Fiat Chrysler Automobiles CEO Sergio Marchionne is knocking on the door of activist hedge funds to force a merger with GM. GM isn’t biting.
GM recently conceded to activist hedge fund demands to buy back billions of dollars in stock, reports the Wall Street Journal. Seeing such success, Marchionne is asking: If GM is willing to work with activists once, why not again? And for his benefit? Seems like the case of the tiny chihuahua barking at a Great Dane, who won’t give the spunky yapper the time of day:
His high-profile calls for industry consolidation have led some analysts to characterize Mr. Marchionne’s pitch as a desperate one, reflecting Fiat Chrysler’s weak operating margins. Although the company is now profitable, a potential industry downturn and the future costs of meeting emissions regulations and investing in new technology leave sizable risks.
Marchionne has been arguing for industry consolidation, saying that duplicated engineering and other costs are just hurting the industry’s profitability. Marchionne has said that he sees the car industry shrinking to just three companies each making about 15 million cars a year. The Italian-American Fiat Chrysler though is far from the sexiest partner available. With $108 billion in sales in the most recent fiscal year, Fiat’s North American operating margin alone was 3.7% of sales in the first quarter, half of GM’s. Compared to Volkswagen, Toyota Motor, and GM each producing about 10 million cars a year each, Fiat Chrysler made about 4.7 million cars last year.
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