Howes: Fifth time a charm? FCA’s on sales block, again
Brace yourself, Detroit: For the fifth time in 20 years, the automaker commonly known as Chrysler is in play.
Chinese rivals — hungry to expand beyond their borders, land an industry icon and acquire an established distribution network — are vying for a chance to get their metaphorical hands on Jeep, Fiat Chrysler Automobiles NV’s volume leader and primary profit engine.
Company insiders are mulling a strategy that would spin off their premium Maserati and Alfa Romeo brands to investors or an automotive partner, Bloomberg News reported from Italy, leaving behind the American brands of Jeep, Ram, Dodge and Chrysler.
They could continue to be run independently, delivering margins supported almost exclusively by a two-dimensional lineup of pickups, Jeep SUVs and Pacifica minivans. Or they could be sold as a package to, most likely, a non-American buyer, extricating the controlling Agnelli family from its nearly 120-year association with the volume car business.
Investors are paying attention, signaling that the speculation and news churn is being taken with increasing seriousness. Traders pushed shares in FCA 7.05 percent higher Wednesday, closing at $14.42 and reaching a new 52-week high.
However it shakes out, this much is certain: the status quo in Auburn Hills probably is coming to an end, resurfacing a perennial Chrysler problem. The gulf separating the global industry’s “haves” from its “have-nots” is widening, exposing weakness and forcing companies like FCA to pursue mergers or outright sales to unlock whatever value they can.
Credit rising investor expectations for fatter returns, including the Agnelli clan’s 42.6-percent voting rights stake in FCA through its Exor NV holding company. And, second, credit the undeniable moves by the traditional auto industry’s leading powers into the mobility, autonomy and electrification spaces crowded with cash-rich players from Silicon Valley.
Judging most by its actions, Marchionne and FCA have concluded they’re not in a position to play. Not, that is, at the same levels as General Motors Co. and Ford Motor Co., Toyota Motor Corp. and Volkswagen AG, all of whom are pursuing their own mobility and autonomy strategies.
Instead, FCA is partnering with some big names, earning a cachet all its own. Detroit’s No. 3 automaker has a deal with BMW AG and Intel Corp. to develop an autonomous driving system. It also inked a contract to provide Pacifica minivans to Waymo, the autonomous driving unit of Google parent Alphabet Inc.
That’s all a bid to stay in an expensive, technology-driven game. But it’s also tacit admission that FCA does not possess the capacity to compete with industry rivals and Silicon Valley heavyweights for leadership in what some on Wall Street rightly call Auto 2.0.
More than most, Marchionne openly concedes what his peers understand but generally are too polite to say: automakers are in business to make money for their shareholders, not provide jobs and pensions for their people.
And eight years into the post-bailout expansion, FCA is not making enough consistently to finance the core business, make smart bets on mobility and deliver a competitive return to its owners. In a business that still drives on scale, FCA doesn’t have enough.
Extricating Jeep and selling it to an eager buyer is one option, but maybe not the best for the American brands that would be left behind. Through the end of last month, Jeep claimed 4.8 percent of the U.S. market. Ram added another 3.3. percent, followed by Dodge at 3 percent and Chrysler at a meager 1.2 percent.
“Any further breakup of FCA would be complicated by the relative weakness of brands left behind if the more attractive assets like Jeep or Ram were to be separated,” Jefferies International Ltd., the London-based arm of the Wall Street investment banking firm, wrote in note Wednesday.
“While the concern is still there,” Marchionne “was very clear at the time of the Q2 results that corporate change was on the agenda again. We see logic in recent expectations that Chinese” automakers “could be interested in acquiring global auto brands.”
The prospect of yet another change in Chrysler ownership is dizzying, unlike anything this industry has seen in at least two generations. In 1997, Germany’s Daimler-Benz AG acquired Chrysler Corp. in the falsely labeled “Merger of Equals.” A decade later, the Germans unloaded their American unit to Cerberus Capital Management LP, aptly named for the three-headed dog guarding the gates to hell.
The Cerberus sharpies who figured anyone could run an automaker instead ran it straight into federally induced bankruptcy. That culminated in Marchionne wresting control of Chrysler from the feds to begin the process of absorbing the unit into a recovering Fiat SpA.
Within six years, ol’ Sergio stirred the pot again. His “Confessions of a Capital Junkie,” a manifesto issued in the spring of 2015, served as a prelude to his campaign to entice General Motors into a partnership it rebuffed, repeatedly. A turn to Volkswagen, Europe’s largest automaker, was scuttled by the global diesel scandal still weighing on the cornerstone of Deutschland AG.
Now comes the fifth round in roughly 20 years. It’s an attempt to extract value from assets in danger of depreciating faster than their Italian rescuers wagered, meaning that choosing to do nothing is not an option.
Daniel Howes’ column runs Tuesdays, Thursdays and Fridays. Follow him on Twitter @DanielHowes_TDN, listen to his Saturday podcasts, or catch him 3 and 10 p.m. Thursdays on Michigan Radio’s “Stateside,” 91.7 FM.