A European Car Behemoth
On Monday, we may witness the theoretical birth of a new European industrial champion, Fiat/Opel. When Fiat Group star CEO Sergio Marchionne meets influential representatives of the German government, he will push for the creation of a new “car supergroup” with factories all over northern Europe (Opel), Italy (Fiat), and eventuallyt he US (Chrysler).
Put it simply, Marchonne believes in economies of scale in the grandest possible scale. With the new drive toward fuel efficiency and smaller vehicles around the world, he believes that the most profitable car groups of the future will need to produce much more than the 3-4 million cars Fiat currently produces – and the absorption of Chrysler in the US, blessed by President Obama, is just part of the story. Marchionne wants the German government involved (possibly financially) in order to add the operations of Opel (GM’s largest international subsidiary) to the new group. Eventually, this would lead to the spinoff of Fiat Auto from the Fiat group, escinding it from other operations like farming, heavy machinery, and ultra-high-end auto brands (like Ferrari, Maserati).
The protectionist concerns notwithstanding, this is a promising development for European industry – it can lead to better products, more efficient production, the creation of long-term value, and the appropriate positioning of the industry in terms of sustainability concerns. In short, it may prove to one of those rare M&A deals that adds value, rather than destroy it.
A friend of mine raised a good concern: grab three companies that do not work, pull them together, and hope they work is not the right way to go about business. It may not be, but one of those companies (Fiat) has assets that needs to project internationally (efficient engines, good platforms, and profitable operations) and two others have the history and international presence to take it to the next level. And economies of scale are ultimately promising.
The question is – what if Marchionne’s Icarus-like personality gets too close to the sun?
