Chrysler CEO Sergio Marchionne at the 2011 Management Briefing Seminars - notably shedding his trademark black sweater for a more Summer-friendly polo shirt.
China’s fast-growing automakers pose a direct theft to the more established automotive order, Chrysler CEO Sergio Marchionne warned during an appearance at an annual automotive gathering in Northern Michigan today.
But the Canadian-educated executive said he is more confident than many that the industry will be able to meet the newly-approved 54.5 mpg Corporate Average Fuel Economy, or CAFE, standard – and without having to make a major shift to electric propulsion.
“We cannot afford to be unprepared for the ascent of China. Even assuming China were to export only 10 percent of what it produces, the risk we face in our home markets is enormous,” said Marchionne, during an appearance at the annual Management Briefing Seminar, in Traverse City, Michigan.
“The excuse that we did not understand or that we underestimated the scale will serve no purpose. Rather we need to continue to work to make our industrial base more competitive, because the day of reckoning is inevitably coming,” he said, taking aim at the seeming complacency of companies such as General Motors, Daimler AG and Volkswagen AG, all of which have grown to depend on the Chinese market.
Chrysler, ironically, was one of the first Western makers to invest in China, but it let its position there lag as other brands raced in to take advantage of the booming market – now the world’s largest. It is now in the process of catching up.
For most global corporations, Marchionne stressed, “it has become fashionable, these days, to place greater and greater reliance on the performance of our Asian subsidiaries and ventures. Riding the wave of economic growth in those markets has provided a natural offset to the underperforming nature of our European and American businesses,” added Marchionne, who also predicted the European auto industry was heading for a crisis if it didn’t restructure.
“I hear from a lot of automotive corners that China is a big part – if not all – of our future,” said Marchionne.” And there is no doubt our Asian prospects will provide a great economic opportunity, an invaluable learning platform, calling upon all of our resources, especially in terms of culture and innovation.
But Chrysler, in particular, should not forget the commitment it made when it accepted financial support from the U.S. government to give new life to the domestic automotive industry, Marchionne insisted.
“It is important that we keep in mind the key elements of that social contract and the long-term nature of the joint commitment we made, both automakers and organized labor, to establish the foundations for a lasting renaissance of the automotive industry in America (and) for Chrysler in particular,” he said.
That, he suggested, is a big challenge that, ironically, involves speeding up the industrial integration with the U.S. maker’s Italian affiliate, Fiat.
“This urgency for this partnership came from the global economic crisis that erupted toward the end of 2008, which closed capital markets and forced Chrysler to seek government assistance in order to survive and restructure,” said Marchionne
During and after the 2009 bailout, “The common opinion at the time was that Chrysler was doomed, and that government assistance amounted to throwing good money after bad. For a while, there seemed to be a competition to write the most clever obituary before the body had turned cold,” Marchionne observed during a speech to gathering of industry leaders.
For his part, the executive insisted that unlike the mismatch between Chrysler and former partner Daimler, “Because of their respective characteristics, capabilities and even their unique traditions, Fiat and Chrysler are perfect partners for integration.”
Rather than writing another obituary, a new study Frost & Sullivan released this week suggested the Chrysler-Fiat merger will help create a new car giant.
It projected that the merger will prove to be an investment for Fiat, with Chrysler’s contribution to Fiat’s revenues expected to be a larger proportion than earned by Fiat’s own marques.
“The merger will also see the brands synthesize their expertise, in particular with Chrysler helping Fiat to launch diesel vehicles in North America,” the report said, adding that “Chrysler’s high-margin low-volume business could help offset any underperformance by Fiat in its home market” through increased platform that will increase economies of scale, “helping to reduce new car pricing.”
Marchionne said the merger also already begun to “change the conversation” around the company.
During his wide-ranging speech and a subsequent Q&A session, Marchionne said that. “One of the greatest challenges our industry faces over the next few years is to find technological solutions that will enable us to reduce our dependence on oil,” Marchioness said.
Like most of its major competitors, Chrysler lent its support to the CAFE compromise announced by President Obama last week, setting a 54.5 mpg target by 2025.
“The automotive industry has already done much in the area of developing more fuel-efficient engines and other solutions that are more respectful of the environment,” he said, adding, “I am not saying development of the electric car is not a worthwhile project,” but to achieve any significant reduction in emissions, “it is far more practical to leverage all available technologies.
“For example” the Chrysler CEO added, “there is a substantial supply of Compressed Natural Gas here in the United States. CNG is eco-friendly, economical, and can be part of a readily available, technically proven solution to substantially reduce CO2 emissions.”
And there are still many unexplored opportunities to substantially improve the efficiency of internal combustion engines,” Marchionne added, though he cautioned that hydrogen won’t fuel cars in any practical way for decades.