He's got the whole world, in his hands...at least Fiat CEO Sergio Marchionne would like to, and he could come a lot closer if he gets GM's Opel subsidiary, as well as a planned stake in Chrysler.
Already set to gain a major stake in bankrupt U.S. automaker Chrysler LLC, the Italian “white knight,” Fiat SpA, may be riding in to sweep up another troubled automotive venture, in this case, General Motors Corp.’s European subsidiary, Opel.
Though there’d been suggestions that Fiat might want to purchase a piece of German-based Opel, which GM was willing to sell to raise some much-needed cash, it now appears that Fiat’s global-minded CEO, Sergio Marchionne, could be looking to buy Opel lock, stock and carburetor barrel.
That raises a number of questions, for one thing, whether GM would walk away from Opel entirely, and if so, how would it survive without the vast European empire it had created over the last seven decades? What would Fiat have in mind for Opel, and how would it integrate the operation into its own automaking empire? Perhaps most importantly, how would the heavily debt-laden Italian maker be able to afford the acquisition, considering its own financial challenges?
A new statement, issued by the Fiat Board of Directors, in Turin, confirmed “its full support for the initiative to be undertaken, over the next few weeks, by its Chief Executive Officer, Sergio Marchionne, to assess the viability of a merger of Fiat Group Automobiles (including the interest in Chrysler) and General Motors Europe into a new company.”
The deal, the board statement declared, would create a global automotive behemoth, with approximately 80 billion Euros ($106.9 billion) in annual revenues.
Earlier this year, former GM CEO Rick Wagoner announced the automaker would consider selling a large, and possibly controlling stake in Opel in return for a European government bailout that would keep the troubled operation in business. But until now, Wagoner, his successor, Fritz Henderson and other senior General Motors executives had said they would maintain at least a major, if not controlling stake.
“We are talking to them, amongst other parties,” CEO Henderson on Monday told the Associated Press, “Not solely Fiat, but several parties who have an interest in making investment in our European business.”
While Henderson declined further comment, and notably did not confirm GM is considering selling its European operations off entirely, the U.S. maker’s spokesman, Tom Wilkinson, downplayed the likelihood of a total sell-off, telling TheDetroitBureau.com that, “One interpretation is that this is what Fiat would like to do, not what we’re intending to do.”
Wilkinson cautioned that “If we had to disentangle completely, it would take a while.”
Industry analyst Joe Phillippi, of AutoTrends Consulting, echoed that point, noting that Opel is more than just another GM brand, like the soon-to-be-discontinued Pontiac, or Saturn and Hummer, which will be sold off. GM has critical design and engineering operations centered in Europe, and Opel has become responsible for a growing list of products sold by the Detroit-based maker around the world.
If anything, the ties have been growing deeper, with the American market moving back from light trucks to passenger cars. Opel is the lead in the development of the midsize models GM will need to nurture, in the years to come, such as the Chevrolet Malibu.
Still, the continuing economic problems facing General Motors, especially in Europe, could force the U.S. maker’s hand. And right now, Marchionne is playing an aggressive game as he seeks to expand Fiat’s role in the world market. Many analysts believe that the current crisis will lead to a shake-out of manufacturers, with perhaps as few as six major players ultimately dominating the global auto industry. The North American-educated executive knows he didn’t have much time to push Fiat firmly into the top tier of makers most likely to survive and thrive.
According to reports out of Europe, Fiat would keep the Opel brand for itself, and likely continue operating many of the automaker’s German operations, though after meeting with Fiat CEO Marchionne, German Economy Minister Karl-Theodor zu Guttenberg said, in an interview with the AP, that it appears there would be a “need for consolidation,” with the future of at least one of Opel’s German engine plants uncertain. It’s also unclear what would happen to the Vaxhaul brand, which is the right-hand-drive brand name that serves as Opel’s counterpart in Great Britain.
Significantly, it appears Marchionne is looking for a way to acquire Opel without running up a significant amount of new debt – a significant factor in GM’s current financial crisis. How that would be accomplished is unclear, but the Italian company is putting out next to nothing for its initial 20 percent stake in Chrysler.
Even so, analysts are worried that Fiat could be eyeing more than it can handle. One debt ratings agency recently warned that the Italian marque could be a “fallen angel” for Chrysler because of its own tenuous bottom line.
Analyst Phillippi is among the wary. “I’m trying to make sense of it,” he said, referring to Fiat’s interest in Opel. There’s a long history of such mergers, alliances and acquisitions failing, in recent years, said Phillippi, pointing specifically to the so-called “merger of equals” between Daimler AG and Chrysler.
If GM didn’t relinquish its entire stake in Opel, a partnership with an erstwhile rival wouldn’t be entirely unheard of. The U.S. maker shares a major stake in the operation of Korea’s Daewoo with the Chinese automaker SAIC. And in China, SAIC is teamed up with Volkswagen, as well as GM.
But it can be difficult to form a relationship between two companies that have a history of bad blood, as is the case with GM and Fiat. A decade ago, the two formed a controversial alliance in which they were set to develop components and powertrains together, and among other things, provide a U.S. distribution network for Fiat’s Alfa Romeo brand.
The deal broke apart, several years later, and Fiat’s then-new CEO, Marchionne, forced the U.S. maker to live up to a break-up clause that required it to pay its Italian rival $2 billion. Ironically, that money was critical, at the time, to helping Fiat survive its own near-meltdown.
This time, Fiat might help GM survive – but at a very steep price.