Italian-American automaker Fiat Chrysler (FCAU, Financial) believes that it is important to remain globally competitive to survive and grow in the global auto industry. In 2014, under the same impression Fiat had taken the chance to acquire Chrysler after the financial crisis which had left the former in the bankruptcy mode. Now again, Fiat Chrysler Automobiles (FCA) which is doing pretty well in the U.S. is looking for options of a merger for sharing developmental costs which is increasing in leaps and bounds in the auto industry on a global scale. The probable options that have been mentioned by the top management of the group are the two top Detroit automakers – Ford (F, Financial) or General Motors (GM, Financial). But neither of these two auto giants has provided any positive comment on the same. Let’s quickly peek in and find out why FCA is looking ahead to such a new partnership in the near future.
The probable deal
During a conversation with Bloomberg on March 12, the Italian-American auto maker’s CEO Sergio Marchionne stated that it “is open to a combination with General Motors Co. or Ford Motor Co…” The CEO said that such a measure would aid FCA in saving capital by reducing the cost of development of new vehicles.
In fact, Chrysler’s Jeep brand has bought immense popularity in the U.S. of late. Now if the company urges to develop a new model; it would require to share the developmental costs to keep its profits in the green during such a phase. Hence the CEO mentioned that such a deal with either Ford or General Motors was “technically possible” in this era. The thought process of FCA’s CEO does sound more like a partnership strategy than a full-on merger, something that is not a new concept among the auto industry stalwarts.
There have been several cases in the past where car companies have shared the cost of development on a combined basis, and then have separately taken advantage of the new technological feats. Thus, as per several analysts, such a decision by FCA might be a viable one and would make a lot of sense for the automaker.
And FCA’s top management have reiterated several times in the past that as capital investment requirements keep increasing among existing automakers while global automotive sales inch towards 100 million a year, only the top automakers would be able to survive the pressure in the long run. In January this year, FCA’s CEO had mentioned, “The cost of execution on the capital side is well in excess of what I consider what a mature industry should be able to afford ... I am convinced of the fact that this industry needs to move quickly towards the path of consolidation…”
Final word
In recent months the FCA chief had send several signals indicating that the auto maker is looking for a potential merger partner. If FCA finally merges with either Ford or General Motors for reducing its developmental costs, it could be one of the greatest decisions taken by Sergio Marchionne during his tenure as CEO. It seems as if this merger plan of FCA forms a vital part to the company’s current five-year plan that terminates in 2019. Let’s stay tuned and keep an eye on whether FCA is finally able to impress Ford or General Motors management, driving the merger plan into a reality in the coming future.
