Fiat CEO Sergio Marchionne apparently believes that in the impending global automaker shake-out, the companies that will survive as winners will need to manufacture more than 5 million units per year … and he's betting the store to be one of them. You've got to admire that.
Since Fiat's current production stands at a little more than 2 million, that means the company will have to increase production by 150 percent. It simply cannot grow that fast, especially not in this economic environment … so Fiat will have to expand by acquisition. That's why it's looking not only at Chrysler but at GM's German operation, Opel (like Fiat, another historic failure in the U.S.).
But why Chrysler? Especially after every other major car company in the world, including Toyota, turned such a merger down over the last two years?
Look at it from Marchionne's point of view: He gains one of the Detroit Big Three -- and one of the auto world's historic marquees -- for next to nothing. Better yet, President Obama has shown that he is so beholden to the United Auto Workers and so committed to propping up dying blue state industries, particularly automobiles, that he is not only willing to spend billions in taxpayer money and violate contract law (possibly criminally), but also to strip shareholders and creditors of ownership of those companies and award it to unions. In for a penny, in for a trillion dollars: The federal government is now so deep into the problems at GM and Chrysler, it can never let those companies fail -- at least as long as the current administration is in power.
Could there be a more perfect moment, given the government's heavy-handedness, for a company called Fiat? It's all got to be sweet, sweet music to Sergio Marchionne. Chrysler is his insurance policy: Its sales volume helps push him over the magic threshold just in time for the shake-out, and the Obama administration will guarantee that Fiat stays there long enough to make it one of the two big players in the new automotive marketplace that will emerge in the aftermath.
Sure, it's not going to be easy. After all, does any reasonable person with a modicum of common, much less business, sense really believe that Fiat/Chrysler is a viable business model?
First of all, the administration has decided to violate the rights of the company's shareholders and creditors in order to award equity control (55 percent) of the company to the UAW, utterly ignoring the fact that it was the exorbitant cost of union labor (and pliable management) that created this catastrophe by making Big Three cars overpriced and unprofitable. Yet, while management and shareholders have all been heavily punished by Chrysler's collapse, the workers have been largely spared.
So, does anyone believe that the UAW, having won the day and been handed the reins of Chrysler, is going to suddenly be filled with the spirit of compromise and concession once the deal closes? Meanwhile, the administration is showing signs that it has no interest in selling off its minority equity position in Chrysler -- no doubt in order to maintain leverage (i.e., a position of threat over the company) and enforce its calls for 'greener' cars.