Blog: Dave LeggettFiat's unpalatable medicine

Dave Leggett | 26 May 2009

I would imagine that Sergio Marchionne knows how to conduct himself when meeting politicians. There are certain buttons to press, levers to pull.

He can start off by setting the grim scene, talking of a wave of unprecedented consolidation in the global auto industry that will be wrought by this recession. It's a subject he has expanded on many times before. He can paint a picture of defunct brands, shuttered plants, scores of unemployed and shock waves that spread out through lost manufacturing to inflict lasting economic damage.

But not everyone will fail, he'll say. There will be survivors. And the survivors will be the ones who plan effectively for the post-recession world. Manufacturing capacity has to go – it is simply unsustainable, he'll implore, making it clear that anyone who says anything else is an enemy of sound business logic.

He'll say that high volume is key, that a million units a year per car platform is a minimum requirement and that big groups that can share development costs are the way forward, now more than ever.

Those volume makers that don't have sufficient scale and global footprint face, at best, a long decline, he'll say. And more jobs will ultimately be lost when Opel is finally gone.

If it becomes part of a bigger vehicle manufacturing group, it can survive and thrive, he'll argue. The real choice he's likely to present comes down to this: some pain now or more pain later. And the eminently qualified expert surgeon who chops off the leg to ensure the patient survives? That's Sergio Marchionne and he, from his vantage point at Fiat, sees clearly what has to be done. He talks a good talk.

Is he right? The other bidders for Opel/Vauxhall are coming at it from different perspectives. Magna's bid has won some support and involves something that Fiat's does not: cash. Magna is an interesting company. A self-styled 'Tier 0.5', it has long held ambitions to get further into carmaking. But does it have what it takes to take Opel/Vauxhall forward?

Marchionne's experience with Fiat and his industrial logic can't easily be dismissed. Capacity will have to go, one way or another. An uncomfortable question is, where? Politicians don't like signing up to things – like car factory closures – that are manifestly unpopular. Even Marchionne has had to tread lightly with German politicians.

My money is on Fiat to be named preferred bidder by the German government though, after Marchionne has provided some reassurances on jobs. The industrial logic may be sound, but political realities cannot be completely ignored either.

GERMANY: Opel decision imminent


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