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FCA, VW, Patching up Differences, Could See Joint Opportunities

Volkswagen CEO opens door to “conversation.”

by on Mar.15, 2017

VW CEO Matthias Mueller has been struggling to dig the maker out of its diesel scandal.

Volkswagen CEO Matthias Mueller, apparently picking up on recent comments by his counterpart at Fiat Chrysler Automobiles, opened the door to “a conversation” on Tuesday, something some observers suggest could lead to merger talks between the two companies.

Mueller’s comment, which was made during a news conference called to discuss VW earnings, came barely a week after CEO Sergio Marchionne said a merger between FCA and some other manufacturer “will happen” in the coming years.

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Talk of mergers, acquisitions and alliances in the global auto industry has escalated in the wake of General Motors’ decision to sell its long-troubled German-based Opel/Vauxhall unit to France’s PSA, the parent of the Peugeot and Citroen brands.

(For more on the Opel sale, Click Here.)

The idea of an alliance of any sort between VW and FCA might have seemed absurd just a couple years ago. Marchionne and former Volkswagen CEO Martin Winterkorn were openly scornful of one another, and the German executive routinely riled his rival by insisting VW would be glad to buy the Alfa Romeo brand. For his part, Marchionne repeatedly stated Alfa wasn’t for sale.

FCA CEO Marchionne again raised the prospect of finding a merger partner in Geneva.

Things began to change when, in September 2015, VW was accused by the U.S. Environmental Protection Agency of cheating on diesel emissions tests, touching off a scandal that has so far cost the maker about $25 billion in fines and settlements. It also led to the ouster of a number of senior Volkswagen executives, including Winterkorn.

VW has been an aggressive purchaser of troubled brands over the last quarter century, snapping up everything from the Czech Republic’s Skoda to Britain’s Bentley, as well as Italy’s Lamborghini and Ducati.

Whether it can continue expanding its current portfolio – now consisting of a dozen motor vehicle brands – is uncertain, as it has had to slash spending in the wake of the diesel disaster. But that doesn’t mean all options are off the table.

In the Tuesday earnings news conference, when asked about a possible pairing with Fiat Chrysler, Mueller declared, “I am not ruling out a conversation,” adding that, “it would be very helpful if Mr. Marchionne were to communicate his considerations to me, too, and not just to you.” That was a reference to comments the FCA chief executive made during a media roundtable at the Geneva Motor Show last week.

Almost since the moment Fiat took control of Chrysler following the Detroit maker’s 2010 emergence from bankruptcy, Marchionne has said the trans-Atlantic automaker would need to further expand – or be acquired.

The Italian-born and Canadian-educated Marchionne has been the industry’s most outspoken advocate of consolidation, on the whole, insisting that there are simply too many car companies operating too many car plants. That, he stressed in Geneva, is a recipe for financial disaster during the next global automotive downturn.

(Industry must consolidate, Marchionne declares in Geneva. Click Here for more.)

The prospect of further industry consolidation follows news that Opel (its Geneva stand shown here) has been purchased by PSA.

“I remain as convinced as I was a couple years ago that the aggregation this business is critical,” Marchionne said.

Many industry analysts believe FCA itself not only could, but should, find a partner of some sort. The automaker is operating in the black, but its numbers have been weaker than key competitors and it faces numerous challenges in the years ahead. That includes financing the development of key technologies, such as electrified powertrains and autonomous vehicles.

Marchionne had openly tried to line up a merger with General Motors several years ago, Marchionne joking in Geneva that, “I shamelessly knocked on their door but they never opened it.”

Whether VW might do more than listen to what Marchionne has to say is uncertain. “They have a lot on their plate as it is,” said Michelle Krebs, an analyst with AutoTrader. “It’s clear that Volkswagen needs to focus on profitability and getting the most out of their brands and recovering from the crisis it’s been in.”

(VW brand earnings hammered by diesel scandal. Click Here for a look at the latest numbers.)

One way or the other, Marchionne seems determined to keep peddling FCA, though with only about a year left before the 64-year-old executive has said he will retire, pulling a deal together might land in the lap of his successor.

“Nothing needs to happen before I step down,” Marchionne said in Geneva. “The merger is required, and it will happen, whether it is on my watch or somebody else’s.”

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One Response to “FCA, VW, Patching up Differences, Could See Joint Opportunities”

  1. JAE says:

    This tie-up would be a disaster on SOOOOOOO MANY levels. For my and my co-workers sake I hope it does not happen; even a JV could be very bad. You have to dig deeper than just the passenger-vehicle side of both companies and it appears neither are taking that into account.

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