Fiat Is Still Hungry
We hear that Sergio Marchionne has started talks with GM to buy Opel—and most of GM’s European operations. The Fiat CEO has some appetite. Without so much as a burp after digesting Chrysler last week, he pulls up to another table for what could be an even bigger meal.
If he gets GM and the German government to agree, the deal would give Fiat another new car company, including Chrysler, Opel, and Vauxhall (U.K.), potentially generating some $105 billion per year. Marchionne believes consolidation is inevitable in the car industry and an individual firm can’t be viable unless it produces around 5 million units a year. The GM deal would give Fiat at least a 5.5 million car capacity, and maybe as much as 7 million.
The Fiat-Chrysler-Opel alliance actually makes some sense. GM must find a partner to run Opel (whose Insignia we praised) by June 1 or bankruptcy looms. While it has other suitors, the synergy with Fiat would be better, and it’s a great fit for the latter.
There are lots of problems, however, not least of which is present overcapacity (estimated by the unions to be 1 million vehicles). There will be big debt for the new company—some 20 billion euros if the deal goes through. And then there’s the small matter of convincing the German government to kick in 3.3 billion euros to (maybe) guarantee investor loans to finance the acquisition. Fiat will likely need to terminate thousands of Opel jobs in a bad recession, no easy prospect for the government to face, as the European economy is expected to grow still worse.
So maybe Sig. Marchionne is biting off more than he can chew. It’s always fascinating to watch an overreacher, even at the dinner table.
As my mother used to say, “pigs is pigs.”
Tell us what you think would be the good things about a Fiat-Chrysler-GM combination. What kinds of cars would we get?