Rising profits and record sales are no protection from predators – or a boss trying to extract value before it’s too late.
Just ask the fine folks at Fiat Chrysler. Their company is in play for the fifth time in roughly 20 years.
From independence, it went to the Germans, then back to the Americans. They drove it into bankruptcy, and then to the Italians of Fiat and Ferrari fame. Then they tried to entice General Motors and Volkswagen into deals nobody wanted.
And now the Chinese are coveting the valuable Jeep brand – if, that is, CEO Sergio Marchionne doesn’t keep it and instead spin off luxury brands Maserati and Alfa Romeo.
It’s all so dizzying. But that’s the point. Complicated groups of automotive brands are a liability in today’s world. That’s especially true when the collection doesn’t include high-margin luxury brands selling at high volume like Audi, BMW or Mercedes-Benz.
However it shakes out, the status quo in Auburn Hills probably is coming to an end, resurfacing a perennial Chrysler problem: it’s too small to compete effectively and financially with the industry’s largest players. That’s why it agreed to the absurdly named “merger of equals” with Germany’s Daimler-Benz. And it’s why ol’ Sergio is seeking alternatives as the self-driving car race with Silicon Valley intensifies.
He knows the gulf separating the global industry’s “haves” from its “have-nots” is widening and that he’s a “have-not.” He knows it exposes weakness in balance sheets and technical capability. He knows it forces companies like Fiat Chrysler to pursue mergers or an outright sale to unlock whatever value they can before it’s too late.
Fiat Chrysler partnerships with Google’s Waymo or BMW and Intel are bids to stay in an expensive, technology-driven game. But they’re also tacit admission Fiat Chrysler does not possess the capacity to compete for leadership in what some on Wall Street rightly call Auto 2.0.
Look, it’s not popular to say, but it’s true: Automakers are in business to make money for their shareholders. They’re not in business to provide jobs for people, pensions for retirees and support for communities, even if they do.
Eight years into the post-bailout expansion, Fiat Chrysler is not making enough money consistently enough to finance the core business, to make smart bets on mobility, and to deliver a competitive return to its owners. In a business that still drives on scale, Fiat Chrysler doesn’t have enough.
Yes, eight or so years into Detroit’s recovery, profits are fat and sales are slightly down from record levels. In the Old Detroit, those would be perfect conditions for this town’s greatest danger – complacency.
Instead, there’s churn, and that’s good. Ford replaced its CEO after less than three years on job. General Motors is exiting big chunks of business around the world and redeploying the capital where it can produce higher returns. Both are trying to make smart bets on autonomy and electrification because they know Auto 2.0 is coming and they cannot afford to be left behind.
Fiat Chrysler sees the same things. That’s why it’s looking for the exits.
Daniel Howes is a columnist with The Detroit News. Views expressed in his essays are his own and do not necessarily reflect those of Michigan Radio, its management or the station licensee, the University of Michigan.