Europe News

Carmakers Must Merge Says Fiat Chief

Bernard Simon and John Reed, Financial Times

Consolidation among European carmakers is unavoidable as they battle with chronic overcapacity and mounting financial losses in a weakening market, according to Sergio Marchionne, Fiat and Chrysler’s chief executive.

“We’re going to get tired of the beating – we’ve already started to”, Mr Marchionne told the Financial Times at the Detroit motor show, mentioning France’s two carmakers – PSA Peugeot-Citroën and Renault – and Fiat itself. He added that “small ain’t beautiful in this business, especially when you’re in the mass market”.

Mr Marchionne, who has run Fiat since 2004, indicated that the Italian company wanted to play an active role in any coming industry consolidation . He confirmed that it was still interested in finding a partner to share costs on small cars in Europe, on which it loses money.

He also predicted that European car sales, which shrank by more than 1 per cent last year, would at best remain flat through 2014.

Pressures from governments and trade unions have so far prevented carmakers from closing car plants in Europe. That is in marked contrast to North America, where the industry cut capacity dramatically during the 2007-09 industry crisis and some carmakers are now hiring and raising production.

The chief executives of several major US and European carmakers discussed the European crisis at a private dinner in Detroit earlier this week, hosted by General Motors.

Mr Marchionne noted that General Motors and Fiat were the only carmakers to have closed plants in Europe, in Belgium and Italy respectively. “You have not seen this from the French who have not taken capacity out,” he said.

Overcapacity has led to increasingly fierce price-cutting in Europe as carmakers seek to maintain market share. “I sincerely hope my colleagues are honest enough to admit the fact that the pricing strategies in Europe are just not sustainable in the medium- to long-term,” Mr Marchionne said.

Fiat expressed interest in 2009 in taking over Opel-Vauxhall, GM’s European arm, but the talks foundered on its insistence on rationalising production, and the US carmaker’s opposition to Mr Marchionne’s pitch to include its Latin American operations in the deal.

“The story has fundamentally not changed, other than the forecast about European volumes has even come down since [then]”, Mr Marchionne said.

Not everyone is as pessimistic on the European outlook. Magna International, one of the car industry’s biggest suppliers, said on Wednesday that it expected light-vehicle production to rebound to 14.2m units in 2014 from 13m this year.

On other matters, Mr Marchionne, 59, said his successor would be hired internally from the ranks of the 24-member Fiat-Chrysler executive committee.

“I’m trying to breed my successor at the speed of light, and I’m having great success, I think”, he said.

Mr Marchionne, who divides his time between the CEO jobs at Fiat and Chrysler, denied he needed to name a strong chief operating officer, as Carlos Ghosn has at its rival Renault.

Regional heads in Asia-Pacific, Latin America, Europe and North America functioned as the group’s chief operating officers, he said. Mr Marchionne himself heads the North American unit.