Fiat Chrysler chief Sergio Marchionne is absolutely right in his call for industry consolidation.
But he is absolutely wrong about what needs consolidating.
In a call with analysts last week to discuss Fiat Chrysler Automobiles’ first quarter earnings, Marchionne went rogue and launched into a discussion further pressing his case for automaker megamergers. Car companies, he believes, must make more efficient use of their capital.
It makes no sense, Marchionne argued, for dozens of automakers to spend money developing the same technologies.
My colleague Larry P. Vellequette listened to Marchionne’s entire 2½-hour spiel and reported: “Marchionne said automakers could potentially share 40 to 50 percent of vehicle development costs, returning 2.5 billion to 4.5 billion euros of capital every year. To illustrate his point, he noted four-cylinder engine development, which cost each automaker billions with a negligible impact on buying decisions. ‘Consumers could not give a flying leap,’ Marchionne said, about whose four-cylinder engine is in a vehicle.”
Actually, consumers do care about engines. More than 5 million new-car buyers cared enough to pay Ford a premium for the EcoBoost engines in their car or light truck. Ford has done a masterful job positioning its line of turbo engines, so much so that in just five years, the company has sold more turbocharged engines in North America than any other automaker in history.