In less than six months’ time, Sergio Marchionne’s 14-year reign over the Fiat car business will come to an end. [Please note this article was written prior to Sergio Marchionne’s death and also prior to June 21 when his health seriously deteriorated and he was replaced as FCA’s CEO – ed]
Unlike many long-serving car company executives these days, Marchionne is not being ousted. He is not even leaving, as he remains chairman of Ferrari and CNH Industrial, associated companies that are now separated from Fiat. Now aged 66, he gave fair warning of his intention to stand back some years ago, saying that by 2019 his job would be done and it would be the time for ‘one of the kids’ (the associates he has cultivated, many of whom are not much younger than he is) to take over.
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We don’t yet know who will be chosen. The decision will be made by the board of Exor, the Agnelli family business that is the controlling shareholder of Fiat Chrysler Automobiles. Marchionne will remain deputy chairman of Exor so will obviously have a major influence in naming his successor at FCA. The odds are on one of the following: Richard Palmer, FCA’s CFO; Alfredo Altavilla, head of Fiat EMEA and business development; and Mike Manley, brand chief of Jeep. Palmer, 52, a Brit, is the favourite.
As talented, and experienced, as these gentlemen are, it is difficult to know how well they could fill Marchionne’s shoes. In 2004, when Fiat was in disarray, he was brought in from outside the car business – and the Italian industrial establishment – and given an unusually free hand to turn it round.
Although he headed the whole of the Fiat Group, Marchionne quickly realised that it was the car business that needed the most attention and appointed himself chief executive of Fiat Auto. FCA has a flat management structure, with 23 senior managers reporting directly to the chief executive. Marchionne has no deputy; no-one has been given the opportunity to show that they could run the business as he has.
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Marchionne’s era has been like that of the autocratic motor moguls of old: he has made the decisions and personally done the deals. He earned the right to run everything his way when he gambled, and won, with General Motors to ensure Fiat’s survival in its darkest hour.
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By GlobalDataIndustry veterans still marvel at that deal. In 2000, Fiat and GM had joined forces in car and engine development in Europe and GM had taken a 20 per cent share of Fiat Auto, with a put option to acquire 100 per cent at a time of Fiat’s choosing. At the time, GM saw this as a way of ensuring that Fiat did not merge with any of its rivals and Fiat bosses Paolo Cantarella and Roberto Testore made it clear that they had no intention of selling the whole business. But by 2005, after they had gone and Marchionne was in place, Fiat was in serious financial trouble; a GM takeover seemed the only way out.
Marchionne gambled that, with GM also experiencing a downturn, it would like to be relieved of the put option and, furthermore, that it would pay to get out of the arrangement and hand back its Fiat shares. He flew to America to meet GM chairman Rick Wagoner and managed to negotiate a settlement worth US$2bn – allowing Fiat to return to independence as well as pay the wages.
In Italy, Marchionne became a star overnight. He had started a whirl-wind of reorganisation, casting aside the old guard of executives and promoting bright people from the ranks. Most of the new senior managers were given at least two jobs – typically running a brand as well as a company-wide activity, such as marketing, overseas sales, or research. It is fair to say that a number of them could not stand the pace. Marchionne’s work ethic is relentless and he expects his subalterns to follow. Among the accomplished executives whom he appointed and later discarded were Karl-Heinz Kalbfell, the former sales and marketing chief of BMW, and Luca de Meo who is now the chief executive of Seat.
Marchionne’s dealings with the world outside are unconventional. He is famous for not wearing a suit and tie – although all those who work for him do – and for popping up unannounced at meetings and events. He clearly enjoys banter with the press and business analysts, has an amazingly quick and agile mind and seldom uses the scripts that his lieutenants prepare. His ’round table’ press conferences at international motor shows, involving selected journalists from around the world, are less question-and-answer and more the random thoughts of a clever operator: part-businessman, part-economist, part-philosopher, and part-politician.
Ironically – since he had ensured Fiat’s survival by dissolving the GM deal – Marchionne has been the greatest proponent of mergers, alliances and platform sharing.
Ironically – since he had ensured Fiat’s survival by dissolving the GM deal – Marchionne has been the greatest proponent of mergers, alliances and platform sharing. He has said that he believes that 6 million cars a year is the minimum production level for a truly profitable mainstream motor manufacturer. Accordingly, he had talks with rivals, including Peugeot, Mercedes and even GM Europe, although they came to nothing. In 2008, he told me that he would be happy for every model in the Fiat Auto range to share its platform, engines and other components with other manufacturers. He believes the car makers spend too much on product development (‘capital junkies’), for an inadequate return.
These principles led him to most audacious deal of all. Chrysler, owned by Cerberus private equity after Daimler had pulled out in 2007, was going through Chapter 11 bankruptcy and being supported to the tune of several billion dollars by the US government. Marchionne was perhaps the only person who could see an opportunity from the poor state of Chrysler, which had been starved of new product and was rapidly losing sales.
Over Christmas 2008, he flew to America on a one-man mission with a proposal to the US government and other Chrysler stake-holders: Fiat would provide the management, technology and hardware to develop a new range of vehicles in exchange for 35 per cent of Chrysler (later reduced to 20 per cent). No cash was involved at that stage. He was to set up a global alliance that would become Fiat Chrysler Automobiles (FCA), 100 per cent owned by Fiat, and put them in the big league of motor manufacturers.
Only now, 10 years later, is there the prospect of clearing the debt inherited, and incurred when buying the balance of the shares. Year-by-year he had predicted that FCA would be in a net cash position but it has taken until the end of the current five-year plan for this to come to pass: an appropriate moment for the outgoing chief executive.
While he claims to have met all his published financial targets – except during the 2008 crisis – quite often the timing has slipped. Some of Marchionne’s sales projections have been impossibly optimistic. In 2007, the targets for both Alfa Romeo and Lancia were 300,000 a year each, when they didn’t make that many between them. Later, when Marchionne decided that Lancia was a lost cause (there is now just one model, sold only in Italy), Alfa was expected to do 400,000 on its own; last year, after many delays for new products, it sold 109,000.
The exception is the remarkable success story of Jeep. A target of 800,000 for 2014 had seemed unattainable but was easily surpassed and 2 million is now in prospect. From the outset, Marchionne identified Jeep as the brand with most global potential.
On the cars themselves and the way they are sold, there has been a lot of mind-changing through the Marchionne era. Apart from Lancia, Fiat has been diminished and is now almost totally dependent on the 500 series. Chrysler is similarly reduced and its first Fiat-derived models have now been discontinued. At a retail level, there has been every permutation of intra-company links – Alfa and Maserati, Fiat and Jeep, Alfa and Jeep, Chrysler and Lancia – none of which have endured. The depleted Fiat brand is close to being untenable in the US, just after an expensive revamp of the dealer network – and wrangling about who should sell Alfa Romeos there. The new five-year plan, unveiled at the FCA Capital Markets Day earlier last month, was all about Jeep, Ram, Alfa and Maserati; the two names on the door seem destined for extinction.
Although the FCA corporate headquarters is in London and it can make and sell cars in any number of locations, a few years ago Marchionne had to face reality in the land of its founders. Its factories in Italy were desperately under-utilised and he bowed to political pressure by promising that all the new generation of Alfa Romeos would be made in Italy and the Fiat Panda repatriated (from Poland). Furthermore, the Jeep Renegade was to be produced at Melfi and the Maserati Levante SUV would not be based on the Jeep Grand Cherokee as originally planned but use the same platform as the Ghibli and Quattroporte saloons and be made in Turin.
Over 14 years Marchionne’s reputation has swung backwards and forwards, from being feted as the saviour of Fiat to presiding over the decline of Chrysler and facing calls for his resignation. Such are the changes of fortune for an international business leader.
Overall, how will his time be judged? I think, well.
Marchionne is a maverick who took chances but ultimately delivered on most of his promises.
Marchionne is a maverick who took chances but ultimately delivered on most of his promises. His product decisions – and reluctance to spend the money to develop new cars for brands that really needed them – have not shown the sure touch of his business deals which have increased the share value of his companies by 16 times (6 billion Euros in 2004, 96 billion 2018) and made the motor industry think again about its future. He remains convinced by the economic logic of mega-companies, even if his efforts to merge FCA with General Motors have been repeatedly rebuffed.
There is the impression that Marchionne sees business primarily as an intellectual exercise rather than a way of making things. Some find Marchionne’s tough attitude and straight-talk hard to take but there is no self-congratulation: he doesn’t boast. Concluding the recent FCA Capital Markets Day, he said that FCA’s current favourable financial situation, clearing its once-enormous debt, ‘doesn’t make us better than the others – it just makes us better than we were before’.
Sergio Marchionne stepping down is a significant development but may not signal the end of an era. With his other directorships, he will remain very close to the seat of power at FCA. So perhaps the proper time to assess him will be at the end of the latest five-year plan. By then, the car world – and FCA – may look very different and we will know if the visionary Marchionne deserves the accolade as the greatest automotive leader of his generation.
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