Analyst says Chinese company could buy FCA

Melissa Burden and Michael Wayland
The Detroit News

It’s possible Fiat Chrysler Automobiles NV could be purchased by a Chinese automaker in the next three to five years – maybe with help from the Chinese government, a Wall Street analyst said Wednesday.

John Murphy, an autos analyst with Bank of America Merrill Lynch, said Fiat Chrysler could right its debt issues by partnering with a company, even a Chinese automaker looking to enter the U.S.

“One of the long-tail risks with Fiat Chrysler really making it is they have to partner with one of the Chinese companies which might be put in play by the Chinese government. We really funded the survival of our auto industry here in the U.S. I wouldn’t put it past the Chinese government to fund the survival and thriving of their industry in China,” Murphy said at an Automotive News World Congress event in Detroit.

“And a great entree would be to buy Fiat Chrysler to get a very good footprint here in the U.S.”

Murphy said a Chinese automaker would have to put much capital into the company to make it successful, but he could see a deal happening in the next three to five years. He called Fiat Chrysler “one sore spot” in a thriving auto industry that has the automaker’s crosstown rivals and others reporting record profits.

A spokeswoman said the company is “not going to comment on speculation.”

Fiat Chrysler CEO Sergio Marchionne has been open in the past to a search for a partner. The architect of the merger between Fiat SpA and Chrysler Group LLC originally pitched industry consolidation to save billions of dollars annually by shedding unnecessary duplications through a presentation called “Confessions of a Capital Junkie” with financial analysts and news media in April 2015.

Following Marchionne’s presentation, the automaker courted General Motors Co. as a partner but was rebuffed several times.

Marchionne on Monday at the North American International Auto Show in Detroit told reporters that the company is not pursing any tie-ups.

“Let’s be clear, we’re looking at nothing,” he said. “The only thing that I do know is there’s 24 months between now and the closing of the 2018 plan. And that 2018 plan is absolutely sacred and there’s not a damn thing that I know of that will stop us from making it.”

The company has a goal of being debt-free in the next two years, with 9 billion euros ($9.52 billion) in operating profit, 5 billion euros net income ($5.29 billion) and 5 billion euros net cash.

A main part of achieving its financial targets is to restructure its manufacturing footprint in the U.S. away from passenger cars to more-profitable SUVs and pickups from its Jeep and Ram Truck brands. The company last year ended all domestic small-car production.

Murphy said the decision may be a boon for it as consumers shift preference to crossovers, SUVs and trucks from cars.

“The idea that you walk away from small cars or big cars altogether and shift towards SUVs and trucks, looks like a fantastic decision vs. where we stand right now,” Murphy said. “It is the game plan for the company going forward. If the industry stays very hot and we see a lot of crossovers and trucks sold, they may be able to shoot the gap and be able to fix the balance sheet.”

It was reported in April 2016 that Guangzhou Automobile Group Co. had hopes of Fiat Chrysler providing “support and help” for the Chinese automaker to enter the U.S. market by 2017 — a goal that was pushed back at least one year. Fiat Chrysler at the time declined to comment on the report.

Marchionne on Monday said Guangzhou was not a part of its discussions to potentially supply the automaker passenger cars, which it stopped producing domestically last year in the U.S.

Marchionne said the automaker has put the partnership plans on the back burner, as it — like the entire auto industry — waits to see if President-elect Donald Trump will deliver on his campaign promises regarding trade. He said on Monday that the company may not replace the Chrysler 200 midsize and Dodge Dart compact sedans.

“If we want to have vehicles like that we need a partner,” Marchionne said, saying the “big question” is if the automaker even needs to sell cars such as those to be successful. “People have abandoned the sedan as being the traditional mode of transportation.”

A Chinese company entering the U.S. market through an acquisition isn’t unprecedented. Chinese multinational auto company Geely purchased Swedish automaker Volvo from Ford Motor Co. in 2010. On a smaller scale, GM sold its Saginaw-based steering business Nexteer to Chinese company Pacific Century Motors in 2010.

Murphy said it may still make sense for Fiat Chrysler to seek out partnering or a deal with Volkswagen AG, though the German company’s emissions scandal “threw a wrench in that potential.”

“I also do think with the current administration, the idea that a foreign company – this goes back to the Chinese as well – could come in and take over a U.S. company without some sort of regulatory roadblocks might also really throw a lot of cold water on both of those theories,” he said.