First, a story:
A boat at sea begins taking water. Against a storm, its crew fight watch in horror as the water level rises higher and higher. They bail water through the night, yet by morning they’re more than half-sunk.
In the distance, they spot another boat. It, too, is sinking. But, think the crew, if their boat is 40% above the surface, and the other boat is 40% above the surface, why, they could join forces and be 80% above the surface!
Fiat Chrysler is in trouble. This isn’t news. Theirs was a troubled birth. a desperate attempt by a desperate man looking to save two failing enterprises by bringing them together.
By the early 2000s, the Fiat Group was burning through cash like an Alfa Romeo burns through oil. The year Marchionne took control of the company, Fiat had already lost $7 billion USD. He managed this by actually running the company, which seems to have been something that the last few CEOs hadn’t considered.
He established an alliance with GM that was worth $2 billion, laid-off a bunch of workers, introduced new vehicles, and turned the production cycle of a car from four years to 18 months.
He did this in two years.
Four years later, in the wake of the financial collapse caused by the sub-prime mortgage lending in the US, the American Big Three manufacturers were in dire straits. Ford was scraping by thanks to having divested themselves of their most valuable nameplates (Jaguar, Land Rover, and Volvo.) General Motors went through a massive restructuring with the help of the US and Canadian governments.
Chrysler, also with government assisted, struggled. It was then that Marchionne, ever the opportunist, saw his chance. Starting with an initial ownership of 20%, which was later increased to 53.5%. By 2014, he brought the two companies together under one roof, leading the now-named Fiat Chrysler Automobiles.
While their fortunes improved, things weren’t perfect. FCA was busted in an emissions-scandal following Volkswagen’s on fall from grace. Also, Marchionne died.
FCA, to date, has not.
Not entirely, at least.
Jeep and Ram are consistent money-makers for the company. They generate a massive profit for the company in North America. However, as big, dumb, vehicles, they do struggle with emissions standards. They also have little appeal in Europe were factories are running at less than 50% capacity.
The rest of the company isn’t moving the same kind of units. Alfa Romeo and Maserati remain niche brands at best, with the American relaunch of Alfa being especially troubled. Fiats sell well-enough in Europe but command only a small profit margin.
Following a familiar path has led the company to look elsewhere for support (a go-to strategy for them, it seems.)
Whereas FCA is dependent on gas-guzzling dinosaurs to generate a profit, the French-based Renault has been making strides in the electric car sector. They also do well with small engines and have been able to position themselves well in emerging markets.
They also have a two-decade relationship with Nissan that FCA has conveniently forgotten about. Further complicating things is that former Chairman and CEO of both Nissan and Renault is currently in jail.
A partnership with FCA would allow Renault a direct line to the US while providing FCA with the kinds of vehicles it struggles with.
How this all shakes out remains to be seen. Due diligence is sure to be a time-consuming endeavor that promises to unearth all sorts of complications. Still, in the spirit of their departed father, FCA has made the unlikely happen before.