By David Rocks and Tommaso Ebhardt
SERGIO Marchionne moves fast. The CEO of Fiat SpA and Chrysler Group owns a half-dozen Ferraris, has homes in three countries, and shuttles on a private jet between Detroit, Fiat’s hometown of Turin, and other outposts of his growing empire.
Fuelled by a dozen espressos a day and packs of Muratti cigarettes, he stormed into Fiat a decade ago and fired most of the top management, and then did the same at Chrysler in 2009, installing a dozen newcomers on his second day. On a recent gray Tuesday morning, Marchionne took one of his Ferraris — a black Enzo — around Fiat’s high-speed test track near the town of Balocco, 40 miles east of Turin. “When you’re pissed off,” he said, stamping on the accelerator and pushing the car from a comfortable 120 miles per hour to 200, “there’s nothing better than this.”
As he and Fiat chairman, John Elkann, prepare to ring the closing bell at the New York Stock Exchange on October 13, to mark a new merger, Fiat Chrysler Automobiles, Marchionne is racing to create a line-up of cars that will lure buyers worldwide. By 2018, the combined company will have spent €47bn adding 30 models, from subcompacts to a Maserati sport-utility vehicle. That, he says, will boost sales by 60%, to seven million cars, and return a profit of €5bn. “We’re moving as fast as we possibly can,” Marchionne said, after his spin around the circuit’s banked curves. But speed can be dangerous. “In the car business, sometimes you crash,” he said.
He should know: In 2007, he smashed up a €300,000 Ferrari on a highway in Switzerland. Yet, he said, slower is riskier. Fiat Chrysler is the world’s seventh car-maker by deliveries, and Marchionne said there’s room for just a half-dozen players. The transatlantic marriage of two struggling regional carmakers will be the capstone of Marchionne’s career. He only committed to Fiat through 2018. So the new company may determine his legacy.
“The idea of revitalising an American company was particularly appealing to him, and you can see it in how he’s built up Chrysler,” said Ron Bloom, a member of US President Barack Obama’s auto-industry bailout team, who shared cigarette breaks with Marchionne on a Treasury Department balcony overlooking the White House during Chrysler talks. Marchionne’s plan has legions of doubters. Half of the analysts who cover Fiat recommend investors sell the shares. They say the sales goals are unrealistic and the €10bn debt is too high. Researcher IHS forecasts the company will fall short of its 2018 targets by 1.8m cars. “Are they really going to launch all those models?” said IHS analyst, Ian Fletcher. “And to develop new models is one thing; to attract customers is another.” Sipping espresso on the veranda of the 19th-century farmhouse at the centre of the Balocco track, Marchionne said: “I’m used to incredulity.” He sets ambitious targets because aiming lower would be “to establish mediocrity as a benchmark of the house. If you dream of peanuts, you get monkeys.” A poker fanatic who insists that passengers on the Fiat corporate jet play cards with him, Marchionne’s record is more as a dealmaker than as a carmaker. In the past decade, he has pulled both Fiat and Chrysler back from the edge of bankruptcy. In 2005, he played chicken with General Motors, threatening to enforce a contract that would have required the struggling American company to buy the even more embattled Fiat; he walked away with a $2bn cash settlement. Four years later, he took over Chrysler, spending only 10% of the €30bn Germany’s Daimler AG paid for the company in 1998. He’s been less successful with cars. Marchionne ditched the storied Italian brand, Lancia, after trying to rebadge Chryslers as Lancias for sale in Europe. He was late to China. Despite having promised to bring Alfa Romeo back to the US by 2011, the sporty luxury brand won’t get there until 2016, with the exception of a two-seater, introduced this year, that won’t sell more than 1,000 cars. Marchionne said he was new to the car industry when he took over Fiat, but is now the longest serving CEO of any major European carmaker.
“I’m a car freak,” he said, looking over the line-up of Maseratis and Ferraris under the portico of a converted stable at Balocco. “But my survival instinct is stronger than my addiction to cars.” That survival instinct has led him to abandon the mass market in Europe, which he says is too crowded. He wants to transform Fiat’s under-utilised Italian plants into export machines for expensive cars. In 2000, Fiat made 1.4m vehicles in Italy. By 2013, that had dropped below 400,000, as Fiat wound down models that competed with best-sellers like Volkswagen’s Golf. “We did a lot of soul-searching to try to see how best to utilise what we had in Italy,” said Marchionne’s boss, Elkann, the great-great-grandson of Giovanni Agnelli, who founded Fiat in 1899. The two make an unlikely team. While Marchionne is ready with a quick riposte and a profanity, the gangly, 38-year-old Elkann speaks slowly, as if every word has been filtered. At Balocco, he’s wearing a pin-striped suit with a red sweater vest and blue tie; he rarely appears in public with an open collar, a sharp contrast to Marchionne’s trademark black sweater and dark-blue slacks.
As the scion of the Agnelli family, Elkann is like royalty in Italy and a focus of the tabloid press. He drinks tea, not coffee. He doesn’t smoke. And he owns just one Ferrari. Despite their different temperaments — and their 24-year age difference — Elkann and Marchionne have “a very easy relationship,” said Bill Ford, the grandson of Ford Motor Co. founder, Henry Ford, whose family has known the Agnellis for more than 50 years. “It can be awkward when you’re the boss of someone much older,” said Ford, who hosted the pair at a dinner at his house. “I’ve been impressed that that’s not true with those two.” Elkann and Marchionne say they fire off dozens of BlackBerry BBM text messages to each other daily — mostly in English, despite their shared Italian heritage. Elkann, who took over management of the family’s holdings at age 28, said Marchionne has taught him to be flexible. “You can’t plan everything,” said Elkann. “We’ve learned that serendipity is real,” Marchionne echoed in his gravelly voice, punctuated by a smoker’s cough. “Shit will happen.” Some executives who know both men say that they have a father-son relationship, but Marchionne said, “he’s more like a kid brother.”
The brawny Jeep brand is central to their plan. Marchionne plans to have started building the Cherokee SUV, in China, by 2016, as he seeks to double sales to more than 1.9m vehicles, largely by quintupling deliveries in the world’s most populous nation. The Jeep name, Marchionne said, “is credible, and is understood by everybody.”
And he expects Alfa Romeo and Maserati to steal buyers from BMW, Mercedes, and Audi. The Germans’ reputation as makers of higher-quality cars than the Italians “is just crap,” Marchionne said, stubbing his cigarette into an ashtray. What’s important is to ensure each brand stands for something. That’s easy with Ferrari: Really fast cars that can cost more than the average worker earns in a decade. And it’s not tough with Alfa, Maserati, Jeep, or even Dodge, which is being refocused around the muscle-car roots of sportsters like the Charger and Challenger. Most troubled are the company’s namesake brands.
“Fiat is the toughest nut in Europe and Chrysler is the toughest in the US,” Marchionne said. While Marchionne said Fiat can manage his investment plan on its own, he would consider another alliance if the right opportunity arises. Without identifying potential partners, he said he sees the possibility of a merger that would create a company larger than Toyota Motor Corp., the world’s biggest carmaker. “The industry needs it,” Marchionne said.
“This is still a very fragmented industry for the level of capital you have to invest.” If such a deal happens, Marchionne doesn’t expect to stick around beyond 2018 to make it a success. He said he’s grooming several members of his team for the top job, since Elkann said he’s not interested in combining the chairman and CEO titles. “You’re asking me if there are other things I like to do apart from this? Phenomenally, yes,” Marchionne said, lighting another Muratti. “I like to be able to think, and that’s not always possible in this job.”
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