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More automotive mergers ahead?

January 16, 2015
Fiat Chrysler CEO Sergio Marchionne said his company has no immediate plans to merge with another automaker, but he added that consolidation will be necessary in the automotive industry’s future.
Marchionne, speaking this month at the Detroit Auto Show, has long argued that the capital-intensive industry has too many players and that consolidation would enable it to better mitigate risks and make it more attractive to Wall Street, which he said undervalues automakers.
"The cost of executing (product launches) is in excess of what a mature industry is able to afford," he said. "Look at how capital markets value auto stocks. We are assigned incredibly poor valuation."
Marchionne said 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 said.
"We also have a history of trying to do mergers and (have built) unmanageable monsters," Marchionne said. "I understand the skepticism."
FCA may not consolidate with another automaker during his tenure, but Marchionne said 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 quipped, "Because of their body posturing, that’s unlikely."
Meanwhile, Marchionne said 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 said, noting it will continue to do so.
"The CO² stuff is wagging the dog," he said. "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."
Marchionne said 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 said. "There’s an opportunity (in 2017) to take a look at that. Not minimizing CO² reduction, but reviewing the application of (fuel-economy) regulations."
If fuel prices stay low and CAFE timeline requirements remain the same, Marchionne said there is a question as to whether consumers will be willing to pay extra for the technologies needed to reach the fuel-economy targets.