The second of a two part examination of FCA’s European operations and the feasibility of Sergio Marchionne’s four-year plan to revive them. Part two – There will be blood:
Selling Ferrari
FCA’s presentation made a point of telling the financial and automotive worlds just how much Marchionne is prepared to accept for the sale of Ferrari, suggesting the fabled Marenello concern is for sale; despite firm denials from within FCA itself. Some might say that he would be insane to do so – the ‘Cavallino Rampante’ being probably the most valuable automotive brand in the universe right now.
But look at it another way. If we believe the hype, everybody wants to own a Ferrari – and as any petrolhead with rosso corsa flowing through their veins will attest, what could be better than that?
Owing Ferrari, because that way you get to play with the whole toybox. In the current climate where status brands have proven not just recession-proof, but in fact the only place to nail one’s tent, there would be a strong financial case for FCA to sell; especially now when Ferrari’s position as global object of desire is unassailable.
Some faceless conglomerate of billionaires, oligarchs, despots and oil-rich sheiks would undoubtedly stump up the mooted $15bn. All FCA’s financial problems wiped out in a flash. No need to invest in high-cost supercar technologies, no more vast F1 expenditure. Bye-bye, Bernie. Let the new owners worry about how they can afford to develop 200 mph projectiles for road and track. Problem solved.
But this remains an unlikely scenario, largely because the political fallout of selling one of Italy’s crown jewels would be crippling for FCA. Furthermore, Marchionne could never dare set foot on Italian soil again. Far easier for them to use the $15bn valuation as a means of nudging the financial community towards an IPO for the funds Sergio desperately needs to make his plan work. All he has to do now is convince them that it’s worth that much. Well, give or take a billion or two.
Whither Lancia?
Lancia is a brand in the very final stages of palliative care. Having suffered a disgraceful and ignominious decline in standing under 45 years of Fiat mismanagement, the end surely is now nigh for the once patrician and revered marque.
This year, Lancia has been reduced to being a one model brand – selling the Ypsilon supermini – a car perhaps as far removed from Lancia’s core values as any produced in the last four and a half decades. The Ypsilon sells almost exclusively to young Italian urbanite women: its appeal somewhat limited elsewhere, owing to the fact that it represents no discernible qualitative advance on its mainstream Fiat counterpart.
Lancia now appears to stand for a kind of feminine demi-couture chic, which is fine if you can spin a viable business off such a proposition. This simply won’t be possible with one low-margin, low volume small car. The mathematics simply do not and will not add up. It remains unclear as to whether FCA’s plan is to mothball the brand until better times or kill it entirely. Probably the latter.
However, a riskier but potentially more rewarding strategy would have seen Lancia sitting where Fiat’s upmarket intentions currently lie. A kind of Italian DS series. If it works for Citroen, why not for Fiat? Take it to China and the far-East, where no stigma attaches itself to the nameplate and it might just fly. Failing that, find a buyer. Surely the name must be worth something to someone. It costs far more to create a luxury brand from scratch than it does to purchase one – even one as tarnished as Lancia. Can this have escaped Sergio’s attention? It certainly hasn’t escaped Dr Piëch.
Anything else?
FCA face challenges from trade unions in both the US and Italy and keeping them onside as he transforms the business will make or break The Plan. Neither the US or Italian governments want to contemplate job losses or plant closures but equally, the EU will not look the other way indefinitely while Fiat workers are paid to stay at home. The costs to FCA of Fiat’s Italian factories operating at 60% capacity are enormous and need to be arrested as a matter of urgency if FCA is not to continue to burn through millions of euros every week. Above all else though, Sergio needs volume and lots of it in order to keep all those Italian workers gainfully occupied.
Furthermore, while VW, rightly or wrongly have invested massively on a mere four architectures to underpin their entire multi-brand portfolio, FCA will retain 15 distinct platforms, putting them seriously out of step with industry norms. This doesn’t sound like joined up component-sharing. They have also nailed their colours firmly to the mast of internal combustion. Really Sergio?
But the elephantino rampante in the room has to be how all this is going to be financed. Short of selling the family silver, Marchionne is entirely reliant on his credibility in raising enormous sums of money from a barely credulous investment community in a highly implausible and risky strategy that shows a less than even chance of working out. Coupled to this is the fact that it all has to happen immediately and in terms of individual brands, simultaneously.
Earlier this week, Marchionne was quoted in Automotive News, saying that the plan has only to part-work to be successful, which already appears like a climbdown. He said; “People think I do these plans for the benefit of the capital markets. That is the irrelevant portion of the pitch. The exercise of leadership requires the setting of some pretty bold objectives. The plan is a structure that provides direction. So don’t quibble about whether I sell 400,000 Alfas or I sell 382,000.” Okay then Sergio, I won’t either, as long as you don’t get too upset if I don’t believe you.
And so, to sum up
At best, ‘The plan’ might half work – if Marchionne gets lucky and the markets remain reasonably stable. That might actually be enough for now, but already figures released this week show the Eurozone’s recovery slowing with car sales down on previous quarters; so Europe is far from out of the woods yet.
But longer term, the auguries look bleaker. For decades now, Fiat have lurched from crisis to recovery and each time, they rested on their laurels and took their eyes off the long-game. Consistency may be the hobgoblin of small minds, but it is essential to forge a viable long-term growth strategy in the car business.
Little that Marchionne has done in the past 6 years demonstrates a firm grasp of this basic tenet, which should worry anyone feeling sufficiently brave to invest in ‘The Plan’. Should the wheels fall off as many suggest they will, there will be few survivors as the empire implodes.
What it all means for the thousands of ordinary Europeans whose livelihoods and future prosperity depend upon its success is even starker. But taking potshots from the sidelines is irrelevant to Sergio now. He’s already up on the tightrope and can no longer hear the catcalls of the baying mob below. We had all better hope his balance is better than his dress-sense.
Setting aside all the speculation and forensic number crunching, one thing remains certain. Your sacred cows will be sacrificed on the altar of commercial expediency and they will be eviscerated before you and your children’s horrified gaze. Solutions will be quick, they will be dirty and there will be blood. Lots of it…
Driven To Write 
Eoin. Aside from the cheap observation that Marchionne could solve all his problems at a stroke by selling every brand off, I agree that the idea of selling Ferrari is unlikely. Aside from the Ypsilon, I assume that you are wilfully ignoring Lancia’s Italian product line on the principle that they just aren’t Lancias, whatever the badge may say. I liked the previous generation Chrysler 300, the new one somewhat less, but it certainly follows none of Lancia’s engineering philosophies and calling it a Lancia Thema is offensively desperate. Ditto the leaden Voyager, though credit at least for not calling it the Lambda, or D50. The Delta, however, does at least make an effort, so probably doesn’t deserve to be completely snubbed. But Lancia is undoubtedly just one too many balls for Marchionne to even try to juggle.
This is a good set of posts, Eoin.
Sean: It wasn’t my intention to snub the Delta – it is a car I quite like, although I think we can all agree that it is a poor shadow of what Lancia should be. The reason I omitted to mention it is the fact that it has been – or is being phased out. It is interesting (and ultimately futile) to ponder how Lancia’s fortunes would have turned out had the Thesis been a little less ungainly, a little smaller and a little less expensive. Had the Delta been properly developed and supported in the mid sector, perhaps incorporating an image building HF model. Had the Ypsilon been developed on the Punto platform instead of the lacklustre and poor-selling MiTo. Perhaps they’d be exactly where they are now, but I somehow doubt it.