From SM to Employees

Sergio Marchionne sent the following letter to FCA employees:

Dear Colleagues,

As you know, 2015 will be FCA’s first full year of operation as a combined global group and, as our first quarter results show, we are starting the year with strong…

[ This is a summary only. Visit http://www.allparnews.com for the full story. ]


Source: Allpar

Detroitnews.com : GM CEO Barra dismisses idea of Fiat Chrysler merger

General Motors Co. CEO Mary Barra Thursday seemed to dismiss any possible merger with Fiat Chrysler Automobiles and told analysts Thursday that senior leadership is entirely focused on executing GM’s profitability plans.

Fiat Chrysler CEO Sergio Marchionne on numerous occasions has noted that consolidation of the auto industry is a necessity going forward. He has reportedly said the company is open to a combination with GM or Ford Motor Co. .

Barra, in response to an analyst question on the reports about Fiat Chrysler’s interest and overall consolidation of the industry, said “we’re not going to entertain anything that distracts us” from meeting the company’s short and long-term profitability plans.

“We laid out a very comprehensive plan that takes us through the early next decade, with milestones next year and beyond,” Barra said. “As we’ve communicated, we think there’s tremendous opportunity for us within the business as we look at efficiency measures, as we look at truly achieving the scale that we should have because we’re already in that top tier of the auto industry, among the largest OEMs.”

Barra said there may be some need for consolidation for other automakers in the industry, as they may face challenges over the next decade with technology investment costs. But she said GM has made technology announcements around autonomous vehicles and has a lead in 4G connectivity.

Joe Hinrichs, Ford’s President of the Americas, said Tuesday that Ford wasn’t interested in a merger with Fiat Chrysler.

“We’ve very happy with where we are,” Hinrichs said. “We’re not looking for a partner. We’ve spent the last eight years or so consolidating Ford as one company. We all recognize the value and need for scale … we believe we’re big enough to do that with our volume as is.”

From Allpar.com : Consolidation and the Impact on Chrysler Powertrain

After Fiat Chrysler Automobiles presented their financial reports and prognostications yesterday, CEO Sergio Marchionne explained why he desires more consolidation, implying that Chrysler (and Fiat) may lose some of their unique engines and transmissions. In essence, Mr. Marchionne said:

  • His past statements do not mean that FCA will die without merging, that he wants a big deal before he retires, etc., but are general comments on the auto industry.
  • Automakers have terrible returns on capital (several slides showed this; FCA shares after his speech).
  • One reason for these poor returns is duplication of effort.

deals

Mr. Marchionne showed numerous types of alliances, from simple single-product cooperation to all-out mergers,  with successes and failures marked in red and green (above). He said that the smaller the effort, the more likely success seemed to be. This argues against FCA merging with a major automaker, though combining with a minorone, such as Suzuki, may be safer.

He said that nearly half of the investment in a new car (industry-wide) was based on things that were not major differentiators — most engines, transmissions, etc. Chrysler, for example, uses the same transmissions as other companies through nearly its entire line:

  • ZF automatics used by BMW, Range Rover, etc., in Cherokee, ProMaster City, Charger, Challenger, 300, and Ram
  • Hyundai automatics in Dart
  • Tremec manuals in Viper and Challenger
  • Mercedes automatics in Wrangler

Meanwhile, FCA sells its own diesels to Suzuki; they are very popular in India, where Fiat barely sells any cars at all.

split

According to Mr. Marchionne, across the industry, vehicle R&D is 40% of development cost; powertrain R&D is 15%; vehicle tooling is 35%; and powertrain tooling is 5%. (The rest is around 5%.)

Mr. Marchionne’s discussion is almost certain to be misinterpreted by analysts and pundits. That said, it is probably a sign of things to come. Chrysler may not be developing its own new transmissions for some time.  If this is true, the expertise required will disappear in time. Turin is still likely to keep working on their own “automated manual” style transmissions, though these can also be licensed, while Auburn Hills will keep working on hybrid and electric solutions.

Even as he made this speech, FCA’s actions ran counter to his statements. Turin uses Microsoft for telematics software, while Chrysler uses QNX; while there’s a need for differenthardware, there’s no need for different firmware. Likewise, rather than using Maserati’s version of the Chrysler V6, Alfa Romeo will be using “a Ferrari V6,”  even as Ferrari is being spun off.

Fiat also has its own lines of transmissions, including dual-clutch automatics, manuals, and reportedly a new conventional eight to ten speed being developed to fit into the new Alfa Romeos, which rumor claims will be mid-engined designs that do not have the space for the ZF.

Mr. Marchionne has said that he wants to avoid duplication of effort and to have few platforms supporting many cars, but he has also allowed deviations to meet brand needs. Most of the brands under his care have far different audiences and needs, giving him a much tougher nut to crack than Toyota or Volkswagen-Audi Group.

engine-overlap

It still seems that Chrysler will not be working on its own transmission to replace the ZF any time soon, if at all, and that the company is probably willing to jettison other Chrysler components if they can find a collaborator. In the meantime, one or two new four cylinder families are in the works — and no matter who actually creates them, credit will no doubt go to Alfa Romeo and Ferrari.

In the long term, it appears from this chart that Mr. Marchionne thinks that FCA should be sharing out engines and transmissions with another automaker, or using those of another automaker, or both.

There seems to be the most overlap in three and four cylinder mainstream engines, but FCA is still working on a new generation of their own powerplants rather than borrowing a design.

Allpar still has no reliable information on whether Chrysler is creating a new V8 to replace the Hemi, and the engine-overlap chart may explain why.  The transmissions overlap chart included the notation: “Potential elimination of up to one billion euros in duplicated engines and transmissions spending per year.”

From Detroitnews.com: Marchionne on consolidation: ‘Something needs to give’

Fiat Chrysler Automobiles NV CEO Sergio Marchionne gave an impassioned defense Wednesday of his belief that the auto industry must consolidate to achieve long-term viability.

The maestro behind the merger to create Fiat Chrysler said increased consolidation and collaboration would save billions of dollars annually by shedding unnecessary duplications — producing the best results for the companies, investors and consumers.

“These were not hallucinations of somebody looking to grandstand in the industry,” he said in a three-hour conference call with global industry analysts. “We have spent a lot of time trying to understand what makes this machine tick. And the machine can tick a lot better if certain things happened.”

Executives with both Ford Motor Co. and General Motors Co. have dismissed the idea of a merger with Fiat Chrysler.

Marchionne said that if no other auto company is interested in a tieup, he wouldn’t count out a partnership with a technology company such as Google.

“I’ve always been intrigued by the notion of having technology disruptors show up in the marketplace and change the paradigm,” he said. “If they show up and they are truly successful, with their cash piles and know-how, they could fundamentally hurt this industry.”

Major automotive industry mergers and joint ventures don’t always result in long-term successes. Many fall apart before producing significant results. Marchionne, while outlining a number of unnamed industry tie-ups and mergers, said this is not the case with Fiat Chrysler.

“The reality of all this is the choice to do this or not to do this is a matter of leadership style and capability,” he said. “The reason why others have failed is because those two elements were not available.”

He said executives have “matured” and that should “not be an issue going forward.”

Combinations of Fiat Chrysler with another large automaker would produce savings of 2.5 billion euros ($2.8 billion) to 4.5 billion euros ($5 billion) a year, according to the presentation.

“It’s fundamentally immoral to allow for that waste to continue unchecked,” Marchionne said. “We need to do something.

“Something needs to give. It cannot continue like this.”

He stressed that 70 percent of the benefits are through capital investment costs related to technology and product development, and would not necessarily reduce plant employment or dealers. They would just eliminate “duplicate investments,” which he said could be better spent guaranteeing a “competitive advantage” that a company needs to “stay in this business long-term.”

‘Pitch the problem’

Marchionne said top automakers spent more than 100 billion euros ($111 billion) for research and development of new cars and trucks in 2014.

“The capital consumption function of this industry is unsustainable,” Marchionne said. “It really does not add any value to society or consumers.”

His 25-page presentation released Wednesday ahead of the company’s first-quarter earnings call was called “Confessions of a Capital Junkie: An insider perspective on the cure for the industry’s value-destroying addiction to capital.” Marchionne said the goal of it was to “pitch the problem.”

Some of the investors and analysts listening to the conference call from Brazil commended Marchionne for the presentation. Others questioned the point of it, when those who have power to consolidate already know the purported advantages and haven’t taken action.

“Does this road map have any airplay at all with the boardroom and management teams on their own or is it too soon to tell?” questioned Morgan Stanley analyst Adam Jonas. Marchionne said it might be too soon to tell, and the idea was to “provide a factual basis” for some of the comments about the need to consolidate.

Auto analyst Max Warburton of Bernstein Research noted that while most financial analysts probably agree with Marchionne, they’re not the ones to make consolidation happen.

“The capital market isn’t going to be able to do anything to influence this,” Warburton said.

“I’m still scratching my head as to who this presentation is aimed at. There’s probably five or 10 men who can make this stuff happen, you probably have them all on speed-dial.”

Marchionne said it is the responsibility of industry analysts, who analyze the automakers for investors and executives, to direct the flow of capital in the proper way. He said he wants the capital market to engage and help propel the industry’s change.

“Every time we wait for a better time, there will be 2 billion euros a week that will be gone out the door,” said Marchionne, who has often said Wall Street undervalues the automotive industry.

Mainstream automakers, according to the presentation posted online in conjunction with the call, had a 7.8 percent return on investment cost in 2014. That compares to other sectors such as telecommunications at 11 percent; aerospace and defense at 16 percent; and consumer and retail at 22 percent.

Fiat Chrysler on Wednesday reported a profit of 92 million euros ($99 million based on March 31 exchange rate) for the first quarter on increased revenue of 19 percent to 26.4 billion euros ($28.4 billion).

FCA to increase margins

The company, during the call with auto industry experts, said it plans to increase its profit margin in North America to 5.5 to 6 percent by year’s end, up from 4 percent in 2014 and at least a 0.5 percentage point increase from the first quarter of this year.

Fiat Chrysler Chief Financial Officer Richard Palmer said the automaker expects to achieve a 7 percent margin by the fourth quarter of 2015 — putting it more in line with Detroit crosstown rivals GM and Ford, which he said offered buyers better trim options, lower dealer discounts and better residual values.

GM reported a margin of 8.8 percent for the first quarter of 2015, with plans to achieve 10 percent by 2016. Ford reported a 6.7 percent margin for the first quarter.

Palmer said opportunities to increase FCA’s profit margin include improvements in the pickup segment, better balanced fleet operations — and reduced overall incentive spending, including dealer discounts.