Sergio Marchionne revived a moribund Fiat, showing an early taste for hardball by squeezing $2 billion out of General Motors to end their troubled alliance. He repeated the feat with Chrysler during the meltdown of the American auto industry in the mid-Aughts. Marchionne backed the Treasury Department into a corner, acquired the collapsing Detroit automaker for free, and helped transform it into the global force of Fiat Chrysler Automobiles (FCA). And he did it all while clad in his signature dark sweaters and jeans, a Steve Jobs-like wardrobe that left his analytical, philosophical mind free for more-important matters.
It’s fitting that tributes to the Italian-Canadian executive continue to pour in from around the world following his death in Zurich; Marchionne was the kind of international, dynamic, old-school leader that’s an increasing rarity in an industry filled with boring, button-down and buttoned-up execs reading from teleprompters. In the wake of Marchionne’s death, some rose-tinted takes are understandable. Yet hagiography serves no one—especially when it’s coming from industry and Wall Street analysts, or journalists tasked with giving us an objective take on what Marchionne and FCA actually accomplished. That balanced, warts-and-all analysis has been hard to come by. Consider this the correction.
Please don’t misunderstand: Marchionne’s legacy of wizardly corporate turnarounds speaks for itself. But we still need to be honest about the company, which—in inimitable Chrysler style—may be on another boom-and-bust cycle.
To the good: The globe-hopping Marchionne was an incredibly astute and personable executive. The chain-smoking, espresso-swilling exec was also famously driven, and he drove FCA underlings to match his commitment, often at the expense to their family and personal lives. He demanded that executives be reachable 24/7, except for when they were in the air. The hard work and accountability paid off: Marchionne led the former Chrysler LLC from basket case to a combined Italian-American enterprise that posted $4.4 billion in pre-tax profits last year. Jeep’s global sales have more than doubled since 2013. As a native Detroiter, whose brother still has a skilled-trades factory job at FCA in part because of Marchionne, I’ll be the first to say “grazie.”
But to hear some analysts tell it, Marchionne’s stewardship of Chrysler was nothing short of a “miracle." Yes, I’ve actually heard that word used. Yet there wasn’t much miraculous about it, unless we’re talking preordained glory: A sun that shone on FCA courtesy of the U.S. government, a sweetheart of a deal and particularly fortuitous timing and circumstances.
Let’s review: With Chrysler LLC the quintessential last-kid-picked on the soccer team—no other suitors were on the sidelines—Marchionne’s Fiat made a bold, zero-money offer to become Chrysler’s primary stakeholder in 2009. The Treasury Department blinked, largely to help save up to a million industry jobs (including at General Motors and other automakers and suppliers) that were threatened by the global financial crisis. So Fiat and Marchionne inherited Chrysler and its assets, however troubled—brands, factories, headquarters, engineering, design, a dealer network—without investing a penny, following a government-lubed zip through bankruptcy court. And not merely “free,” but free-and-clear of plenty of pesky secured debt, pension obligations, and 25 percent of its bloated dealer network. Marchionne’s deal-making made Trump look like an amateur.
Newly married, Fiat Chrysler’s generous dowry brought $12.5 billion in federal relief loans, a government signal to Wall Street investors that FCA would not and could not fail. If you didn’t hear that message, President Obama would happily deliver it; the White House itself announced the deal and pushed Chrysler to accept Fiat's terms. (Chrysler had already received a $4.5-billion bailout courtesy of President George W. Bush.) FCA debuted on the New York Stock Exchange for just $9 a share. The industry then embarked on a giddy golden age that included six consecutive years of rising and ultimately record sales, the first time that had happened in the industry’s century-plus history. Those record sales were driven by two more epic windfalls, especially for this most truck-centric of all Detroit automakers: Plummeting gasoline prices, and a massive consumer shift toward SUVs. (Subaru, whose AWD lineup is the closest analog to Jeep’s, saw its own U.S. sales more than double, despite adding just one new nameplate throughout that blistering run.)
Jeep and Dodge had been building trucks for decades before Marchionne got there, and those booming sales fell into FCA’s lap. In this environment, the world’s worst auto CEO could have minted money. And that’s exactly what happened. Every global automaker posted record sales and profits. While their success was by no means guaranteed, Chrysler (and GM) were able to start from scratch, with the biggest head start, their debts largely forgiven, the United Auto Workers bought off, and their next-generation products funded via government largesse. (And I say that as a full supporter of the bailout.)
So between its deal-of-the-century price and myriad government blessings, there was a lot of low-hanging fruit to pick at FCA. When Marchionne reached higher, the results are mixed. That begins with Marchionne’s ill-conceived revival of Fiat and Alfa Romeo in the United States, a distraction that has further weakened the once-proud Chrysler and Dodge brands, and brought in minimal new revenue. Marchionne and Co. assured us that Fiat and Alfa would ultimately sell hundreds of thousand of cars a year here—a projection that seemed hallucinogenic even at the time. Here's what happened: Fiat and Alfa Romeo, combined, are on pace to sell barely 40,000 cars in America this year, with a struggling Maserati contributing perhaps 10,000 more. For all the brickbats thrown its way, the now-defunct Dodge Dart sedan sold nearly 88,000 units in its best year of 2015. It shouldn’t take a Harvard MBA to see Americans remain far more likely to buy a Dodge or Chrysler than an Italian car. When a freaking Dodge Dart can outsell two entire Italian brands (with seven models) by more than two to one, how could one claim otherwise? Now imagine if FCA poured as much money into new, more-competitive Dodge and Chrysler models as it has flushed away on these Italian brands, between Fiat/Alfa marketing and advertising to building sales-and-service networks from scratch.
If we're being honest, genuine innovation was also hard to spot during Marchionne’s run. Electric cars? Please. Marchionne was most known for complaining that the company lost money on every Fiat 500 EV. All-new nameplates that led their segments or captured the public imagination? I count one, the Dodge Hellcat-slash-Demon, spun off of the Challenger franchise. And those old-school muscle cars don’t represent any kind of advance in design or technology. So as Marchionne gives way to Mike Manley, the native-British executive who’d been minding FCA’s crown jewels—the aforementioned Jeep and Ram brands—let’s hope that Marchionne's successors have the guts and foresight to executive a serious long-term strategy.
Does anyone still remember how Chrysler tanked in the first place? Yes, there was a recession and credit crunch. But the “old” Chrysler was dying in part because it was the most truck-addicted of Detroit’s Big Three, and that’s saying something. Well before the Great Recession, analysts and Wall Street rightly warned that Detroit was dangerously over-dependent on light trucks for sales and profits. Sure enough, when fuel prices soared and the economy tanked, truck sales (and Detroit) tanked along with it. Consumers were stuck with guzzling SUVs they didn’t want but couldn’t resell. The notorious $3 billion Cash for Clunkers rebate program was created to stimulate sales of fuel-efficient cars and the industry itself.
Some things never change. FCA may be one fuel crisis away from another financial disaster. Propped up almost entirely by pickup and SUV sales, FCA is again looking like a Jenga tower built on Jell-O. Incredibly, FCA relies on trucks for 90 percent of its sales in 2018. That’s an unprecedented number—not just for FCA, but for any major automaker in history. Sure, trucks are hogging sales like never before, outselling passenger cars by two to one nationwide. But at FCA, it’s now nine to one. I’m no Marchionne, but that’s not a sustainable business model for a full-line automaker. Not everyone wants to drive a pickup, Jeep, or muscle car, even in America.
Through the first six months of 2018, FCA sold just over one million light trucks—meaning pickups, SUVs and minivans. The Jeep and Ram brands contributed 755,000 units to that total. Dodge and Chrysler minivans and SUVs added another 235,000, with Fiat and Alfa Romeo’s crossovers adding a 10,000-unit dribble. Over that same period, the company sold just 115,000 passenger cars. About 105,000 of those were Dodge Chargers, Challengers and Chrysler 300s—two fuel-thirsty muscle cars and one aging land yacht, all niche products for Motor City loyalists. The remaining 10,000 cars were even niche-ier, divvied between the Alfa Romeo Giulia sedan, the flatlining Fiat 500, and a sad handful of out-of-production Darts, Vipers, and Alfa 4Cs moldering on dealer lots. Where are the new cars that will hedge FCA against a run-up in fuel prices, or changes in consumer tastes? Does anyone seriously believe that Fiat, that runt of a brand, can make up for the loss of car sales at Chrysler and Dodge? Even on the truck side, we're still waiting for key models like the long-delayed three-row Grand Cherokee, a midsize Ram pickup, and the small-to-large crossovers that FCA has been painfully slow to deliver.
Unsurprisingly, FCA ranks dead last among automakers in sales-weighted fuel efficiency, as ranked by the Environmental Protection Agency, at 21.5 mpg, with General Motors at 22.4 mpg and Ford at 22.8 mpg. Mazda led all full-line automakers for the fifth straight year, with a 29.6 mpg average, closely followed by Hyundai, Honda and Subaru, their averages all boosted by car-heavy lineups. Yet even those companies, along with Toyota and Nissan, seem to have no problem cranking out profitable SUVs (or even pickups) while still making room for broad lineups of passenger cars. Some, despite what you may have heard, remain quite popular. Chrysler’s response—as with Ford's, which is also largely abandoning traditional cars—reminds me of George Constanza and the message sent by his comfy sweatpants: I’ve given up. I can’t compete.
Gas prices won't stay low forever...and when they inevitably skyrocket, FCA is screwed. When the Trump administration is done gutting fuel economy standards—its latest bright idea is a six-year freeze at current levels—and a future administration revives Obama-era rules that would nearly double mileage requirements, FCA will be doubly screwed. Dare to raise such forward-looking warnings, and auto executives (and not just at FCA) trot out a favorite talking point, which too many journalists and analysts now repeat like ventriloquist’s dummies: SUVs and pickups are sooooo much more fuel-efficient than they used to be, consumers will keep on buying them regardless of gas prices. Well, that's a crock. Sure, if your basis of comparison is an old Hummer, any modern SUV looks good. What those executives never mention is that passenger cars have also become more efficient, and that those cars still use decisively less fuel than a taller, heavier, comparably-powered truck. When gasoline tops $5 a gallon, consumers will have no trouble telling the difference.
The other fuzzy line of thinking says that, if consumers start caring about cars and fuel efficiency, FCA (or Ford) can just flip a switch and start building cars again. But it's not that simple. Maybe a Honda or Toyota could temporarily drop out of the passenger-car game (but why would they?) and then jump back in. But Chrysler? This is a company whose cars often struggled to compete at the best of times, and were rarely first on the lips or lists of consumers. You can’t just walk away from the game, then suddenly declare "We're back!" and expect a warm consumer embrace. Ask Cadillac or Lincoln how that’s worked out in luxury cars.
Bottom line, if FCA doesn’t commit to restoring itself as a full-line, diversified automaker, its only value will be as an acquisition target—which is to say, the valuable Jeep and Ram brands would likely be acquired, and most other brands shuffled off the mortal coil. Marchionne himself suspected as much; he believed that only a handful of global automakers were big enough to survive, and that FCA likely was not one of them. This lifelong corporate fixer had one other goal that he couldn't realize: Another shotgun marriage for FCA, which had already been dolled up and passed through careless hands—a rapacious New York private equity group, a distracted Daimler—before falling to Fiat. Still, Marchionne saw one last merger in FCA’s future: he dangled the company before GM (talk about questionable taste in suitors, verging on Detroit incest) only to be publicly spurned in 2015.
On balance, Marchionne, and his stewardship of FCA, deserve a hearty round of applause, even a few tears. But without the great man in charge, let’s see what FCA does for an encore.