“To The Detriment of His Supreme Imperial Majesty – Hurragh!”

Oh, dear more actual news at DTW. 

Reduces stress
2019 Fiat 500L: source

Without wanting to drag Brexit into this**, I have to note that Larry Elliot at the Guardian is now visibly wrong about another big thing, the Renault-FCA merger (if it is even a realistic prospect). For your information, Elliot has been at the very least tolerant of the lunacy of Brexit. Now he is suggesting that the mooted, hinted, suggested alliance of FCA and Fiat is even worth considering.

The core of his recent article is that “Frosty relations between France’s Macron and Italy’s Salvini could scupper talks over £29bn merger”. It sounds so knowledgeable but Franco-Italian relations are 800 km beside the point.

Second, it’s not 1976 any more, a time when national leaders could push around large corporations as de Gaulle did with Fiat and Citroen. But the problem is so much more fundamental: the idea of FCA linking to Renault is as insane as suggesting someone should consider marrying a syphilitic zombie. In this instance Renault-Nissan is the “someone” and FCA is the “syphilitic zombie”. While Renault has had its downs and up, the F in FCA has been only able to destroy value since about 1985 and the C part nearly killed Mercedes (I’ve no sympathy for Mercedes). Renault-Nissan do not need FCA. Nobody does.

The other day we were reminded of Fiat in the late 1990s. In August 2014 we presented the sad story of Fiat’s diminishing range of cars and engines. Both articles are evidence that Fiat is like Chrysler. Both are value-destroying ghouls; the writing is on the wall for FCA. It can’t make the leap to electric engines on its own; its engine development capacity is frail and so it is casting around for another victim to latch on to.

Fiat Spider: source

I will return to Larry Elliot’s thesis here: “There are two big arguments in favour of the deal. The first is there is a global glut of automotive capacity that is already forcing companies to cut production, close plants and lay off workers.

The second is the age of the internal combustion engine is drawing to a close. Technological change has meant progress being made towards autonomous, self-driving cars, while the need to combat the climate emergency has forced car companies to think about a new generation of electric-powered vehicles.”

Dealing with the first paragraph, the glut of automotive capacity does not mean that FCA should merge with Renault. It means FCA should be wound down to its profitable components which should be sold to anyone interested. Elliot seems to assume the world owes FCA its living. No, it doesn’t.

The second paragraph also has a kernel of obviousness, that we’re in a shift to electric power-trains. That does not make it logical to deduce FCA should bite like a lamprey into the flesh of Renault-Nissan to survive. It means FCA is an obvious candidate for liquidation. It’s not even in the stadium for a race it will lose anyway.

2019 Renault Espace: source

At this point I’ll head off in another direction and close with reference to an article in the current edition of the NYRB, about the future of oil. It was by Bill McKibben who reviewed 2020 Vision: Why You Should See The Fossil Fuel Peak Coming. The bit that caught my eye was this: “Auto analysts are already warning consumers to think twice before buying a gas-powered car, since its resale value may fall dramatically over just the next three years.”

It’s not the decisive blow but is yet another reason customers may not want to buy FCA cars in the near future. Any car company considering a merger with FCA would be like someone diving into an icy sea to rescue a corpse weighted with chains.

** I hate to stymie debate. It’s because this isn’t a news or politics site that I don’t want to discuss Brexit. There are plenty of other fora for the subject, catering to both sides and neither.

Author: richard herriott

I like anchovies. I dislike post-war town planning.

25 thoughts on ““To The Detriment of His Supreme Imperial Majesty – Hurragh!””

    1. Technically correct, yes, de Gaulle did indeed not live after November 9, 1970. What I probably meant to write was “….the way way heads of state could exert strong influence on organisations using arguments for national interest”.

      Point noted.

  1. I absolutely agree that Renault should run a mile from FCA. After a period producing indifferent products, Renault seems to have recovered its mojo and now has an attractive and competitive range of vehicles. The apparent strains on its relationship with Nissan has been cited as a reason for Renault to consider embracing FCA, but does the alleged financial crimes of Carlos Ghosn really undermine the industrial logic of this tie-up? Nissan and Renault have been good for each other and it would be foolish for both parties to allow the relationship to unravel.

    For its part, FCA has indeed strengthened its balance sheet and improved reported profitability, but has done so by slashing investment in new models and retreating wholesale from market segments where once it was a major player. The paucity of the core Fiat and Chrysler ranges today is a sad sight. As Richard asserts, no company has a right to survive, and an orderly break-up now seems to be the least worst option, with Jeep and Alfa Romeo sold off to the highest bidder, although both would need proper investment from their new owner(s) to make them credible and viable again.

    Regarding Brexit (How I detest that term!) I wholly applaud Richard’s position that this not the place for discussion on this most vexed of subjects. Indeed, I appreciate the apolitical nature of DTW, which makes it a very welcome refuge from our current chaotic political environment.

    1. I noticed how The Truth About Cars was often over-run with keyboard warriors and it did not fit in. There are big political questions and they can be related to transport. I´d rather not deal with that here which is why you find me sometimes fistfighting at the Guardian. Little use it seems to do.
      Back to our sheep: the FCA merger presumes FCA is worth preserving. It´s not. I honestly hope Renault don´t take the bait. As for Mr Larry Elliot, he knows even less than I do about the car business, it seems.

    2. Hi Daniel,

      The picture that seems to emerge, in French media at least, is that C. Ghosn financial misconduct is just an excuse to get rid of Renault who is thought, within Nissan, to hold too much power whilst not being the main breadwinner of the Alliance. I don’t read French media much but there seems to be some soul-searching going on because a lot of people say that Renault, and French companies in general, are playing too nice. Many people pointed out that an American, British or German company would’ve bought Nissan outright when they had the chance and wouldn’t be in this position today instead of the ‘Alliance’ solution chosen by Renault and which, effectively, has let Nissan still have a decisive say in its own future even though they were “bought out” by Renault.

    3. NRJ, I appreciate your thoughts and your assessment of this intriguing and extremely complex situation.

    4. ???

      Am I missing something (and not for the first time)?

      Anyway, thanks also to gooddog for, er…something.

  2. Remember, remember, the 5th of November…OK, the date is wrong, but I mean whenever it was that a healthy(ish) Leyland was encouraged to swallow the cancerous BMC. It didn’t end well.

  3. Elliott is a lifelong Brexiter.

    As I understand it, Renault has no real US distribution network, and is prepared to get FCA’s, despite the partner having a poor model range, and also probably having to implant electric engines into Jeep and Alfa.

  4. Italy’s already an economic basket case, and shutting most of FCA’s 50% capacity sites will be apocalyptic.

    1. It would free up capital to be spent on other more useful things, as Schumpeter would say. I don´t think it would make much difference in the medium term.

    2. 670,932 passenger vehicles produced in 2108 in Italy, all but a few from FCA companies, which in itself is not a healthy situation.

      Not so long ago Nissan were making more cars in Sunderland than were being produced in the whole of Italy. The Italian figures are bolstered by a state funded deal brokered by Sergio to repatriate Panda production to Pomigliano D’Arco. The Panda’s going back to Tychy, and Alfa production is returning to the Neapolitan Linwood.

      If the collapse of the Italian car production industry is going to be an apocalypse, it’s one of Fiat’s own making, with employment having been exported to Poland, Turkey, and Serbia on a huge scale.

      The commercial vehicle side of the Italian industry is rather healthier, with 332, 875 units produced in 2018, despite most of Fiat’s LCV offerings coming from Turkey and France.

  5. FCA’s North American footprint is not to be underestimated.
    That’s one of the very few sensible arguments about such
    a merger, on the surface of it.

    It is still very hard to swallow, although the overarching industry situation makes it less of a surprise.

    Putely as product potential, the theoretically rich model range
    is tempting, and they’d probably dive into the NA market
    waters Dacia first, anyway. Having five to six different
    (and, in theory, competent) SUV/MPV models
    is not a palette to dismiss so easily.

    Crazy times.

  6. My first suggestion for the New Global Leyland: Reintroduce the Plymouth brand, with a range of Dacias.

    Return of the Duster – the new one would look well in this colour scheme.

  7. It would seem to me based on what I’ve read in the business pages in North America that Renault is the basket case, not FCA. Emotion seems to have ruled this article, rather than logic.

    By proposing a merger of equals, FCA is giving credit for a lot of non-existent value at Renault, whose market value free of its Nissan holdings is essentially zero or even negative. Why do you think Nissan constantly chafes at the Renault bit, now that Ghosn is incarcerated and unable to force Renault policy on them? It’s because Renault is a very weak partner.

    Anyway, I don’t wish to be dragged into vitriol about the dastardly FCA as DTW sees it. It’s actually, you know, profitable, and the reason as I’ve stated many times before is the RAM pickup, about which Europeans know essentially nothing; its huge sales and profit drive FCA. Not so much to do with Jeep, although that’s a factor. Jeep is currently trying to not acknowledge the poor safety engineering of its iconic Wrangler which was a complete dud in NCAP testing at one star, but there are many more Jeep models than the rock crawler, and Europe is not a place that buys many of the latter to begin with. All the poor crash-test result can do is raise a hopeful “Aha!” in some European minds, while putting them off the real scent if they allow it to.

    With regard to hybrids, Chrysler has the Pacifica minivan, and all the engines both V6 and V8 offered stateside use a 48V mild hybrid system (two kinds, one for each engine) of the type that Mercedes touts as being so wonderful on its blitzen-priced models, and which JLR is planning to use, probably wired up backwards judging by their electrical efforts (now there’s my biased opinion showing through, but just for fun).

    The US car industry pundit view has for years been that FCA uses American profits to prop up the sagging Italian plants and that Alfa Romeo isn’t worth a plugged nickel, sucking up money by the billions in evelopment for paltry sales worldwide. On the other hand, normal general business pundits without an axe to grind, tend to look at the financial numbers without wriggling around on ephemera like patriotism, jingoism and whether FCA makes all junk or that Renault makes incredible products that somehow undersell.

    Read this:

    https://www.bloomberg.com/opinion/articles/2019-05-29/fiat-and-renault-is-hardly-a-merger-of-equals

    Then there’s the matter of how Nissan reacts to the proposed merger. There’s where the real EV engineering knowhow resides, not at Renault. Nissan is going through its own struggles, of course, but has been blindsided by the FCA/Renault merger talks, although first blush response after the shock was revealed hasn’t been that negative as reported in articles following this main one:

    https://www.reuters.com/article/renault-ma-fiat-chrysler-nissan-idUSL4N23509M

    To me the loose cannon in the whole thing will be as usual the French government, trying to put its ideas in where nobody else wants them. And that is my only strong opinion on the matter – I’m content to sit back and watch the melodrama unfold.

    1. FCA is partnering with TSLA in Europe to reduce their fleet CO2 average. It’s the cheapest way to do it. Rather than investing billions in electric powertrains.

      https://www.wardsauto.com/industry/fca-links-tesla-beat-european-emission-fines

      TSLA gets a desperately needed cash infusion, and FCA avoids Europe CO2 taxes at the lowest cost.

      My guess is that if the future really is electric and autonomous, FCA will get what they need from TSLA.

      People forget: “everybody knows the future is electric and autonomous” is a FORECAST ! It is not God’s very truth.

      We have seen enough expert “everybody knows” forecasts for the auto industry in the last 50 years that didn’t pan out. Some humility on the composition of the future is in order.

      I say FCA is actually the best positioned due to spending the least on electrification. They have essentially bought an option on electric drive with TSLA. And if the future is not electric and autonomous, FCA has spent the least and is the best positioned.

  8. Angel,

    that is a really objective and down-to-earth assessment of the situation.
    Entirely agree.

    The new trends are much more difficult to embed in consumer society than
    it currently seems, and the transition process shall be a lengthy
    and slow process, at best.

    1. Most EU car-making members have planned cut-off dates for fossil-fuelled transport, some quite soon. So I don’t see it being lemgthey and slow at all.

    2. The way I look at the shift from ICE to electric is a large, tame* problem much like the civil engineering and infrastructural programmes of the Victorian era only this time we can do it without top hats (making access to small areas much simpler – did you know that the standard diameter of a Victorian main sewer was the height of Joseph Bazalgette plus that of a Lock & Co top hat plus four inches?)

      * tame problem as opposed to wicked problem. See
      http://www.sympoetic.net/Managing_Complexity/complexity_files/1973%20Rittel%20and%20Webber%20Wicked%20Problems.pdf

  9. Bill, very well argued. To me it’s this diversity of perspectives that makes DTW DTW. The devil’s advocates are the ones to be praised and I think such a thing as “the DTW opinion” should not be allowed to emerge.

    Anyhow, to this day I don’t really understand the rationale behind F+C. Where are the synergies? Aren’t the home markets of these companies just too different for there to be platform or any other sharing of any significant kind? If Chrysler’s cash cow is the RAM business and Fiat’s cash cow is the 500 family, what is there to be shared?

    It’s a different story with VAG obviously as the volume brands VW, Skoda, Seat and Audi more or less play the same sports and can share components left, right and center without anybody stretching their core products beyond recognition. So do the luxury brands.

    In this light F+R could work much better than F+C. Fiat and Renault do obviously play in the same stadium, in Europe as well as in China and other emerging markets. But again, for R+C I also don’t see any significant prospects. I don’t think the Renault Clio is ever going to be a hit in the US. Neither is the Zoe. So should it rather just be FRA from a product perspective? Or is this a purposefully diverse conglomerate to hedge market risks in individual markets – which I though wasn’t tolerated by capital markets these days?

    I just can’t fit Chrysler into the picture. Did anybody at Fiat or Chrysler really think they could stretch their US products into Europe by putting a Lancia badge on them? I still find this absolutely baffling and would be thankful for any convincing explanations – because even though we like to think it, decision makers shouldn’t be considered to just be stupid.

    (Irrational decisions can still go a long way thanks to individual, short term biased incentive structures, happily aided by fancy consulting companies that can propose outrageous projects without having to fear any of the long term consequences. See Bayer’s takeover of Monsanto – which is a contender for most value destructing business decisions in recent memory, where as anecdotal evidence suggests, consulting firms played a major role… Does anybody know of any good, investigative pieces shining some light on the decision making behind the FCA merger?)

    1. Max,

      I’d have a sniff around Google for articles on the subject by Jamie Kitman. He’s an American writer with valuable perspective on the industry, both domestic and abroad.

    2. No investigation is needed, Fiat picked up Chrysler at a fire-sale price, or Chrysler would have ceased to exist.

      Ghosn must have done some severe damage to Renault and to the Nissan Alliance since Nissan has two well established US sales channels and Mitsubishi claims around 355 US dealerships.

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