Why Marchionne wants a bigger war chest

Luca Ciferri is senior reporter at Automotive News Europe.
Fiat CEO Sergio Marchionne wants to build a war chest worth an estimated 2 billion to 2.5 billion euros ($2.7 billion to $3.4 billion) in cash.

He likely will do so by selling Fiat-owned parts supplier Magneti Marelli as well as a stake of up to 39 percent in supercar maker Ferrari to help cover the cost of increasing Fiat's stake in Chrysler to 51 percent from 35 percent by 2013.

Marchionne's willingness to part with such valuable assets, both sales could happen in the next 12 to 18 months according to analysts briefed by Marchionne on Nov. 12, is a stark reminder of what we learned during the recent crisis: He who has the gold, makes the rules.

Marchionne told analysts that companies operating in the post-Lehman Brothers world need a bigger surplus of available cash than ever before. That is because Lehman Brothers's collapse in September 2008 froze credit markets. Suddenly, automakers that were short of cash were unable to refinance their debts.

The French government rescued PSA/Peugeot Citroen and Renault by lending each company 3 billion euros to help survive the credit crunch.

The U.S. government provide $20 billion in loans to help General Motors and Chrysler survive.

Italy did not give a cent to Fiat, which was nearly paralyzed by its lack of cash.

Marchionne doesn't want this to happen again.

Some may say the CEO is willing to give up too much to build his war chest – Magneti Marelli is valued by analysts at 1.2 billion euros to 1.4 billion euros and the Ferrari stake is worth an estimated 935 million euros to 1.4 billion euros.

With 4 billion euros of net debt, building a big cash buffer seems like a very logical move, especially considering that Europe's slow economic recovery could be stalled or reversed by looming austerity programs.