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Fiat's Endless Dating Game

Edward Niedermeyer, an auto-industry analyst, is the co-founder of Daily Kanban and the former editor of the blog The Truth About Cars.
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For several weeks now, Fiat Chrysler Automobiles Chief Executive Officer Sergio Marchionne has made even the most casual observer of the auto industry aware that his company wants to shack up. In a dramatic departure from the discreet, clubby culture of inter-automaker relations, Marchionne seems to be pursuing a merger partner for FCA while following a media-saturation strategy taken right from the Kardashians.

So far, Marchionne's approach has yielded a public snub from General Motors and a "search for alternatives," suggesting that coming on too strong has not been the best way to find a desirable partner. Or perhaps the dating field simply thinks that beneath Marchionne's earnest rhetoric about the virtues of auto industry consolidation lie selfish interests.

In lecturing and cajoling his competitors toward a deal, Marchionne has never been more of the ebullient professor he has always resembled. His pontifications on the need for cost sharing and scale resemble a 101-level seminar on the realities that have been driving consolidation for nearly a century now: automakers struggling to spread high fixed costs over as much scale as possible; a market glutted with interchangeable drivetrains and vehicles; an industry whose weakening returns and worsening cyclicality have not been offset by major reductions in capital-intensiveness. These facts may not dominate the discourse, but Marchionne's public lecturing can't have resulted in many "Eureka!" moments in C-suites or boardrooms, either.

Instead, Marchionne's antics seem to have inspired a mix of embarrassment and concern. It's one thing for the titans of the industry to be confronted by such ugly realities in the privacy of their Wall Street banking partners' offices or some remote corner of the Internet, but it's quite another when the head of a fellow automaker keeps them in the headlines for weeks at a time. Is Marchionne appearing this desperate to find a partner because he really is that desperate? With his company's margins "bizarrely low," its quality problems persistent, its safety record under fire in the U.S., and its union problems just getting interesting, could FCA be in worse shape than anyone thought?

In an industry built on systematically manipulated data, it's always possible that things are not what they seem, but at the moment, Marchionne is probably less worried about FCA staying out of bankruptcy than he is about his own reported 1 percent stake in FCA; the catalyst for such a concern is probably not so much an industrywide downturn than it is the spinoff of Ferrari, FCA's most coveted asset. 

Marchionne has already leveraged his announcement of Ferrari's initial public offering into a $13 million payday, adding to his enormous personal profit from Fiat's no-cost acquisition of a bailed-out Chrysler. But since taking up his public lecture series earlier this year, Marchionne has delayed the Ferrari IPO until at least mid-October and is considering increasing the offering above the planned 10 percent. He previously sent up trial balloons about taking Ferrari further downmarket, a strategy that surely contributed to the departure of longtime brand steward Luca Cordero di Montezemolo. Marchionne's sudden dash for a merger suggests he's looking for a backstop against a post-IPO crash in FCA's share price. Though the Ferrari IPO will be a blockbuster, its proceeds will be rapidly consumed by the black hole where FCA's product pipeline, platform consolidation, advanced drivetrains and automated driving technology investments should be.

Given Marchionne's history of brassy, high-wire antics, does this suggest that something along the lines of a last big score is afoot? With several "off-balance sheet PR liabilities" generated by low production quality, cynical labor relations and political adventuring all suddenly coming due, Marchionne's time and options are running out.

It's impossible to say what a mercurial figure like Marchionne will do next, but two things are for certain: He will walk away from his Fiat Chrysler adventure at least 100 million euros richer, and those of us who appreciate moments of high drama will not be disappointed.

This column does not necessarily reflect the opinion of Bloomberg View's editorial board or Bloomberg LP, its owners and investors.

To contact the author on this story:
Edward Niedermeyer at edward.niedermeyer@gmail.com

To contact the editor on this story:
Brooke Sample at bsample1@bloomberg.net