“None of us have had a tweeting president before. It’s a new way of communication and I think we are going to have to learn how to respond.”
Automobiles did not unveil any new products at the North American International Auto Show last week, but it was in the news nonetheless. First it announced a $1 billion investment to expand factories in Ohio and Michigan to build the Jeep Wagoneer, Grand Wagoneer and Wrangler pickup, creating 2,000 jobs in the U.S.
That earned FCA a congratulatory tweet from President-elect Donald Trump. Then Waymo, Google’s new self-driving business unit, announced at NAIAS it will begin testing a fleet of 100 fully autonomousPacifica minivans later this month in Arizona and California, putting FCA in the headlines again.
And now FCA is under fire for allegedly cheating on the emissions of its 3.0L V-6 diesel engine available in the Ram pickup and Jeep Grand Cherokee, which the company vehemently denies and CEO Sergio Marchionne calls “unadulterated hogwash” in a tweet.
Always candid and entertaining, Marchionne held a press conference Jan. 9 during the first day of NAIAS and unflinchingly answered questions from reporters for almost an hour. Here is an edited transcript of his remarks:
Q: President-elect Donald Trump has called for production in Mexico to move to the U.S. and called for a border tariff on goods imported from Mexico. What is your position on this?
Marchionne: We will adjust if the rules get changed. We have no choice in this. We’re not policy setters. It does take time to adjust to this new set of rules that he is proposing. Which I guess we are speculating he is proposing. He’s just been tweeting about it. I’m not sure exactly what the rules are. Let’s wait.
Q: Donald Trump recently tweeted congratulations to you (for announcing a $1 billion investment to expand U.S. factories). Can you say if his election or pressure he has made was a factor in these investments?
Marchionne: I have not spoken with President-elect Trump. I have not spoken to his advisors.
The decision has been in the works for a long time dating back to 2015. There is nothing unusual about this step. It is just a continuation of the retooling of the U.S. manufacturing base to try and nurture the growth both for local markets and international purposes of the Jeep and Ram brands. There is nothing unusual about this. It’s coincidental with all these tweets coming out.
I need clarity. We’re not the only ones that need clarity. The great thing about the (Jan. 8) announcement is that it was painless and owed to this country given what we’ve lived through. It wasn’t some sort of preemptive strike against a tweet. It was just the natural extension of something we started doing a couple of years ago.
Now the cards are laid out on the table. We’ve now confirmed the (Jeep) pickup truck in Toledo, we’ve confirmed the Wagoneer and Grand Wagoneer as being body-on-frame (construction). All the positions we’ve been working on are now in execution mode.
Q: In reference to the tweet by Mr. Trump, how relieved are you that you are on the list of the good people?
Marchionne: You’re telling me I’m on the list of the good people? He hasn’t told me I’m on the list. Do you know something I don’t know? I appreciated the comment he (tweeted). He thanked us for the investment. Our history with Chrysler here is eight years old, but we haven’t forgotten how we got here. We owe a lot to this country. And I think the development of Jeep on an international basis is a sacrosanct moral obligation that we have. We have to protect Mother Goose here. This is where it started and we have to make sure we do all the right things in terms of profitability for Chrysler but also in terms of employment level. I think the fact that we can continue to make midsize and larger vehicles in the U.S. for global expansion is a key part of our strategy.
Q: Are you worried about the possible negative impact of tweets on share price?
Marchionne: I don’t know how to answer questions like this. None of us have had a tweeting president before. It’s a new way of communication and I think we are going to have to learn how to respond.
All of you have been persistent in asking about what (automakers) are going to do about President Trump.
The answer is we’re not going to do anything about President Trump, because he was elected. He is the president of the United States. We will respond to whatever he determines is relevant policy in the United States and we will adapt. And life will go on. It’s no use to moralize about this. There is nothing to moralize. We are carmakers.
Q: Can you comment on using a third party (Google’s Waymo self-driving business unit) and your platform (the Pacifica hybrid minivan) for development of autonomous vehicles?
Marchionne: We are collectively spending an inordinate amount of time interfacing with emerging companies in Silicon Valley just to try to understand the lay of the land and make a call on how we are going to interface with that world. There are multiple solutions available to all of us (automakers). All the venture capital being attracted to many of these potential ventures reminds me of what happened back in the late 1990s and 2000s with the Internet explosion. We need to be careful. A lot of these ventures will die.
There is a very high level of activity among Tier 2 two suppliers to try and bridge current technology with future expectations. We keep looking at these technologies as being potentially integratable into current architectures or those we are developing. A couple of things I’m convinced of: At least some Level 4 autonomy is going to become commonplace, certainly within the next five years. And you are going to see more and more escalation into Level 4 in some version of our cars between now and 2020.
I think ultimately we will have to rely on standard alternative solutions from people who are more relevant in this space than we have been historically. Our objective is to continue working with Google to see how far we can take this. I think their thinking and involvement in autonomy is an evolving concept.
But it certainly is one of the solutions and our objective is to continue to work with Google to see how far we can take this. We need to continue the dialog on that and the fact that we don’t have a preconceived notion about what we want as the outcome we may be the ideal development partner for a lot of these people.
We will continue to have multiple dialogues with people who want to play in this space. We’ll see how far it will take us. I’m still convinced we cannot develop something on the inside that is better or superior than what is available from others.
Q: Is your decision to test 100 autonomous minivans with Google a one-off deal or is the relationship growing?
Marchionne: I want to grow. They’ve opened channels with others, but I think they have every intention to continue to develop the relationship with FCA and find out how far this sharing of the development exercise can be beneficial to them and to us. We are really learning a lot.
Q: Is Waymo like a Tier 1 supplier to you or are you partners? What is the relationship?
Marchionne: That is a very difficult question. They are not a Tier 1 supplier, they are a customer today, who have allowed us to look at what they do, which is very interesting. We have acquired an understanding of the technology. What we are unclear about – and I think they are too – is to what the ultimate business model will be for them. Their involvement in autonomy is an evolving concept. They started off with the idea of carmaking, but I think they have become less enamored with the idea. That’s why we need to continue the dialog.
Q: Who accepts the liability for the autonomous Pacifica minivans once they are on the road?
Marchionne: The liability with Waymo is all theirs. Vehicle functionality is on their nickel.
Q: What is the outlook for future investments in Mexico?
Marchionne: Given the level of uncertainty today associated with the relationship between the United States and Mexico I think it would be incredibly imprudent on our side to try to make commitments to the country.
Q: Does making your model mix even more focused on trucks and CUVs expose you to a risk if the market swings and compact cars or sedans come back in favor?
Marchionne: (Sedans) are not the most financially rewarding investments you can make even in the best of times. It is an incredibly overcrowded market. It is better to stay out of markets rather than come home every day with a bloody nose. And I can tell you that both the Chrysler 200 and Dodge Dart – as great products as they were – were the least financially rewarding enterprises we’ve carried out at FCA in the past eight years. I don’t know of one investment decision that was as bad as these two were.
Q: What do you think of the future diesel engine?
Marchionne: Because of events, I’m not trying to attribute blame or assign responsibility, diesel has now acquired an incredibly bad reputation.
I can tell you in some parts of the world, Europe for one, they would never have been able to make any of their emissions standards objectives in the absence of diesel.
In terms of viability of the technology it is relatively clear to me that diesels are an essential element in the mix of solutions that are required to try and meet emissions regulations. What is happening unfortunately is as we move up the level of technological intervention in diesel with Euro 6 (emissions standards) in Europe, the cost of the technology is going to push diesels right to the edges of what is (economically possible). These engines, fully loaded up with scrubbing equipment, with SCR (selective catalytic reduction) or some type of scrubbing mechanism is going to push the price of diesel solutions beyond the combination of gas and electrical. And I think the real risk of diesel is that it will actually be replaced as an economically viable solution as the result of other technologies displacing it.
I think its future in at least that segment (light vehicles) is suspect. On the industrial side (trucks, tractors and construction equipment) nobody is going to touch diesel. It will continue to be relevant. On the passenger car side, if you ask me 10 years out, I think it will have limited use. A lot of it depends on how costly the technology to clean it up is. Right now it is prohibitive.
I’m going to give you one number that should shock the living daylights out of you. If you look at the transition to move 80% of our diesel engine families to the next level of compliance for Euro 6 in Europe it’s a half-billion euro ($531 million).
These are not variable costs. These are base technology injections and the development of all the strategies to comply with Euro 6 in the final form in Europe. That’s a big number. That’s something that we don’t carry with gasoline engines. We don’t have such massive technology intervention requirements with gasoline engines that we have with diesel. What’s going to kill diesel, it seems to me, is this continuous drain on capital and this continuous skepticism about its value to society. In this latest round of events, without mentioning competitors, have made this an incredibly undesirable product although its usefulness is beyond doubt.
But it now has a (bad) reputation far in excess of its true nature. It’s not a bad thing, it was just misused.”
Editor’s Note: On Jan 11 the EPA alleged the 3.0L EcoDiesel V-6 in Ram 1500 pickups and Jeep Grand Cherokee SUVs use illegal “defeat devices” that allow emissions to exceed federal limits. FCA stands by its diesel-powered vehicles saying they “meet all applicable regulatory requirements,” and that its emission-control strategies do not constitute “defeat devices” under applicable regulations.