That's Off-The-Record: Is Marchionne Trying to Pull the Wool (Sweater) Over Chrysler's Eyes?

Jason Vines
by Jason Vines
that s off the record is marchionne trying to pull the wool sweater over

About half a decade ago, FCA honcho Sergio Marchionne welcomed then-Vice President Joe “Lunch Bucket” Biden to the Jeep Toledo plant to celebrate all things Jeep. It was rather warm August day outside, but even hotter in the assembly plant where everybody’s favorite “uncle,” hair plugs and all, was decked out in a suit and tie. Marchionne, on the other hand, was “sporting” his signature blue wool sweater.

I was writing a politics blog for the Detroit News at the time, and I urged Mr. Marchionne to give his sweater shtick a rest. Why? Well, when the “Number Two” for the United States shows up in a suit, you look disrespectful in a sweater … even if it is from Nordstrom. Worse yet, I pointed out, it had to be hotter than hell in a wool sweater in an assembly plant humming with new vehicle production.

Up to that point, I was duly impressed with the Canadian-Italian and his rescue of my former employer. He was smart, funny and all-too-quotable. Most importantly, he had asked his Chrysler colleagues to work their butts off to save the company, and his minions quickly saw nobody worked harder than Sergio as he chain-smoked his magic on the often down-and-out company.

Marchionne did what former CEO Bob Nardelli couldn’t do in the former Home-Depot-throw-off’s two-year “Reign of Error.” Marchionne didn’t just lead the members of his team. He got in the trenches and inspired them.

Fast forward to late 2016 through today, and I’m asking myself: Is Marchionne a “loon” or a “boon” for FCA’s future?

Out-of-the-blue months ago, Marchionne was the lead cheerleader in the need for further consolidation of the global auto industry, and was seemingly driving around General Motors HQ in Detroit with a bullhorn announcing a potential tie-up with the Motown behemoth. In fact, he seemed more like a Girl Scout selling cookies (Samoans, love them) outside your local grocery store. It was as if he would not take “No” for an answer, although “No” was uttered loud, clear, and often from General Motors CEO Mary Barra.

This looney courting gave many of the folks inside FCA an uneasy feeling; that the company might be headed for the dirt farm — again. You must realize some long-timers who are still at the company-formerly-known-as-Chrysler have faced corporate bankruptcy four times in their careers. For many, it was like a scene out of Poltergeist: “They’re here!”

The consolidation pitch made a lot of media and analysts scratch their heads and, of course, it led to all kinds of dire speculation and nasty criticism of Marchionne’s methods in screaming from the mountain top.

Still, Marchionne isn’t the first CEO to very publicly call for a consolidation between two auto companies.

Kicking the tires

Sure, the “Merger of Non-Equals” between Daimler and Chrysler in 1998 was a secret, behind-the-scenes deal that took the automotive world by storm. That storm would later engulf the two companies, leading to Chrysler being given to Cerberus Capital Management — a deal that ultimately proved the private equity guys are not always the smartest guys or gals in the room.

But back in 1999, good ol’ DaimlerChrysler was considering the purchase of bankrupt Nissan Motor Company. If fact, it forced Nissan to pull up its kimono and let it see everything regarding the state of the Japanese company. It wasn’t pretty. At the 11th hour, DaimlerChrysler pulled out of the deal and Nissan was left at the altar — pregnant and without hope.

As Obi Wan said to Yoda: “There is another.” That “another” was Carlos Ghosn and Renault. Renault had been hugely public in its desire to take control of Nissan should the Germans pull out prematurely. Ahem.

The rest is history.

Renault/Nissan went on to, as Borat would say, Great Success! DaimlerChrysler crumbled. The Germans, in less than a decade, lost faith in Chrysler and threw the Americans to the curb. After a bankruptcy, Chrysler was “given” to Fiat as part of the U.S. government bailout of Chrysler and GM. Enter Sergio and his infusion of blood, sweat, tears, smokes, and — contrary to popular belief — a lot of money to right the ship.

So, Marchionne may not be that looney in his desire for consolidation, after all. Or is he?

Let’s be friends

Just a few weeks ago, he threw out the possibility of a deal with VW, which was quickly dismissed by the folks in Wolfsburg. VW? Really? Had some engineer implanted a “defeat device” in Marchionne’s brain? Why would you publicly talk about joining forces — at this time — with the poster boys for cheating in the auto industry? Maybe in a year or two, but now? At least wait until VW comes up with a fix for its serial deception, which should come sometime in the next decade. Geez.

Marchionne’s talk of working with VW wasn’t necessary looney, but the timing was weird considering General Barra’s rebuff. If you’re keeping score regarding consolidation with GM or VW, Marchionne is not necessarily a “loon,” but he might be screwing with everyone.

Debt-free or bust?

Marchionne says he remains as committed in 2017 as he was in 2014 to the achievement of FCA’s 2018 targets, and “this remains the single largest objective that the FCA management team has in front of it because completion of the ’18 plan would do two things.” FCA would make significantly more money than it’s making now, and — here’s something the folks at “Chrysler” may have not heard in a long time — it actually renders FCA debt-free.

As Marchionne put it succinctly, “We have gone a long way in the last ten years but the ability to effectively extinguish all of our debts is something which remains a key objective.”

Has he given up on that consolidation thingy?

“The better way to run this business is by consolidating forces, keeping a multi-brand environment that faces the customer and that effectively shares all the essential elements of design and manufacture of cars on a commissioned basis as much as is possible,” he recently said.

In almost the same sentence, Marchionne continues, “I’m pursuing nobody. I haven’t gone out to chase anybody.” Um, OK, whatever.

Some on Wall Street are getting back on the Marchionne bandwagon. Said analyst Max Warburton of Bernstein Research, “We are initiating coverage on FCA with a market-perform rating. FCA has made far greater progress than we anticipated a few years ago. We accept we need to eat another slice of humble pie given the achievements of 2016. But will we need to eat the whole pie — and even our hat — come 2018? Marchionne continues to insist he will deliver his financial target. Increasingly, the market seems to believe it’s going to happen — and perhaps we need to accept it too.”

Perhaps analyst George Galliers of Evercore ISI said it best: “Have we gone ‘mad’? To follow in the footsteps of FCA CEO Marchionne and reference Lewis Carroll, we don’t want to go among mad people, and we’re sure ‘the best people’ usually aren’t mad. However, the day has come to upgrade FCA from sell to buy.”

Jason Vines is a former automotive industry PR professional who’s worked for Chrysler (twice), Nissan, and Ford — during the Firestone tire crisis. He went on to work for Compuware in Detroit, before diving into the complex world of Bible publishing. He’s the author of “ What Did Jesus Drive?: Crisis PR in Cars, Computers, and Christianity” and co-author of “ The Last American CEO,” a behind-the-scenes account of Chrysler’s purchase of American Motors. He currently resides in North Carolina.

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3 of 55 comments
  • Stars9texashockey Stars9texashockey on Apr 05, 2017

    Speculation on whether the sweater is brilliant or an idiot is a waste of time. In every survey of quality/reliability, virtually all of FCA's products are in last place. This isn't a new phenomenom. They've had ample time under various owners to fix this. As far as brand equity, Ram still has it, but Jeep is quickly losing it. Dodge, Chrysler, Fiat and Alfa Romeo are irrelevant.

    • Jack Denver Jack Denver on Apr 06, 2017

      Maybe the reason that they haven't fixed it is because it isn't fixable with the resources that they have available to them. Whichever company was at the bottom end of the US auto industry always had either (a) quality problems or (b) was selling obsolete product or both. It's hard to say which is the cause and which is the effect - it runs both ways.

  • Ol Shel Ol Shel on Apr 06, 2017

    I'm glad we're finally free of hair-insecurity in the executive branch...

  • Tassos The rich get richer and the poor get poorer. I have mentioned this before, and it applies here again.Go to the U of Michigan College of Engineering parking lot. How can you say what car the $300,000 a year (ACADEMIC year of 9 months, mind you, summer pay is extra, and consulting a whole lot on top of that) and what does the $50,000 a year secretary drive?Hint: Teresa was out chair's secretary, started a year ago. She had to resign in just a few months because her 75 mile EACH WAY from her home in Lapeer MI to ANn Arbor MI just KILLED HER when gas prices rose.What car did Teresa drive? Take a wild guess. An F150? A Ram pickup? A Silverado? One of these. In a fee months she had to resign and find a lesser job in the whole lot lesser U of M Flint (but why would she care? she's just a secretary), which halved her commuting distance to a still significant 75 mile round trip every damned day.So the poor keep buying pickups and get poorer, and the rich keep NOT buying them and get richer.
  • Cprescott It is ugly enough. But why? You refuse to build enough of your products for your consumers.
  • Cprescott Only if your income also gives you more votes.
  • MrIcky It's always nice to see a car guy put in charge of cars instead of an accountant. I wish him well and look forward to some entertaining reveals. I think he and Gilles may be the only industry people that I actually enjoy listening to.
  • Master Baiter It doesn't matter whether autonomous vehicles are better or worse drivers than humans. Companies with deep pockets will find themselves sued over incidents like this. Enough lawsuits and the whole business plan collapses. Cheaper to just put a human behind the wheel.