Fiat Chrysler Automobiles CEO Sergio Marchionne’s latest call for industry consolidation looks like a husband seeking his mother-in-law’s help to solve a problem with his wife.
The last time we saw this tactic employed Renault Nissan CEO Carlo Ghosn was in the husband role, activist investor Kirk Kerkorian was the mother-in-law and the goal was to get Renault-Nissan and General Motors together.
In 2006, Kerkorian pushed for the alliance following a dinner with Ghosn during which the CEO said Renault-Nissan was ready to buy a 20 percent stake in GM to cement a partnership.
That husband and mother-in-law team failed as no deal was ever made, but Marchionne believes times have changed dramatically since then.
He just needs his own powerful, influential mother-in-law to help him initiate the megamergers he covets.
Marchionne predicts that carmakers that are reluctant to consolidate will be forced to do so once activist shareholders apply enough pressure. He used FCA’s quarterly earnings conference call to coax investors in the automotive sector to start demanding mergers.
- Download Marchionne's presentation titled Confessions of a Capital Junkie, above left.
Marchionne said Wednesday that automakers have failed to “deliver value commensurate with the level of capital that is being consumed.” He said consolidation is the only way to fix the problem in the short term, adding that automakers could potentially share 40 percent to 50 percent of vehicle development costs, returning 2.5 billion to 4.5 billion euros of capital every year.
GM and Ford executives already have publicly stated they have no interest in joining forces with Marchionne. GM CEO Mary Barra cushioned the blow by saying the automaker is “not going to entertain anything that distracts us.”
GM was very distracted recently when four hedge funds launched a campaign to win a seat on its board of directors for Harry Wilson, a key figure in the restructuring of the U.S. car industry, in an effort to force the carmaker to spend $8 billion on share buybacks.
To avoid a battle with Wilson, GM said it would buy back $5 billion in shares by the end of 2016 and return "all available" free cash flow to shareholders. In response, Wilson agreed to withdraw his nomination to GM's board at its June meeting.
“The activists have started targeting carmakers,” Marchionne said during an interview in February. “At first many boards will try to defend themselves with lawyers and bankers, but ultimately they will have to come to the table to discuss a merger with either us or other large competitors.”
Instead of fighting the activists, Marchionne is encouraging them to act.
With the right mother-in-law, Marchionne, a masterful dealmaker, could turn his rivals’ reluctance into surrender and acceptance.