Thursday, December 24, 2009
Malignant Rumors: Can FIAT's World Domination Plans Crash the Toyota - VW Party?
The latest gossip around the campfire -i.e. the charred remnants of the auto industry- is the next stage in Fiat's plan for automotive world domination. What else could the Italian manufacturer be after, now that they've secured a 20% stake in Chrysler? Apparently Fiat CEO Sergio Marchionne and his gang are on a bit of a shopping spree, looking to pick up GM Europe and its subsidiaries/affiliates. For those just tuning in, that means Fiat could end up owning Opel, Vauxhall and other operations owned by GM over in the EU along with its Chrysler "partnership" in the US.
If this happens, Fiat will become one of the world's largest automotive manufacturers, competing against the likes of Toyota and Volkswagen with up to 100 billion dollars in sales annually and moving upwards of six million units a year. Why would Fiat do this? Consolidation, cost cutting, and sheer numbers. As is to be expected, there are pros and cons for this balls-to-the-wall crazy scheme.
The pros are plain as day. With the ability to pick and choose the best platforms from a variety of automakers, Fiat will be able to turn itself into one of the widest-spread carmakers on the planet in respect to manufacturing and market penetration. The idea would be to use Fiat's small car platforms worldwide (as Chrysler hopes to do), while adapting and updating GM Europe's midsize platforms and sharing them with its other brands. This would also allow certain manufacturers to remain, keeping a number of dealerships and factories open. Then there's the money.
Marchionne, the Godfather behind this scheme, argues that fusing GM Europe's platforms with Fiat's could potentially save the company around one billion Euros a year. Coincidentally, this is a little less than what Fiat originally offered the currently de-testicled General Motors for its European division, meaning that it is looking to have any losses recouped in less than a product cycle.
All this sounds well and good, but what about the cons? With Opel - a German subsidiary currently owned by an American company - possibly being absorbed by an Italian firm, problems are bound to arise. The biggies are the jobs and the cash, and in this case the two are inextricably linked.
Germany would end up loaning Fiat money for the purchase of Opel, which would lead to a consolidation of manufacturing facilities. The consequences are closure of factories and the resulting job losses. Also, some of the politicians seem to think that the money acquired from Germany would help offset the costs incurred by the Chrysler deal. This is a big no-no when it comes to public relations (however it is quite shrewd business-wise).
Will it happen? Well, that's up to Germany and its brethren in the EU. The trade unions and politicians will no doubt have a field day with this, but it is important for everyone to look at the big picture. People stand to lose their jobs; this is a fact. However, keeping some people employed instead of having all people lose their jobs is a hit that will have to be taken. Not everyone can walk away a winner. Too many companies have been near-sighted over the past several decades, and they have paid dearly.
Marchionne may be walking on a financial tightrope, but the man is no Rick Wagoner. He has turned Fiat around and now sees the perfect opportunity to expand while taking advantage of a bad situation. Corporate vulture? Maybe, but he is thinking about the long-term, and that's what matters.
By Phil Alex
Phil Alex was born in Rhode Island in 1985, yet for reasons unbeknownst to him moved to South Carolina. He graduated with degrees in Finance and German from Wofford College in 2007 and has had a strange obsession with cars and travel. When not back in Sparkle City, he resides near Japan's international airport in Narita. He makes no apologies for his articles and welcomes all feedback, as long as it is adamantly worded. Oh, and if for any reason you are inclined to vent some more, check out more of his posts on the Examiner here.