Comment & Analysis
According to the tradition of will they/won’t they mergers between large car companies, the distance between General Motors (GM) and Fiat Chrysler Automotive (FCA) seemed to grow last month. Shareholders in US firm GM are reportedly uninterested in a merger with the Italian-American Fiat-Chrysler.
The latest news follows a drumbeat of analysts and media reports, which have played up the prospects of a coming together of the two companies since the chief executive of FCA, Sergio Marchionne, mentioned the possibility at the Geneva motor show in March.
GM has not been receptive. The company, which is larger than FCA, is focused on continuing its bounce back from bankruptcy and a government bail-out in 2009.
The tone of reports on the other side of the Atlantic has ranged from dismissive to protectionist, with a sprinkling of schadenfreude along the way. Fiat acquired Chrysler, another famous US car brand, during the recession in 2009. Some see GM as next on the “Italian hit list”. In addition, the two companies have history. An alliance between GM and Fiat ended badly for GM in 2005 at a cost of £1.3 billion for the US firm. Also, FCA’s finances are not seen by analysts as rock solid. The firm is profitable but carrying a large amount of debt – £6.1 billion.
And at the end of April, Marchionne surprised many with an unabashed call for more “megamergers” in the automotive sector. His presentation, “Confessions of a Capital Junkie: An insider perspective on the cure for the industry’s value-destroying addiction to capital”, can be viewed online, and his main argument is sound.
The automotive industry spent £87 billion on R&D in 2014, not including expenditure by traditionally non-automotive companies such as Google and Apple. This is set to rise because the industry is faced with massive technological change centred on emissions standards, connectivity and autonomous driving. The replication of development of components and systems at different companies is commonplace. However, the various development programmes usually provide no discernible difference in functionality for consumers.
The reaction to the prospect of an FCA and GM merger is telling, though. A megamerger is a costly, distracting, high stakes game. Yet faced with the blistering pace of technological change, it seems likely that companies will continue to dance around each other like FCA and GM have done, until the self-interest and animosities have to be overcome through necessity.