Size can be deceiving.

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Can Fiat Chrysler Scare GM Into a Merger?

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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Ever since Henry Ford's mass-assembly line unleashed the relentless logic of scale on the modern auto industry, big automakers have always eaten the small. This Hobbesian dynamic has bred a race of global behemoths, all of which are suddenly eyeing each other nervously as growth prospects evaporate in the once-promising markets of China, Brazil, India and Russia.

Smaller and more troubled than those in the top tier of automakers, Fiat Chrysler would normally be prey for a larger competitor. But its audacious chief executive officer, Sergio Marchionne, has seen a flash of weakness in the eye of one of the great whales, and seems intent on attempting to reverse the natural order by forcing a takeover of General Motors.

What once seemed to be Marchionne's search for a love match has revealed itself to be far more about fear than attraction. With his advances to just about every automaker in the industry going unanswered, Marchionne has settled on the target that shows the most managerial weakness. Though General Motors is far bigger and more profitable than Fiat Chrysler, its plodding leadership has revealed a lack of strategic creativity and tendency to buckle to shareholder pressure. Forget the industrial logic that Marchionne says makes a GM-FCA tie-up inevitable; he is pursuing the much larger firm because he thinks he can get away with it.

This weakness starts at the top: After her initial laudatory tour of the press as the industry's first female CEO, GM's Mary Barra has shrunk from the public eye as GM's massive quality and safety crisis has overtaken its image. Unable to defuse concerns about a GM culture that she has never been outside of, and battered by opportunistic investors seeking to raid GM's giant post-bailout cash pile, Barra's media appearances have been markedly controlled by her PR people. Sensing weakness, Marchionne has asked repeatedly to meet with Barra about a merger, yet her handlers have refused to let the two CEOs into the same room. Though Barra commands a firm large enough to easily feed on a small and struggling FCA, Marchionne's fearlessness and killer instinct has Barra acting like the prey.

In an extended interview with Automotive News this week, Marchionne goads GM's leadership, saying, "Look, I'm a tough negotiator and people know it, right? I am who I am, but so what? Send somebody else in. Send the shark. I'd come off the table."

If GM has a shark that can face off with Marchionne, it's clearly not Barra, whose response to FCA's advances has been to say that GM is still in the process of "merging with itself." Though GM still has yet to fully leverage its massive scale since the U.S. bailout, Marchionne heaps scorn on the concept that a 107-year-old firm might not have had enough time to achieve industrial maturity. After all, FCA also lacks the modular platforms and common architectures that help the industry's most formidable competitors such as VW and Toyota take advantage of their huge size.

Marchionne knows that GM depends on the capital markets for survival. Investors have long grown tired of the industry's underwhelming returns, and without a cornerstone backer like the Agnelli family, which owns 30 percent of FCA, GM's investors might well be swayed by Marchionne's heady mixture of fear and greed.

But should they? As long as both firms still lag the competition in quality, reliability, fuel economy and dealer experience -- as well as platform scale and return on invested capital -- merging them would likely be an operational nightmare. Through sheer audacity, Marchionne the squid may yet bag his whale, yet the struggle is likely send both firms sinking to the depths, teeth and tentacles wrapped in a deadly embrace.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

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

To contact the editor on this story:
Tobin Harshaw at tharshaw@bloomberg.net