Tag Archive | "Sergio Marchionne"

Car-Industry Insiders Ready to Retake Steering Wheel

Via The Wall Street Journal

Detroit car makers were rescued last decade by a group of outsiders with scant auto industry experience. Now the insiders are retaking the wheel.

Later this year, Ford Motor Co. Chief Executive Alan Mulally will pass the keys to Mark Fields, a 25-year veteran of the U.S. auto maker and its affiliates. General Motors Co. this year named Mary Barra, who started at the company as a college intern, to replace private-equity executive Daniel Akerson.

Within a few years, Fiat Chrysler Automobiles NV CEO Sergio Marchionne, the Italian-Canadian accountant and lawyer who took over Fiat in 2004, is expected to step down and name a replacement most likely from within its existing ranks.

The departure of the outsiders in many ways reflects the auto industry’s return to health. Directors in the last decade threw out their old playbooks—and in many cases were themselves tossed out—as executives failed to anticipate severe downturns. Bosses tied to the old ways were too plodding and trapped by earlier decisions to break the mold as the landscape changed.

“When things are going well, insiders are a natural place to look. When you are in trouble and needing a turnaround, you go to the outside,” said Sydney Finkelstein, a management professor at Dartmouth College’s Tuck School of Business.

Mr. Finkelstein cautions there is no evidence that outsiders do better, only that they are preferred when directors conclude big changes are necessary.

Outsiders with little ties to the industry orthodoxy, such as former AT&T Inc. Chairman Edward Whitacre, and later Carlyle Group’s Akerson and Boeing Co.’s Mulally, were recruited to bring fresh perspective and their records of success. Mr. Marchionne had successfully run a Swiss conglomerate in metals, packaging and chemicals before joining Fiat.

Often, management experts say, it is the speed of decision making that becomes critical during a crisis.

“The insider knows every reason why [they need] to move slowly, but it is really important in many instances to move quickly,” said Joseph Bower, a Harvard Business School management professor and expert on succession planning. “Companies really do have to reinvent their relationships to the markets and there is a terrible tendency for insiders to take too much time.”

Today, Ford, GM and Fiat Chrysler are profitable, having undergone major restructuring efforts to cut costs and, they hope, the old ways that brought them to their knees, such as keeping factories running to optimize production while being forced to heavily discount the excess output.

So why go back? Mr. Bower says directors look inward once the crisis has passed and choose insiders who have navigated the transition for greater responsibilities. “It turns out that insiders have the great virtue that they know how the place works. They know where real talent is and isn’t, they know how the communication works and how to get things done,” he said.

At Ford, Mr. Fields brings expertise in the auto maker’s global businesses. He has run operations in Asia, Europe and South America. Later, he tackled restructuring at its big North American car-making unit, and has been operating chief for more than a year. Mr. Mulally said in an interview last week that he has full faith in Mr. Fields to continue to execute the company’s business plan.

“I think most companies in the auto industry and their boards today know that what’s really important isn’t whether management is ‘insider’ or ‘outsider,’ but whether management is effective,” said John Hoffecker, co-president of the Americas at AlixPartners LLP, which managed GM’s restructuring during its bankruptcy. “Given the market and competition today, long gone are the days when anything else really matters.”

At GM, Ms. Barra is a veteran at a time when questions about whether the auto giant has changed enough since its prebankruptcy days. Now dealing with a troubled recall of small cars linked to 13 deaths, she is arguing the “old GM” that stumbled into bankruptcy has been replaced, even though most of its leaders are longtime GM employees.

With Ms. Barra taking charge in January, only Dan Ammann, a former Morgan Stanley investment banker who joined GM in 2010, later became CFO, remains with the company as its president. Gone are Steve Girsky, a former Morgan Stanley auto analyst and deal maker, who left after being passed over for the top job, and Chris Liddell, who joined from Microsoft Corp., and whose brash, high-tech style clashed with its executive team.

A changeover at Fiat Chrysler is a few years off, but Mr. Marchionne has signaled he expects an executive at the auto maker will replace him. Soon after taking over Chrysler, Mr. Marchionne assembled an executive council of 20 managers who oversee aspects of the company’s operations.

Harald Wester, who runs Alfa Romeo and Maserati sports car businesses, and Alfredo Altavilla, chief of its Europe, Middle East and Africa operations, are among the contenders, said people close to the company.

“The thing I’m most proud of, in addition to the cars we make, is the quality of leadership I was able to put together,” Mr. Marchionne said in January at the Detroit auto show. “I’m hopeful that with time they’ll mature into superb leaders and that one of them will eventually take my place.”

But guessing when the hand off might take place is the “biggest waste of time,” Mr. Marchionne said. “Buy a lottery ticket, you’ll have more fun,” he added.

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Fiat Chairman Says Marchionne to Remain Chief Executive

(Bloomberg) – Fiat SpA (F), the Italian carmaker that controls U.S. auto producer Chrysler Group LLC, will keep Sergio Marchionne as chief executive officer at least three more years to push company growth, Chairman John Elkann said. Marchionne will be responsible for carrying out a new business plan to be presented in May, Elkann said at a briefing at the North American International Auto Show in Detroit. Fiat and Chrysler together offer a good “bench” of eventual successors to the CEO, Elkann said.

The Italian company said on Jan. 1 that it secured full ownership of Auburn Hills, Michigan-based Chrysler in a $4.35 billion deal that will be the biggest in the auto industry since Volkswagen AG agreed to combine with Porsche in 2009. The accord with Chrysler’s other owner was a step in Marchionne’s efforts since taking the helm at Fiat in 2004 to merge the Turin-based company with a competitor to challenge industry leaders Toyota Motor Corp. (7203), General Motors Co. (GM) and VW.

Any successor as CEO “should be an internal one,” Marchionne said at the briefing. Elkann and Marchionne discussed the need for candidates in a conversation yesterday during which they pledged not to repeat the hasty terms of Marchionne’s 2004 appointment, the CEO said.

In May, Elkann named executives such as Richard Tobin, now chief executive officer of Fiat’s truck and tractor affiliate CNH Industrial NV; Lorenzo Sistino, head of CNH’s Iveco trucks unit; Alfredo Altavilla, Fiat’s European chief; Mike Manley, head of the Jeep brand; and Cledorvino Belini, head of Fiat in Brazil, as managers who have been groomed by Marchionne and could eventually run the company.

Fiat rose as much as 1.9 percent and was trading up 0.5 percent at 6.75 euros as of 3:21 p.m. in Milan. The stock has gained 54 percent in the past 12 months, valuing the carmaker at 8.44 billion euros ($11.5 billion).

The merger that Marchionne is seeking for Turin-based Fiat and Chrysler would enable the manufacturers to pool funds and tighten cooperation between the Italian company’s Alfa Romeo, Lancia and Maserati brands and the Chrysler, Dodge and Jeep nameplates. Fiat is open to additional partnerships with other carmakers such as PSA Peugeot Citroen (UG) and Suzuki Motor Corp. (7269), Marchionne said.

Jean-Baptiste Thomas, a spokesman for Paris-based Peugeot, declined to comment.

Marchionne has said he favors a New York listing for the combined entity. Fiat’s board will look at the subject at the end of January during a planned discussion on the company’s structure, and a new listing for the merged manufacturer is technically possible in the second half of this year, he said today, without specifying a location.

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Marchionne Can’t Deliver 6 Million Predicted Sales With Europe Slump

Sergio Marchionne’s plans to propel car sales at Fiat SpA and Chrysler Group LLC to the 6 million mark he says is needed to guarantee survival may take longer to realize than the chief executive officer has predicted.

Sales will total about 4.9 million autos in 2014, 1 million less than Marchionne’s target for the year, based on the average estimate of 10 analysts surveyed by Bloomberg News, none of whom expects him to attain the goal as a slowing European economy crimps demand.

The CEO plans to combine Turin-based Fiat with the No. 3 U.S. carmaker before the end of 2014 to attain what he says is the “critical mass” required to secure long-term viability, with a forecast for 104 billion euros ($136 billion) in annual revenue then. The analysts forecast he’ll miss that goal by almost 16 billion euros, and that earnings will also fall short.

“Marchionne’s ambition for 2014 is unrealistic without an acquisition, which Fiat can’t afford as it completes the Chrysler deal,” said Hans-Peter Wodniok at Fairesearch GmbH in Kronberg, Germany, ranked No. 1 by Bloomberg among analysts who cover Fiat based on the stock’s one-year return.

The Italian company, which owns 53.5 percent of Chrysler, is seeking to be one of the five or six global carmakers that Marchionne predicts will remain in coming years, according to a presentation on Dec. 9 that ended on the Bruce Springsteen lyric: “Halfway to heaven and just a mile out of hell.”

Fiat fell as much as 2.9 percent and was trading 2.4 percent lower at 3.75 euros as of 2:49 p.m. in Milan, the poorest performance in the Bloomberg Europe Auto Index, valuing the company at 4.72 billion euros. The stock lost about half its value last year, the worst record after PSA Peugeot Citroen.

Fiat-Chrysler together ranked as the world’s seventh- largest automaker in 2010, the last year for which annual figures are available, with 3.6 million sales, putting them just ahead of Peugeot, Honda Motor Co. and SAIC Motor Corp. of China, according to data compiled by Bloomberg.

Four groups — Toyota Motor Corp., General Motors Co., Volkswagen AG and the Renault SA-Nissan Motor Co. alliance — had sales in excess of 6 million cars, while Hyundai Motor Co. and Ford Motor Co. were within 500,000 of that figure.

Fiat’s 6 million sales goal “seems more a slogan than a real target,” said Giuseppe Berta, economic history professor at Milan’s Bocconi University. “The only chance to get there in 2014 is by combining Fiat and Chrysler with a player in Asia, a region where the group is extremely weak.”

While Renault has succeeded in its alliance with Nissan, European carmakers generally have not done well when linking with Asian automakers.

A planned VW partnership with Suzuki Motor Corp. unraveled this year, with both sides accusing the other of not adhering to the deal. Daimler AG, then DaimlerChrysler AG, abandoned a five- year partnership with Mitsubishi Motors Corp. in 2005, after the Japanese carmaker’s losses rose following a series of recalls.

Fiat is pinning its 2014 goals on expansion in faster- growing markets and isn’t planning any acquisitions to meet its target, said a person familiar with the company’s strategy who declined to be identified because it hasn’t been openly discussed. The automaker, which will begin offering its first car built in China with joint venture partner Guangzhou Automobile Group Co. in the second half of this year, may also build a Jeep model at the plant too, the person said.

Fiat led a decline in European car sales in 2011, with deliveries through November falling 12 percent to 886,178, reducing its market share to 7 percent, European Automobile Manufacturers Association figures show. Analysts estimate that Fiat, which also owns Alfa Romeo and Ferrari, is losing 800 million euros a year in the region.

Marchionne said last month that the sovereign-debt crisis may prompt Fiat to revise its operating profit targets for 2012, though any new target should overlap with part of the existing range of 1.6 billion euros to 2 billion euros, excluding Chrysler. Fiat will present forecasts next month with its 2011 results. Marchionne expects Chrysler to post $3 billion in operating profit in 2012.

Fiat will also struggle to reach longer-term targets and may limit investment amid a possible recession in Europe, said Stuart Pearson, an analyst at Morgan Stanley in London.

The carmaker “needs a new plan to raise competitiveness,” Pearson said in a Nov. 30 note to clients, cutting his forecast for 2014 operating profit to 5.2 percent of sales, compared with a range of 7.2 percent to 8 percent given by Fiat in a four-year plan in 2010.

Jeff Schuster, senior vice president of global forecasting at LMC Automotive, said the group will sell 5.4 million vehicles in 2014, adding that a total of 5.9 million is seen only in the “outer years” of the consulting company’s predictions.

“Fiat went through a rebirth and now they’re treading water,” Schuster said. Chrysler, where 2011 sales rose 26 percent in the U.S, “actually is the part of the group that is doing better than the industry gave them credit for.”

The American carmaker, which also owns the Dodge and Jeep brands, said today its U.S. vehicle sales rose 37 percent last month, beating analyst estimates.

Marchionne is struggling to boost Fiat demand in North America, where its revival of the 500 subcompact achieved 21,380 sales through October, less than half the 50,000 target. The model, the first Fiat has sold in the region since 1983, has been available in the U.S. in March.

“I just don’t see the Fiat products being the be-all and the end-all,” said Alan Baum, principal of Baum & Associates, a consulting company in West Bloomfield, Michigan. “The 500 is cute, it’s fun, but that doesn’t sell you volume.”

Still, Marchionne reiterated the overall 2014 targets on Dec. 14 at a presentation of the new Panda subcompact near Naples, adding that the group will sell about 4.6 million vehicles in 2012, with Fiat sales “flat” at around 2.2 million cars and Chrysler’s deliveries increasing to 2.4 million from a forecast of 2 million for 2011.

The CEO hasn’t excluded the addition of another partner and said in September at the Frankfurt Motor Show that “you need to create big car groups,” adding that there is “no imminent” plan for another tie-up.

Marchionne said in April that Fiat will have to “fight for China,” where it is “showing up in the last quarter of the game,” while adding there’s still room to grow.

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Fiat Gears Up, Cautiously

When Fiat SpA launches a new version of its popular Panda city car Wednesday, the Italian auto maker is likely to trumpet it as the first victory in a €20 billion ($26 billion) campaign to revive its manufacturing in its home country.

But, faced with a slowing economy in Europe next year, the car maker risks having to curtail the plan that would more than double production capacity by 2014, according to The Wall Street Journal.

“We need to be cautious,” Fiat Chief Executive Sergio Marchionne said in an interview Tuesday. “We know and have been very clear on what we are doing with the Mirafiori plant [in Turin]. With the other two plants [Cassino, in Italy’s Lazio region, and Melfi, in the country’s south] we will have to watch what happens in the next five to six months before we make full commitments there.”

Thanks to the sovereign-debt crisis and a tempestuous relationship with labor unions, Fiat has already taken its time retooling its Italian factories. Market observers say any further delay could compromise its already-weak position against Volkswagen AG and other rivals in Europe where it has yet to fully renew its aging product offering.

Although its U.S. partner Chrysler Group LLC has enjoyed a strong recovery in sales in the U.S., Fiat has had no such luck in Western Europe, its traditional market. In the first 10 months of 2011, Fiat as a group suffered an 11 percent drop in unit sales, the largest decline among the region’s big auto makers, according to industry figures. Its market share fell nearly a percentage point to 7.3 percent. In the third quarter, Chrysler was responsible for two-thirds of the group’s profit. In Europe, Fiat is unprofitable and is trying to break even by 2014.

And next year doesn’t look promising. At a news conference earlier this month, Mr. Marchionne forecast a flat European car market—at best. “If you were to have a structural failure on the financial market or the euro, then all bets are off,” he said at the time.

Although Fiat has the money to survive 2012 and pay off any expiring debt, it could be forced to slash spending on its plan by more than €5 billion, said Morgan Stanley analyst Stuart Pearson. “It could compromise its investment in product,” Mr. Pearson said.

Under the plant-refurbishment plan, initially dubbed Fabbrica Italia, Fiat aims to boost capacity at the company’s five Italian factories to 1.4 million cars and vans by 2014—part of Mr. Marchionne’s wider strategy of gaining scale through Fiat’s merger with Chrysler, of which it owns 53.5 percent.

Nearly two years after the plan was unveiled, Fiat will show off the new Panda model, made at the Giambattista Vico plant in Pomigliano d’Arco, on Wednesday. “It sets a new bar because this is the most industrially advanced plant that Fiat or Chrysler has,” Mr. Marchionne said. “This is a huge step forward.”

But the second model from the program won’t come out for another year. And this means Fiat will depend on factories elsewhere in Europe—Serbia, for example—to refresh its lineup.

Part of the delay stems from Mr. Marchionne’s insistence on implementing new working conditions governing everything from coffee breaks to overtime before spending a single euro. He even threatened to move production outside Italy if he didn’t get what he wanted, saying that Fiat’s factories in the country had to become more efficient.

In the end, Mr. Marchionne succeeded in persuading workers to vote in favor of the changes at three factories, but this took the better part of a year. And on Tuesday, Fiat said it had reached an agreement with metalworkers unions to extend the new labor contract to all the remaining employees in its home country. The agreement, Mr. Marchionne said, will “allow us to move on and manage Fiat. We have been in gridlock forever.”

Fiat also briefly halted an investment of more than €1 billion at its Mirafiori factory after changing plans for a new model to be made there. The investment in the plant was further held up by a legal challenge from the Fiom-CGIL, the only union to hold out against the new working conditions.

Fiat’s predicament is in part the legacy of decisions made at the start of the financial crisis, observers say. When the crisis first struck in late 2008, the company cut spending and slowed the pace of product development, arguing that it was pointless to bring out new models when the market was in the doldrums. The result, however, is that Fiat has been slowly overtaken by its rivals, which kept rolling out new models.

Mr. Marchionne has acknowledged the danger of delaying new products for too long. “You’re going to tire yourself out of a market if you don’t keep the portfolio alive,” he said during a recent conference call. “The continuous introduction of products…is going to help, certainly in terms of maintaining [market] share,” he said.

And, he added, when it comes to keeping costs down, Fiat has the option it has repeatedly used in Italy of getting workers to stay home on reduced pay for months at a time.

But the bulk of Fiat’s efforts to catch up with rivals will only come to fruition in 2013 when a major overhaul of its product offering for Europe will see it roll out 11 new and updated models. Its refitted factories in Italy will contribute.

For UBS analyst Philippe Houchois, the fact that Fiat has decided to invest in Italy is more important than how much it invests.

He said it is a mistake to focus on the €20 billion figure. “When they announce these grand plans, car makers always highball the numbers,” he said.

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Chrysler Gains Momentum

AUBURN HILLS — Chrysler Group LLC is on track to generate $3 billion in operating profit in 2012 thanks to rising vehicle sales in a recovering U.S. auto market, the company’s chief executive said Tuesday.

The auto maker should see its global sales reach two million cars and trucks this year, reported The Wall Street Journal, and rise 20 percent to 2.4 million in 2012, Sergio Marchionne said in an interview at the company’s headquarters here.

After restructuring in bankruptcy court, Chrysler is able to make money if it sells more than 1.5 million vehicles a year, he said, adding that the break-even point drops to 900,000 cars and trucks in 2012.

“That’s what gives us the basis for making $3 billion next year,” Mr. Marchionne said.

In the first three quarters of this year, Chrysler made $1.47 billion in operating profit. Year-to-date, the company has reported a net loss of $42 million, in part because it was paying interest on U.S. government loans for much of the year.

An increase in operating profit to $3 billion is in line with the business plans Mr. Marchionne outlined for Chrysler in 2009, when Italy’s Fiat SpA took a stake in the auto maker as part of its government-led bankruptcy. General Motors Co., which was also ushered into bankruptcy by the Obama administration, and Ford Motor Co., which turned around on its own, have already seen dramatic rebounds in their bottom lines. For the first three quarters of this year, GM reported $7.7 billion in net income, and Ford $6.6 billion.

Chrysler is benefitting from a far-reaching overhaul of its model line that Mr. Marchionne pushed through in 2010. With improved engines and plusher interiors, its cars and trucks are winning back American consumers. Through November, Chrysler’s U.S. vehicle sales had climbed 25 percent to 1.2 million cars and trucks. In November alone, its sales jumped 45 percent from a year earlier.

In 2012, Chrysler will add the Dodge Dart small sedan, a type of vehicle that accounts for a large chunk of the U.S. market and one that Chrysler hasn’t offered for about a decade. The Dart and other new or updated models, and expanded overseas business, should drive sales higher next year, Mr. Marchionne said.

Another boost to the bottom line has come from Chrysler’s decision to borrow money from a group of banks to pay off the $7.6 billion in loans it received from the U.S. and Canadian governments to fund its operations during its bankruptcy, which ended in 2009. Mr. Marchionne had complained the company was spending too much money on the loans, which carried an interest rate of more than 14 percent. The company spent $1.2 billion in interest payments last year, much of that for the Treasury loans.

For 2010, the auto maker booked operating profit of $763 million and a net loss of $652 million.

Separately, Chrysler officially confirmed Tuesday that it will reopen its Conner Avenue assembly plant in Detroit to start building its Viper sports car, which returns to the auto maker’s vehicle portfolio in late 2012. The plant, which had been idled as part of the bankruptcy and then saved by Mr. Marchionne after he decided to revive the Viper, will employ about 150 hourly workers.

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Former Auto Czar Says Chrysler, GM Far Ahead of Expectations

WASHINGTON — The Obama administration’s former auto czar says General Motors Co. and Chrysler Group LLC are far ahead of what he expected when the government restructured them in 2009.

Steve Rattner served as the administration’s top auto official for six months in 2009. A paperback version of his 2010 book, “Overhaul: An Insider’s Account of the Obama Administration’s Emergency Rescue of the Auto Industry,” was released earlier this month with a new epilogue, reported The Detroit News.

“It’s a story with a happy ending,” Rattner said in a recent interview over lunch, noting he sat down with GM and Chrysler’s new CEOs this summer as he updated his account. “The progress that both companies have made since then is really quite remarkable.”

He especially praised the turnaround engineered at Chrysler by CEO Sergio Marchionne, who also runs Fiat SpA.

Last week, Chrysler posted a quarterly profit of $212 million — compared with a loss of $84 million in the third quarter last year — as its revenue jumped 19 percent to $13.1 billion.

“Chrysler is amazing. I would have never in a million years bet that Sergio could do what he’s done,” Rattner said, praising the freshening of Chrysler’s product line and holding the line on cash flow and bottom line. “They had a rough start, because we didn’t leave them with a lot.”Marchionne told Rattner that Chrysler was focused on allocating scarce capital. “Everything is vetted, flicked, scrubbed. There’s continuous analysis of the alternatives and the cheapest way to get an answer,” Marchionne said, according to the new epilogue.

The Treasury extended Chrysler a $12.5 billion bailout, and recovered $11.3 billion. By contrast, it gave GM a $49.5 billion bailout, and has recovered $23.2 billion. At current trading prices, the Treasury would lose more than $13 billion on its GM bailout.

Rattner says in the new material that after GM’s successful IPO in November 2010, he got emotional: “The cameras showed the first trade occurring on the floor of the New York Stock Exchange. I teared up and almost began crying.”

Obama’s advisers had been divided in March 2009 whether to save Chrysler, but Obama was persuaded by Rattner and others to do so — if Chrysler could tie up with Fiat. “He made all the right decisions, stood behind us and I think he deserves credit for it, and that’s what I wrote in the book,” he said. “On autos, (the White House) worked better than I ever would have imagined.”

Rattner said the auto task force told Larry Summers, who was then the head of the National Economic Council, that the government could expect to hold its GM stock “for five to eight years,” based on a study of other government interventions in the auto sector, especially in Europe.

Rattner said GM’s stock could still jump, noting he had mixed feelings about the government’s sale of nearly half of its stake at $33 a share. “The movie’s not over yet. Two years from now, the stock could be at $60 and everyone will say why did we sell any?”

He said he doesn’t believe the government’s 27 percent stake is costing GM sales, and he thinks the government should wait until the stock price rises.
On Monday, GM’s stock fell 60 cents to $25.84, down 2.3 percent.

In the epilogue, Rattner predicts that including the government $17.2 billion bailout of Detroit-based lender Ally Financial Inc., that the “current potential recovery for taxpayers” is all but $10 billion of its auto industry bailout.

“If in the end taxpayers spend $10 billion on the auto rescues, it seems a small price to pay for averting a major economic calamity,” Rattner wrote.

In retrospect, Rattner wishes that the government hadn’t given 10 percent of the equity in new GM that exited bankruptcy to the old GM bondholders. He says those claims should have been “worthless.”

He also said that the auto task force perhaps should have modified GM and Chrysler’s “overly generous pension plans.”

“In my postmortems with auto industry leaders, I was gratified to hear that they felt we had gotten nearly all of it right. Maybe we should have killed GMC, as some had suggested during the restructuring,” Rattner said.

Rattner is managing New York Mayor Michael Bloomberg’s fortune and the funds for his charitable foundation. He also writes a lot of op-eds, regularly appears on TV and makes speeches.

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