Automotive Mergers Needed, Marchionne Says

DETROIT – Fiat Chrysler CEO Sergio Marchionne says there are no immediate plans to merge with another automaker, but says in the future consolidation is needed in the automotive industry.

Marchionne has long argued the capital-intensive industry has too many players and a consolidation would enable it to better mitigate risks and make it more attractive to Wall Street, which he says undervalues automakers.

“The cost of executing (product launches) is in excess of what a mature industry is able to afford,” he says during a media forum at the North American International Auto Show  here. “Look at how capital markets value auto stocks. We are assigned incredibly poor valuation.”

Marchionne says Wall Street formed a pessimistic view of the industry due to the way capital has been used in the past, notably when expensive product launches failed to resonate with the public, leading to massive losses.

The capital market only views premium automakers in a positive light, he says.

“We also have a history of trying to do mergers and (have built) unmanageable monsters,” Marchionne says. “I understand the skepticism.”

FCA may not consolidate with another automaker during his tenure, Marchionne says, but notes the industry needs to embrace the idea in an open way without the bias of CEO egos.

When asked if he thinks other automaker CEOs share his view on mergers, Marchionne quips, “Because of their body posturing, that’s unlikely.”

Meanwhile, Marchionne says there have been no changes to FCA product plans due to falling gasoline prices.The automaker sets product plans based on carbon-dioxide reduction targets, he says, noting it will continue to do so.

“The CO2 stuff is wagging the dog,” he says. “CO2 regulations are what’s driving the portfolio. We don’t look at oil prices, we look at CO2, which is a healthy thing. A painful, but healthy thing.”

He does say falling gasoline prices may lead FCA and other automakers to ask CAFE regulators to alter the timeline of government-imposed fuel-economy regulations during the mid-term review of the policies in 2017.

“There is an argument that says we should slow down the rate of regulations,” he says. “There’s an opportunity (in 2017) to take a look at that,” Marchionne says. “Not minimizing CO2 reduction, but reviewing the application of (fuel-economy) regulations.”

Marchionne says if fuel prices stay low and CAFE timeline requirements remain the same, there is a question as to whether consumers will be willing to pay extra for the technologies needed to reach the fuel-economy targets.

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