Will Fiat Chrysler be bought by the Chinese?
In today's political environment, a sale of Fiat Chrysler, the Italian-American automaker, to a Chinese company seems far-fetched. But analysts say it could happen. Here's why: USA TODAY
Nearly a decade after he helped rescue Detroit's third-largest automaker from liquidation with the help of a government bailout, Sergio Marchionne has made Fiat Chrysler healthier, wealthier and wiser.
But despite a return to profitability and a vastly improved product lineup — not to mention major U.S. investments that have drawn President Trump's praise — the Italian-American automaker's future is shrouded in uncertainty again. The topic is sure to surface as Marchionne is set to meet with reporters at the North American International Auto Show in Detroit.
Fuel economy regulations and the advent of self-driving vehicles are demanding major investments that put the automaker at a disadvantage against much bigger competitors that have more capital to fend off long-term threats.
Marchionne has been seeking a sale or merger of some kind with another automaker for years — but his efforts to seek an accord with crosstown rival General Motors, for example, were rebuffed.
For the famously maverick and visionary CEO to cement his legacy as one of the industry's great turnaround artists and still meet his goal of retiring after 2018, he may have to find a willing suitor.
That could mean putting Fiat Chrysler's iconic American brands — including the family jewel, Jeep — into the hands of a Chinese automaker, risking a showdown with Trump amid political consternation over U.S.-China trade.
With the Detroit auto show opening this week, pressure is mounting on Marchionne to identify the company's next move or delay his longstanding plan to step aside.
Sanford Bernstein auto analyst Max Warburton, one of the industry's most closely followed experts, predicted Thursday that Marchionne might have to stick around.
"Can he really let go?" Warburton said in a note to investors. "There's no real buyer for FCA and no internal successor."
Warburton suggested that Fiat Chrysler might bring in an outsider as CEO but that Marchionne could stay on "as a very 'hands-on' executive chairman."
The automaker has not said who will succeed Marchionne, but he has said it will likely be someone from inside the company. Contenders could include Chief Financial Officer Richard Palmer, Jeep and Ram brand chief Mike Manley and Alfredo Altavilla, chief operating officer for Europe, Africa and Middle East.
The company declined to comment, referring instead to past statements.
But it will be tough to make the transition if the company's fate has not been decided.
In 2017, Chinese automaker Great Wall reportedly expressed interest in acquiring Jeep, but Fiat Chrysler said at the time that no discussions had occurred between the two.
Also last year, Chinese automaker Guangzhou Automobile Group, or GAC, which already makes Jeep and Fiat brand vehicles in China through a joint venture, said it is interested in deepening its ties to Fiat Chrysler as it eyes the U.S. market.
GAC executives are set to attend the auto show in Detroit, potentially sparking additional speculation about the company's American ambitions.
For Fiat Chrysler, a sale to a Chinese buyer could generate a political firestorm. Selling Jeep, which traces its lineage to the Army jeeps that won World War II, to the Chinese might draw the ire of Washington, especially in light of Trump's tough talk on vehicles made in foreign markets but sold in the U.S.
But Chinese ownership isn't necessarily a bad thing. Volvo was sold several years ago to Chinese automaker Geely, providing the backing needed for the Swedish automaker to thrive internationally.
"With the right parent company or deep pockets, you can do a lot of really great things, and you can point to Geely as an example of what can go right with a Chinese owner," AutoPacific analyst Dave Sullivan said.
Sullivan noted that the usually quotable Marchionne has "been very quiet for quite a while now, which is not normal" for him. "If there is something in the works, he may not be able to comment on it."
The state of affairs
Still, analysts are quick to note the challenges of removing Jeep and Ram from the company's stable, warning that the company would be left with several struggling brands, such as Dodge, Chrysler and Fiat.
After stoking speculation with merger talk for years, Marchionne said in October that no appropriate suitors had come forward. He said it would be wrong to assume the automaker's future “hinges on the ability to do a deal" because "it will continue to make money."
To be sure, the current picture for Fiat Chrysler is indeed rosy.
Despite an 8.6% drop in U.S. sales in 2017 — which was primarily tied to a decision to reduce sales to non-retail customers — Fiat Chrysler's U.S.-traded stock rose more than 140% from the beginning of 2017 through Thursday.
That meteoric rise included a sharp jump in the first week of January, prompting speculation that a potential acquirer could be buying shares. The company did not comment on the possibility.
But the automaker's finances have also looked increasingly promising. Its third-quarter profit jumped 50% over the year-earlier period, and the company is rolling out new SUVs and trucks at the Detroit auto show, including profit-beasts such as a refreshed Jeep Cherokee and a new Ram pickup.
On Thursday, the company announced plans to spend $1 billion to move production of Ram heavy-duty trucks from Mexico to the Warren Truck Plant outside Detroit, adding 2,500 jobs in the process. The announcement included the promise of $2,000 bonuses for all company employees in the U.S., except for senior leadership, after the new U.S. tax law gave the automaker a financial boost.
Fiat Chrysler pared its compact and midsize car lineup by killing the Dodge Dart and Chrysler 200. But it faces the big costs of developing and selling electric cars that it now lacks to meet tougher fuel-economy standards.
Despite talk that Trump will loosen U.S. fuel-economy rules, Kelley Blue Book analyst Rebecca Lindland said Fiat Chrysler can't count on it. The standards are unlikely "to change all that dramatically," Lindland said.
Also, the industry's expected transition to self-driving cars is problematic for a company that isn't as large as its competitors and thus doesn't have the financial heft to make a big investment in the technology without severely compromising profits.
For now, Marchionne has chosen to strike a partnership with former Google car company Waymo to convert Chrysler Pacifica vans into self-driving vehicles instead of aggressively pursuing autonomous cars solo.
Analysts think Marchionne may leverage Fiat Chrysler's stronger financial position to work a deal.
Morgan Stanley analyst Adam Jonas predicted that 2018 might be the first year the company’s profitability “achieves its full potential, setting the stage for potential strategic actions.”
Follow USA TODAY reporter Nathan Bomey on Twitter @NathanBomey.