Fiat Is Still Hungry

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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?

—jgoods

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  1. Randy
    May 5th, 2009 at 06:15 | #1

    Bhe biggest mistake GM can make is to sell their European operations. Chrysler’s biggest single problem, and the one that put them into bankruptcy, is that they are a company with all their eggs in one basket. The Daimler merger essentially kept them out of Europe, and anyone who’se watched GM can tell you that their holdings outside North America frequently saved their butts when the American market turned down. Chrysler’s fate is fully linked with the North American market, and when that crashed, Chrysler crashed.

    The only way GM can survive selling off their European assets is to free up capital to more agressively pursue the Chinese market. That’s the future for this first half of the 21st century.

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