Howes: In second decade, FCA prepares to shift into higher gear

Daniel Howes
The Detroit News
Fiat Chrysler CEO Mike Manley says Jeep and Ram brands underpin effort to shift profitable automaker into higher gear, repair operations in China and the European Union.

Auburn Hills — A decade removed from bankruptcy, CEO Mike Manley says an increasingly profitable Fiat Chrysler Automobiles NV is poised to shift into a higher gear.

Its Jeep brand, with a new SUV plant rising on Detroit's east side, is the group's undisputed earnings engine. Its Ram pickups are claiming the customers of rivals, thanks to sharp interiors, capable powertrains and more understated styling. And now Manley is training the tools of the group's North American turnaround on Europe and China.

"We're able to deliver very, very solid financial and cash-generative results with plenty of opportunity," he said in an interview at FCA's headquarters here, "which is why I think we've got a strong future ahead of us. Jeep has been part of the driving force of the improvement in our profitability over the last few years. And it remains the key brand for us today — not just now, but going forward."

Longtime CEO Sergio Marchionne died a little more than a year ago in a Zurich hospital, just days after FCA's directors elevated Manley to the top job and an intense baptism only recently beginning to ease: the responsibility to calm a transatlantic company whose only leader was Marchionne; the mettle to negotiate — and abandon — a merger with Renault SA of France; and the courage to build Detroit's first new assembly plant in nearly 30 years.

Manley also asked company lawyers to negotiate a settlement with federal prosecutors investigating whether FCA executives conspired to pay bribes and break labor laws during a years-long conspiracy with the FCA department of the United Auto Workers — a topic Manley politely declines to discuss.

Still, the continuing federal probe is casting a shadow over the UAW's national contract talks with FCA and its two Detroit rivals, even as it raises questions about the sanctity of the bargaining process. On Monday, the former head of the UAW's FCA Department, Norwood Jewell, is scheduled to be sentenced in federal court by U.S. District Judge Paul Borman following a guilty plea for conspiring to violate a federal labor law.

The Detroit News reported in June that FCA's negotiations with federal authorities are focused on Fiat Chrysler submitting to government oversight for up to five years, paying less than $50 million in penalties and agreeing to make broad institutional changes to emerge from a bribery scandal that has led to eight convictions.

FCA’s push to reach a resolution signals Manley's eagerness to cut his losses, to move on and to close yet another costly case he inherited from Marchionne. Others include a deal earlier this year to settle claims that Ram and Jeep diesel engines used illegal software to cheat emissions tests, as well as a continuing federal investigation into charges FCA inflated its monthly sales reports. 

The net effect: a push to clean the slate and focus the Italian-American automaker on greater efficiency outside North America, product lineups in Europe and China that better reflect market demand and deliver greater profitability, and openness to potential partnerships that can speed FCA's move into the Auto 2.0 spaces of autonomy and electrification.

"The changes in our industry are inevitable," Manley said, adding that FCA's second decade as a company is likely to be different than its first because of its renewed financial flexibility. "Now we can make investments in different parts of our business. The investment in electrification is non-discretionary. You have no choice but to invest."

And to adapt, a capability Manley considers absolutely necessary in an industry buffeted by technological change, trade tensions, changing emissions and fuel-economy standards in the United States and stiffer ones abroad: "Lack of speed," he said, "will kill you in the next few years."

The next decade will be more uncertain than the past one, as automakers, tech giants and start-ups jockey for competitive advantage in the constantly morphing self-driving race. Add the nationalist impulses issuing from Washington and Beijing, Paris and Tokyo, in the form of tariffs and regulatory rule-making and you get a governance thicket that can be difficult to manage.

"I don't know if it's the new normal," Manley said of the creeping nationalism inflecting trade policy in the United States and China, Japan and the European Union. "What I can tell you is that I think there's a general appreciation that global trade is a good thing, and so long as global trade is done in a fair and equitable way, it will continue and should continue."

He added: "We would like to get a degree of certainty and to understand what the world looks like. We can adapt. We will adapt. Certainty is important in our business because of the length of the investments we make."

Instead, more uncertainty lay ahead. Rival Ford Motor Co. and three foreign automakers recently reached a deal with California on new fuel-economy rules that defy new standards proposed by the Trump Environmental Protection Agency. One goal of the effort is to persuade the administration to join talks that interest FCA, too — and to avoid protracted litigation pitting the Trump EPA against California and a dozen or so like-minded states.

"Absolutely we're looking at it," Manley said of the deal, acknowledging that the automaker did not know of the arrangement in advance. Like its rivals, FCA backs "one national standard" for fuel economy "that reflects the market as it is and will be." 

Where that market is, in the United States as much as Europe and China, points directly at arguably FCA's most powerful, globally recognized brands: Jeep. And that's good news for Detroit and the UAW, as the automaker doubles down on a new plant on the city's east side and agrees to give Detroiters a first shot at the union jobs the plant will provide.

The Jeep fleet will be steadily electrified; it will get a small SUV slotted under the Jeep Renegade; a full-size Grand Wagoneer and a new three-row Grand Cherokee are coming; and the new Gladiator pickup is exceeding expectations and powering Jeep sales higher.

Still, headwinds remain. U.S. sales are slowing from the record pace of recent years, macro-economic trends are looking increasingly uneven, foreign markets are under-performing for FCA, and there's yet another union contract to negotiate.

"I want our people to feel they're recognized and properly rewarded for the job they do for us," Manley said. "I want a balance in terms of making sure that we remain competitive going forward. To some extent you're going into a more uncertain future than you've seen in the last 10 years."

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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.