The coming explosion at Chrysler
Fiat's Sergio Marchionne may have to blow up the automaker in order to save it.
By Alex Taylor III
On Wednesday, Fiat-Chrysler CEO Sergio Marchionne will go before the media to reveal his plans for America's number-three automaker.
Detroit has been buzzing about the event for weeks. For one thing, Marchionne has blocked out eight hours in which to tell his story. That makes his appearance a marathon by industry standards.
For another, speculation about Chrysler's inability to survive post-bankruptcy and emerge from the current sales slump as a viable company is rampant. Its market share has fallen below 10%, it has little in the way of new products or alternative-fuel technology, and it is at war with its dealers after loading them up with inventory and then trying to terminate them.
A few new tidbits about Marchionne's plans have emerged in the past 24 hours that are remarkable for their optimism and ambition.
He promises that Chrysler will make a profit in 24 months and possibly break even as early as next year.
That's surprising when you consider that Ford (F, Fortune 500), currently the most successful U.S. automaker, is making no profit forecast for next year and only yesterday predicted it would be profitable in 2011.
Marchionne has based his prediction on Chrysler's greatly-reduced cost base (thanks to bankruptcy) and the relatively conservative forecasts he has made for market size and share. He figures Chrysler can break even with a 9% market share (it is running at 9.2% so far this year) and industry sales of 10 million units (the seasonably adjusted selling rate in October was 10.9 million).
Marchionne believes the U.S. market could climb as high as 11 million units next year, and if Chrysler does well, it could sell stock in an initial public offering. GM, which is considered far more likely to survive, is planning the same thing.
He has expansion on his mind.
Marchionne believes that automakers need to produce at least six million cars and trucks to achieve global economies of scale. The Fiat-Chrysler group currently accounts for production of about 4.5 million units. Analysts familiar with Chrysler's plans suggest it could make up the difference by buying a brand that produces 1.5 million units (GM's Opel would be a big step in that direction) or make a large push into the China market.
He wants to own more of Chrysler.
Marchionne is expected to increase his stake in Chrysler to 35% from 20%. However, it isn't clear whether he will fork over any cash in order to do so. Fiat got its original stake in the American company by offering to share its platform engineering and technology, but no funds actually changed hands.
He is a tough taskmaster.
Brand heads Michael Accavitti (Dodge) and Peter Fong (Chrysler) were abruptly dismissed just weeks after they were promoted. Their sin? They gave interviews at the Frankfurt motor show in September despite Marchionne's order to remain silent.
His work ethic is too hard for Americans
Marchionne is said to sleep only four hours a night and spend the rest of his time working. He expects his subordinates to labor as hard as he does, and some of the Americans aren't happy about putting in 15 hours a day, seven days a week.
He will replace American brands with Italian names
As previously reported, Marchionne is planning a major overhaul of Chrysler's product line by substituting Fiat platforms or entire Fiat products. By the time he gets done -- and details about product plans for 2013 are leaking out -- he will be running what will in effect be an entirely new company.
Gone will be such familiar names as Jeep Patriot and Dodge Avenger. In their place will be Fiats and Alfa Romeos.
Introducing American buyers to all these new brands will be a massive job. If Marchionne can pull it off, he could single-handedly revive manufacturing in the U.S. -- and make himself the greatest turnaround success story in Detroit since another charismatic CEO, Lee Iacocca, saved Chrysler from bankruptcy in 1979.