Auto industry must consolidate says Fiat Chrysler CEO

Posted on 1 May 2015 by Aiden Burgess

Fiat Chrysler Automobiles Chief Executive, Sergio Marchionne, has issued a dire warning to the global auto industry.

Marchionne said the industry faces grave risks if fellow companies don’t start consolidating, and sharing rapidly increasing product development costs.

The Fiat Chrysler CEO made a plea for shrinking the number of players in the auto industry as he delivered a presentation during a two-and-a-half hour call with analysts on Wednesday.

Marchionne made his case for industry mergers during Fiat Chrysler Automobiles first quarter earnings presentation, in which it posted a net profit of $101m well up from the net loss of $193m in the same period last year.

The CEO presented data which showed that it takes an average of four years for automakers to reinvest the total value of their companies into research and development and capital expenditures, compared with an average of 20 years across other industries.

Major automakers such as Fiat Chrysler spent a total of $136 billion on capital expenditures and research and development last year, up from the $85 billion spent in 2010.

During this week’s presentation, Marchionne argued that large-scale integrations were required in the auto industry to sustain the heavy capital investments needed to meet demands for cleaner, safer vehicles.

“The capital consumption of this industry is unsustainable,” he said. “We are risking capital at tremendous rates and the markets are not buying it. We live in a world of our own; this is incredibly insular.”

Marchionne highlighted the main problem was the auto industry spends tremendous amounts on developing proprietary parts such as engines and transmissions, that make no difference to the consumer.

He estimated Fiat Chrysler could save between $2.7bn and $5bn each year by sharing development costs with another automaker, and described the current overspending as “in its purest from, economic waste”.

Marchionne’s petitions for consolidation have received no takers so far amongst other automakers, and has led him to state that he could possibly discuss a deal with Silicon Valley companies such as Google of Apple if traditional automakers ignore his call for integration.

General Motors CEO Mary Bara is one of a number of top auto industry executives who have rejected the notion that it is interested in acquiring or being acquired by Fiat Chrysler.

“We’re already in that top tier, we have a well-articulated plan and we are not going to entertain anything that would distract us from achieving that plan,” she said.