Sergio Marchionne, chief executive officer of Fiat SpA (F) and Chrysler Group LLC, signaled how important the U.S. market is to the carmakers by keeping direct control of North American operations under the single management team he announced today for the two companies.
“Marchionne’s decision to keep the role of overseeing the business in North America shows that the center of gravity of the combined entity will be in the U.S.,” said Gianluca Spina, chairman of the business school at Polytechnic University of Milan. “The integration process is going extremely fast, as is Marchionne’s style.”
Beyond North America, Marchionne set up regional chiefs in charge of Fiat and Chrysler operations in South America, Europe and Asia, effective Sept. 1. Fiat gained control of Chrysler as part of the U.S. automaker’s 2009 bankruptcy reorganization.
The executives will be part of a “group executive council” of 22 managers including the CEO, Turin, Italy-based Fiat said in a statement distributed today by the Italian exchange. Nine of those executives, excluding Marchionne, come from Chrysler’s operations and one, Alfredo Altavilla, is a Chrysler director.
“We have now reached the right moment to step on the accelerator of the Fiat-Chrysler integration,” Marchionne said in the statement. The council is the highest decision-making body at Fiat outside of the board of directors, the statement said.
Marchionne, 59, aims to merge the carmakers to reduce costs and achieve a target of more than 100 billion euros ($140 billion) in revenue by 2014. The executive said in May that the timing of a merger hasn’t been decided, adding that it’s not likely this year.
Gianni Coda, head of purchasing at Fiat, was appointed to run operations in Europe, Africa and the Middle East. Cledorvino Belini, head of Fiat in Brazil, will oversee South America, Fiat’s most profitable market, and Michael Manley, who runs the Jeep brand, will be in charge of boosting sales and profit in Asia.
Fiat and Chrysler are now a “fully consolidated group,” Exane BNP Paribas analyst Thierry Huon said in a July 27 research note. “We acknowledge that management has done a very good job of putting Chrysler back on track, but we believe that the profitability of this venture in the short term is still too dependent on Brazilian and U.S. car demand.”
Among the 22 executive committee members are some who worked with Marchionne when he started considering the Chrysler acquisition in 2008. They include Stefan Ketter, as head of manufacturing technology; Harald Wester, who has been head of Fiat engineering; Alessandro Baldi, head of Fiat’s treasury, who has been on Marchionne’s staff for more than 20 years, and Altavilla.
Marchionne also put executives on the panel who helped him turn around Chrysler, including Olivier Francois, who had worn duel marketing hats at Chrysler and Fiat, and Richard Palmer, who becomes chief financial offer of the group.
The elevation of Chrysler executives to the executive council illustrates the growing role the U.S. operations play in Fiat’s future, said Joe Phillippi, principal of consulting firm AutoTrends Inc. in Short Hills, New Jersey.
“Chrysler is very, very important and they recognize that there’s a lot Chrysler has, despite the troubles of the past two years,” Phillippi said in a phone interview.
“We have gone through a pretty long dating period here, over two years to get know the organizations and we’ve established all the right relationships between the two organizations to now implement an integration plan,” Marchionne said July 26 in a conference call with analysts.
Fiat increased its Chrysler stake to 53.5 percent July 21. The Italian carmaker expects to hold 58.5 percent of the third-biggest U.S. automaker by the end of 2011, after getting 5 percent in return for developing a fuel-efficient car for Chrysler.
The United Auto Workers union’s retiree health-care trust, a voluntary employee beneficiary association or VEBA, will have the remaining 41.5 percent. Fiat will end up paying about $2 billion to reach the 58.5 percent holding.
Fiat disagrees with the VEBA about the value of Chrysler, Marchionne said July 26 on the conference call. Selling its stake in capital markets remains the best way for the VEBA to “monetize” their interest, he said. Fiat has enough cash for the purchase, the CEO said.
Fiat revised its full-year earnings targets this week after consolidating Chrysler from June 1. Fiat forecasts 2011 earnings before interest, tax and one-time items, which it calls trading profit, of about 2.1 billion euros ($3 billion) and revenue of more than 58 billion euros.