has an epiphany: Why am I spending all this money growing different corn than my neighbor? The components of corn — the cob, kernels and the way it’s packaged — are essentially the same. How you dress it up and sell it, that’s the only real difference!

But, it isn’t the sameness of corn — or automobiles — that’s the real issue here.

In probably a distant future, we aren’t going to need corn. We will plug some instructions into a machine, a whirring sound will emanate, and a meal will be replicated for consumption. You won’t need to own the food replicator. Instead, you will pay a fee to use it that’s magnitudes less than the current cost of food. The farm as we know it will be a thing of the past.

Automakers are staring down the barrel of a similar fate.

Google and automakers themselves are developing fully autonomous vehicles to be used by the masses. Their solutions are similar to the food replicator of the future: plug in a destination, a whirring sound will emanate and you’ll arrive at your destination. You won’t need to own the autonomous car of the future. Instead, you will pay a fee to use it that’s magnitudes less than the current cost of personal transportation. The car as we know it will be a thing of the past.

The autonomous car is the ocean lapping against the cliff’s edge, slowly — but with increased intensity — swallowing Marchionne’s farm.

Now, please, don’t get me wrong. I am in no way saying that the things we love — cars as we know them today — will be gone next year or even in the next 20 years. There might be a few companies still catering to the enthusiast, offering cars as artisanal luxury good for those of us who enjoy the speed and knowledge needed to pilot just such a machine. But the days of the automobile as a privately owned consumer necessity are numbered. Those who enjoy the act of driving will be the gasoline-fed hipsters of tom0rrow.

Marchionne, I assume, knows this. The day his farm is needed is coming to an end. But not today. Today there’s corn to grow and money to be made, and he’s looking at his neighbor at General Farms that grows the same crop.

Farmer Barra, let’s grind some corn together, shall we?

Get the latest TTAC e-Newsletter!

42 Comments on “Fields Are Fertile For Now, But Marchionne Has a Long View...”


  • avatar
    Pch101

    Mergers often fail because they create diseconomies of scale and/or culture clashes. They end up being like a bad marriage that can reduce two people to something less than the sum of their parts.

    • 0 avatar
      Richard Chen

      http://www.autonews.com/section/industry_on_trial

      6 of a 6 part series: next week they’ll discuss how the dog-eat-dog auto industry can survive sans mergers.

      Here’s a snippet from part 1:

      “TRUECAR PRESIDENT JOHN KRAFCIK: I think 50 percent could even be conservative. You’re talking to a bunch of car guys, right? We might notice, but 95 percent of the human car buyers around the globe really couldn’t tell the difference, maybe even between — I don’t know — a BMW and a Mercedes, or a BMW and a Chrysler.

      “[BOB] LUTZ: How many people — other than by the unique styling and the brand on the truck — could really discern a meaningful difference between a Ford F-150, a Chevy Silverado, a GMC Sierra or a Ram?

      “KRAFCIK: That’s a great example.”

      Ouch.

  • avatar
    RideHeight

    The expressed view of inevitable and world-changing AVs reminds me of the extreme pessimism and wild acting-out of the duck & cover nuke days.

    Jesus, they’ve nowhere near even broached, let alone resolved, the liability issues much less those of infrastructure build-out.

    • 0 avatar
      zamoti

      I must disagree. While the last hurdle to 100% autonomous transportation will likely be a legal one that shifts liability in the case of accidents, we are seeing the beginnings of the change right now. We have auto-park, sensor-based cruise control and lane management systems that will nudge you back on course. The change will be incremental and eventually get to the point where we will be only there as a (liable) backup brake operator with the understanding that 99% of the time that wont’ be necessary.
      Then the idea of owning a car won’t even really be necessary. It will just be a service you pay for, leasing on steroids. You pay FCA/Ford/GM whomever a monthly fee and they put a car in your spot. They manage the fuel, maintenance, repairs, etc. you just ride in it. Given how it’s been demonstrated that Car2Go can be more affordable than owning with the right conditions, I just see a car as something we own now, but something that will eventually be replaced with a monthly bill for “transportation services”. You just pick the provider and choose small, medium or large, economy, midpack or luxury.
      I’m probably nuts though.

      • 0 avatar
        Lorenzo

        I think you grossly overestimate the technology advances needed, and especially the infrastructure costs to make millions of autonomous cars sharing the roads a workable proposition. Our road financing system can’t repair/replace bridges and road surfaces now, it’ll be a gigantic, moonshot-level expense to rework traffic control systems EVERYWHERE to make it work.

        The costs to the user will NOT be a magnitude less, it’ll be like trains, trolleys and bus systems. The costs of capital investment, fleet maintenance and repair, and operating costs will make the ticket price much higher, unless government subsidies are used to keep ridership levels up.

        • 0 avatar
          RideHeight

          Lorenzo, word #5 flipped when you weren’t looking.

          “rework traffic control systems EVERYWHERE to make it work.”

          This! If you don’t build-out to flyover country people will have to stop and change horses to visit granny.

          • 0 avatar
            zamoti

            I don’t presume that the car of tomorrow will be 100% autonomous, it will be *MOSTLY* autonomous. Today’s features that push toward less driver involvement don’t require special road infrastructure, they just use relatively simple sensors to determine placement of objects. The technology exists and will get better in time. Between GPS, onboard sensors and vehicle to vehicle communication that will eventually appear, I don’t see the need for special roads. Also, for those who are remote or drive down gravel roads, dirt roads, etc. I don’t expect that there’s much expectation that a mostly autonomous system would work in such conditions–would we expect that they work on purely offroad conditions as well? The driver will still sometimes need to intervene, but over time this will be less the case.

  • avatar
    wmba

    The merger question is one thing, whatever brainwave Marchionne has is another.

    Then there’s practical cooperation between automakers, for the reduction of capital spending. There are two of note which everyone seems to forget.

    First is the Nissan-Renault/Mercedes hookup. In the US at Decherd TN. “Infiniti” is making the Mercedes 2.0t from the CLA and sending them to Alabama for Mercedes to stick in the new C class. It also saves some and puts it in their world Q50 (old G37).

    In addition, the two are building a new factory together in Mexico right now. Nissan has the CEO, and Mercedes has the next two positions. Production in 2017.

    The Renault Twingo and new Smart Car are very similar, particularly the FourFour and Twingo.

    The new Mercedes 2.0 diesel is a development of the the 2.0 Renault diesel, but with steel pistons (I don’t know why -ask the man with the mustache).

    Just a few months ago, Toyota and Mazda had a formal ceremony announcing their cooperation on technical matters.

    All reported, all forgotten by everyone here, which is why the merger question yesterday was a waste of effort. It’s already happening, and anyone can read it by googling.

    Marchionne sees all this cooperation around him, and wonders why he can’t pull off at least the basic deals the the four companies I mentioned above are enjoying. However, he has little on offer to intrigue anyone else except current sales volume. FCA isn’t in the lead in anything.

    So, he has to try to ramrod a bigger deal through. Nobody likes coercion, and thus so far it’s been him flapping his lips, and everyone else sticking their fingers in their ears.

    • 0 avatar
      heavy handle

      You are confusing some shared platforms and components with mergers. Renault and Nissan are essentially two divisions of one company.

      Renault/Nissan and Mercedes do share some components and the Smart platform, but that’s different. Joint projects aren’t a new thing, they’re just a way to make the numbers work for lower-volume projects.

      Fiat and Mazda share the new MX-5 platform, but it doesn’t mean they will merge. Ford and GM share pickup transmissions, and they’re still different companies.

    • 0 avatar
      tonycd

      I’m not buying what Sergio’s shoveling.

      When Chrysler had some of the most unreliable cars Americans could buy, Eaton said quality had ceased to be a differentiator between brands. It hadn’t.

      Now Chrysler is still/again selling some of the most unreliable cars and trucks in America, with inferior overall designs to boot in some key segments like compacts and midsize sedans. Marchionne’s reply is that engineering has ceased to be a differentiator, so somebody should buy his company (which would coincidentally reward him and his masters, the family that owns a controlling interest in Fiat).

      Yeah, autonomous cars may be the future, but that’s not Sergio’s motivation for saying it. Even a stopped clock is right twice a day.

    • 0 avatar
      tedward

      wmba

      That was a great post.

      Fiat/Chrysler has a wealth of attractive brands, an overabundance of chassis and drivetrain components and a average new car reliability ranking that at a casual glance, seems poor. This is a company that needs to finish it’s own consolidation first. Either exploit fully the high profit potential brands it owns or sell them off and bring it’s mainstream global product line to parity with it’s foes in terms of common architecture and general scale economy benefits.

  • avatar
    Hummer

    That’s cool and all, but doesn’t Fiat own the remanents of IH tractor division?

    Let me completely disregard this article and say I would like to see an IH light truck line reintroduced.

    While I’m disregarding the whole premise, let me ask, where’s our Brazilian writer?

    Sorry, two things I’ve wanted to say/ask for a while.

  • avatar
    LS1Fan

    FCAs head honcho needs to lay off the wine.

    That being said this article is right about one thing; the auto business is in for a total restructure. Look around folks; between college debt and rising costs of living across the nation, buying a brand new car bigger then a Smart for most Americans will be as achievable as buying the Moon.Due to the nature of inflation those costs for college, children, and other pesky bills will only go one direction with time ; and it ain’t down.

    So carmakers face two options; price themselves out of the middle class who can no longer afford their goods, or restructure their business model.A subscription based car share/lease/etc. setup would both keep manufacturers in business and the middle class in decently late model cars. The question is what will the dealer network do ?

    • 0 avatar
      Erikstrawn

      “A subscription based car share/lease/etc. setup would both keep manufacturers in business and the middle class in decently late model cars.”
      What makes you think ‘late model’ will matter? The manufacturers will stop making disposable crap and will start turning out reliable, easily serviced cars that last decades – because that’s cheaper. The styling and interiors might get a makeover every so often, but they’ll recycle the chassis as long as possible.

      • 0 avatar

        Just like airplanes. While there was a lot of press spent on the Dreamliner, air commuters don’t care about the latest and greatest from Boeing — so long as ticket prices are low and the accommodations aren’t too cramped.

        • 0 avatar
          28-Cars-Later

          I’ve read Boeing more or less got screwed with the McDonnell Douglas merger.

          I flew A319s and a A321 recently, I found accommodations to be sufficient but I though the overall cost of the trip was about $100 too high.

          • 0 avatar
            bball40dtw

            Well they didn’t buy MD for commercial aircraft. The F-15, F/A-18, AH-64, and other defense related projects had more to do with it. They probably paid too much, but they got 20+ years of F/A-18/F-15 production profits.

          • 0 avatar
            28-Cars-Later

            …and only introduced one entirely new aircraft since the 1997 merger and *it* has not gone well (777 was introduced in 1995). I wonder if those MIC profit centers made enough to offset the 787 debacle.

          • 0 avatar
            bball40dtw

            Boeing Defense & Security does $31 billion in revenue. That plus the 777 and 737 makes enough money for Boeing to make up for any 787 setbacks. The 787 has 1100 orders, so it should be alright. Boeing didn’t have to introduce new planes besides the 787 because their book for the 777 and 737 is full, while only a few airlines buy anything 747/A380 sized.

          • 0 avatar
            Big Al from Oz

            bball,
            Making a comparison between a 777/Dreamliner to a 747/A380 is like comparing a Yaris to a Camry. Two different platform for two different types of use. Like the Yaris and Camry.

            The Dreamliner’s dimensions and performance was designed as the largest possible airframe to operate out of the multitude of flightline bays at most major airport terminals. They are quite restrictive. They are also designed for overseas long hauls.

            The A380 was designed for high passenger number long haul intercontinental routes, hence look at where they park on most flightlines.

            So, the comparison of total airframes on who is making the most is not relative.

            Actually EADS and Boeing are pretty much level pegging. The number given tend to also include options.

            One thing, EADS and it’s subsidiary Airbus have set up manufacturing facilities in China, something Boeing is lagging.

            The largest market for growth is the East, SE and South Asian markets.

            10 years from now it will be interesting to see what is the difference between the two major airframe manufacturers.

          • 0 avatar
            Erikstrawn

            Boeing’s doing just fine managing the military’s upgrades to the existing MD aircraft.

        • 0 avatar
          bball40dtw

          Well they care because the Dreamliner’s economics allow airlines to profitable serve long haul secondary markets that couldn’t be served by larger aircraft.

          • 0 avatar
            RobertRyan

            Similar to what Airbus is doing with its smaller offerings. They Airbus are making a fair bit of money from the smaller planes,that serve regional services

          • 0 avatar
            Flipper35

            Boeing is also partnered with Lockheed Martin to produce the LRS-B and are the most likely winner in that competition against Northrop Grumman.

      • 0 avatar
        SlowMyke

        Exactly. When people aren’t driving, dynamics don’t matter. Even if they are driving, if they aren’t owning, their opinions matter very little. Look at internet services for example. You can get that high speed service through a crappy, 5-year old router. Sure you can provide your own, but most won’t bother. And those routers will be used until they finally break. Cars will go that way eventually, too.

        And one more question to pose to the “corn” story- once there are things like corn replicators, the overall need for public transportation is greatly reduced. Who says a General Farm, Marchionne Farm, or even a General Marchionne Farm will even be needed? At that point won’t the government contact a Transportation Pod of Tomorrow and wash its hands of the rest of the options?

    • 0 avatar
      seth1065

      Car companies will just make loans longer , do I hear a 96 month loan as the new normal ??? Most people care only about the months payment anyway. Or they will go the do not buy just lease it we will take it back , export it, sell it use or something else. I do not see self driving cars anytime soon say the next 25 years, to much to hurdle over, car ins, auto companies not really wanting them, what happens when the car decides to run off the road for the good of the car but hits a person walking on the side walk vs the full school bus in the front of them that stopped short because it has not has it software upgraded in 5 cycles??

      So carmakers face two options; price themselves out of the middle class who can no longer afford their goods, or restructure their business model.A subscription based car share/lease/etc. setup would both keep manufacturers in business and the middle class in decently late model cars. The question is what will the dealer network do ?

  • avatar
    love2drive

    Sergio is very bright (if arrogant), and may perhaps agree with our vision of the future, but as a public company he’s not thinking anywhere near the longer term you suggest. Corporations of his size have at most 5 year plans (and to your point we will not all be in self driving cars by then), and the five years plans are usually worth the value of the paper they’re written on. He’s looking a lot nearer than that. In simplest terms, we have too much capacity in the supply chain – too many auto makers, all making viable product, predominantly differentiated on style alone at this point (even pricing is very similar across brands, and every maker works to fill every niche in the market). Other than in super cars, there is a ceiling on what can be charged, so the focus for profitibility has to shift to costs. He wants to merge (buy or be bought) to lower his cost base, plain and simple. Share platforms and engines and all the typical things (where there has ceased to be significant competitive advantage at this point) to control expenses. If the majority of engines are comparably reliable, share them and get out of the business of making unique engines, and instead focus your own energies on areas where it is possible to differentiate your product (design and tech, although even tech is now more and more the same).

    All sensible, but probably not going to happen near term (read somewhere that the GM courting may actually just be a way to gin up an FCA sales price while a deal with another company is being fleshed out – who knows). Regardless, I don’t think Sergio is thinking about 20 years from now, he’s thinking about the next 6 or 8 quarters and what analysts/shareholders are going to do to him if he doesn’t show movement.

  • avatar
    colin42

    This idea that we’ll all give up personal possession of the car is ridiculous. Yes a subset of the population (mainly in larger cities have already or prehaps never did own their own car) but those who live is suburbs or in the country, where parking isn’t an issue will still want to own their cars. If these people still drive their car is another point.

    I don’t think Google and Apples long term goal is to sell cars. I think they are more likely to copy Intel’s model where they offer the technology and architecture to sell more of their real product – adverts

    • 0 avatar
      stuki

      Agree.
      Those who will give up their car over sharing services and robo-uber (ruber?) are those whose situations are least conducive to car ownership to begin with.

      Instead, shared cars will likely expand to create new usage niches, which are currently too cumbersome to undertake with the current mix of rigid public transport and diy driving.

  • avatar
    an innocent man

    Factory farms? Modified seeds? FCA? Well then…mandatory classic.

    http://www.youtube.com/watch?v=e4sFinzABnk

  • avatar
    Matt Foley

    Fee-based rental of an autonomous vehicle might be cheaper than owning a brand-new car, but it is sure to be a hell of a lot more expensive than owning a reliable old car. What will they do when millions of Americans refuse to give up their reliable 10- to 15-year-old Accords, Camrys, F-150s and Silverados to rent Google pod cars?

    Besides, Jane says she’s done with Sergio. He treats her like a rag doll…

  • avatar
    Jeff S

    I think that many would prefer to pay for a service and get a new vehicle every few years. Many of my neighbors don’t keep their vehicles very long. I am one of the few who has kept a vehicle as long as 18 years which amazes many who think that 5 years is too long. I myself would prefer to buy and keep but with vehicle leasing becoming more popular and with maintenance for the first few years included on many new vehicles I can see a progression into a pay for a service providing a new vehicle on a recurring basis becoming the next big thing offered by the manufacturers. This would keep the demand for vehicles steady.

  • avatar

    By the way consumers are a bit unpredictable. Prepackaged food has been the norm for decades giving huge profits to large food conglomerates. But in the last 5 years consumer trends have changed and more people seem to care. And it’s not just the hippies Campbells for instance feels it will cause them huge problems in the near future.

Read all comments

Back to TopLeave a Reply

You must be logged in to post a comment.

Recent Comments

  • Inside Looking Out: Is LEAF still on sale? I do not notice any Leafs on road. But I live in Bay Area – too rich...
  • Inside Looking Out: Good looking car. In 1980s I could only dream about car like this. Alas I was destined to drive...
  • akear: With its current restrictions the Bolt’s range is now no better than the Leaf’s. With the Bolt...
  • el scotto: Prithee, what are the pathologies that killed the Anglo world? What is the Anglo world exactly? How is a...
  • el scotto: Deep, deep in a Nissan warehouse in Yokohama, Nissan should have a 240Z and a Hardbody truck in mint...

New Car Research

Get a Free Dealer Quote

Who We Are

  • Adam Tonge
  • Bozi Tatarevic
  • Corey Lewis
  • Mark Baruth
  • Ronnie Schreiber