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Fiat Chrysler Chairman Renews Push for Merger With 'Big Guys'

April 14, 2016
Competitors should consider the benefits of a potential merger, according to FCA chairman John Elkann, because the bulk of their business will remain selling cars to individuals through 2030.

Fiat Chrysler Automobiles NV Chairman John Elkann renewed a push to merge the company with one of the auto industry’s “big guys,” saying savings could top $10 billion a year.

Even with developments like car sharing and self-driving vehicles, Fiat Chrysler’s major competitors should consider the potential benefits of a merger because the bulk of their business through 2030 will remain selling cars to individuals, Elkann said in a letter to shareholders of Exor SpA, the investment company through which his family controls Fiat Chrysler.

The savings figure from combining “starts to become very interesting” when looked at over the long term, Elkann wrote. “But you need two to tango, and most of our competitors are busy with the great opportunities that technological disruption has to offer.”

After calling off efforts to push General Motors Co. into a deal, Fiat Chrysler CEO Sergio Marchionne, 63, has made investment and restructuring through 2018 his final job at the company he’s run since 2004. His most challenging goal will be to turn Fiat Chrysler’s 5 billion euros in net industrial debt into a cash pile of at least 4 billion euros.

Marchionne, who formed the company by combining Italian vehicle maker Fiat with U.S. counterpart Chrysler, contends that the expansion program will put the manufacturer in a better position to strike a deal down the line. Elkann’s letter reinforced Marchionne’s contention that the auto industry should consolidate further to cope with rising development costs.

Even in a “high-disruption scenario,” at least 85% of cars in 2030 will need drivers rather than operating autonomously, Elkann wrote, citing figures from consultant McKinsey & Co. Industry revenue from new car sales will increase to $4 trillion in 2030 from $2.75 trillion in 2015.

“Boring old carmakers need to figure out how to make this profitable and guard against falling into the 1990 trap of ignoring that business while chasing profits in other parts of the value chain,” Elkann said.

Elkann, 40, is a member of the Agnelli family that founded the former Fiat SpA, and he’s CEO of Exor, which owns 44% of Fiat Chrysler’s voting rights. Exor also controls Ferrari NV, the sports-car maker spun off from Fiat Chrysler in January, and CNH Industrial NV, the truck and tractor producer that was separated in 2011. The three manufacturers are holding their annual shareholder meetings in Amsterdam Friday.

By Tommaso Ebhardt

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