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Fiat Chrysler’s valuable brands include Jeep sport utility vehicles, such as this Cherokee being built in Toledo. The company also assembles the Jeep Wrangler at the plant.
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Fiat Chrysler boss shakes up global car business

THE BLADE

Fiat Chrysler boss shakes up global car business

NEW YORK — Mary Barra, chief executive of General Motors, received a lengthy and unusual email back in March from one of her direct competitors, Sergio Marchionne.

Ms. Barra had never met Mr. Marchionne, CEO of Fiat Chrysler Automobiles. And she was in no way expecting their first contact to be an offer to discuss a potential blockbuster of a merger.

The email, according to two people familiar with it, laid out in detail how global car makers needed to consolidate to save money and suggested that a combination of GM and Fiat Chrysler could cut billions of dollars in costs and create an automotive superpower.

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His analysis did not interest Ms. Barra or other GM executives and board members. Instead, Mr. Marchionne’s request for a meeting on the subject was turned down, according to people who spoke on the condition of anonymity.

It was a rare rejection for Mr. Marchionne, the mastermind behind the merger between the Italian automaker Fiat and Chrysler, the American car company that required a government bailout to survive the last recession.

Mr. Marchionne, however, is not one to be put off by rejection. 

A month later, on April 29, in a routine analyst conference call, he doubled down. 

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Instead of following the usual script, in which chief executives discuss the current state of their operations, Mr. Marchionne stunned the Wall Street analysts by devoting the entire call to his sudden and intense appeal to automakers to merge.

“I think it is absolutely clear that the amount of capital waste that’s going on in this industry is something that certainly requires remedy,” he said. “A remedy in our view is through consolidation.”

It’s not often that a chief executive announces to the world that his company is eager to find a merger partner. 

Some might even consider it a sign of weakness; Fiat Chrysler’s stock dropped about 10 percent over the next two days. 

Mr. Marchionne’s passionate appeal only highlighted the difficulties that lie ahead for Fiat Chrysler.

Mr. Marchionne has had remarkable success in blending two struggling car companies into the world’s seventh-largest automaker. Fiat Chrysler’s sales in the United States have doubled since 2009. 

But the company still sold only 4.6 million cars and trucks worldwide in 2014, about half as many as competitors like GM and Volkswagen. 

Its valuable brands, like Jeep sport utility vehicles and Ram pickups, don’t compensate for the fact that it makes less money than its rivals, lags in China — the world’s biggest car market — and barely invests in alternative-fuel vehicles that are critical to meeting the coming tougher federal rules on fuel economy.

Mr. Marchionne says he has a detailed plan to improve FCA’s performance, but his current obsession seems to be playing the automotive Cassandra, warning of disastrous consequences if companies continue spending unabated. He has no patience for subtlety or delicate phrasing.

The bigger the issue, in fact, the louder he becomes. 

He irritated the National Highway Traffic Safety Administration by defiantly defending FCA’s response to safety issues with older Jeep models. 

NHTSA just last week scheduled a hearing to examine the company’s follow-through on recalls, something NHTSA rarely does. 

Mr. Marchionne also appears headed for a confrontation with union leaders in this summer’s contract negotiations because of FCA’s rampant hiring of lower-paid workers. Alone among auto chiefs, he wants to end the current two-tier wage system by phasing out the top wage rate as veteran workers retire.

Detroit hasn’t seen a CEO as provocative and unpredictable since Lee Iacocca, Chrysler’s previous savior, in the 1980s. 

As with Mr. Iacocca, confidence is never a problem for Mr. Marchionne.

When in the United States, Mr. Marchionne, 62, works out of a tiny office in a wing of the sprawling Chrysler Technical Center in the Detroit suburb of Auburn Hills. 

He prefers to spend time among engineers and product planners, rather than in the lavish suite of executive offices in the nearby headquarters tower. 

Unlike Ms. Barra or Mark Fields of Ford Motor, both of whom rose through the corporate ranks, Mr. Marchionne never even worked for a car company before taking the top job at Fiat in 2004.

Born in Chieti, Italy, on the Adriatic Sea, Mr. Marchionne moved to Canada with his family as a teenager. 

He earned degrees in philosophy, law and business administration before joining an accounting firm at 30. From there, he spent most of his career bouncing through executive posts at Canadian and European chemical and industrial companies.

He was an obscure board member at Fiat when the Agnelli family, which controlled the Italian automaker, picked him to reverse its long decline. 

He moved fast, firing executives, flattening the company’s bureaucracy, eliminating slow-selling models, and paring production to match market demand. 

In a warm-up for Chrysler, he also fostered an entrepreneurial culture in which executives were given wide latitude to meet internal targets.

Since he cut the deal with the Obama Administration six years ago to take control of Chrysler, his moves have confounded an industry that tends to adhere to tried-and-true formulas. 

When other companies streamlined their brand lineups, Mr. Marchionne created new ones, such as splitting off Ram trucks from the larger Dodge division. 

Rather than glossing over Chrysler’s battered image, he embraced it with soulful advertising campaigns that extolled the tenacious spirit behind vehicles that were “imported from Detroit.”

“I’ve always had this incredible sense of urgency,” he said. “I’ve always had this desire not to let things fester and to really seize the moment, because it’s serendipity.

“You create the conditions for it, and it just keeps producing outcomes or opportunities for you to pick,” he said. “And if you don’t pick them, then it’s your own damn fault.”

He saw that kind of opportunity four years ago when he took advantage of Chrysler’s precarious financial condition to negotiate a favorable contract with the United Automobile Workers union. 

That deal allowed him unlimited use of workers paid on a lower scale — about $19 an hour compared with $28 for veteran employees.

The arrangement opened the door for Fiat Chrysler to go on a hiring spree of cheaper labor in the United States. 

Today, more than 40 percent of the company’s 36,000 American factory workers earn entry-level wages, compared with about 20 percent at GM and 27 percent at Ford.

Before he could benefit from his lower-wage work force, Mr. Marchionne had to strip down Chrysler’s production after its 2009 bankruptcy.

He also retooled Chrysler’s organization by replacing veteran executives with a cadre of younger, unproven managers. 

While he set ambitious sales and financial targets, he gave his new team free rein to achieve them.

“He creates an environment that I call the pressure cooker approach,” said Bernardo Bertoldi, a business professor at the University of Torino in Italy, who helped write a recent Harvard Business School case study on Mr. Marchionne. “He provides the goals and gives them their freedom, but the pressure is on getting results.”

And after years of dysfunction under the ownership of the German automaker Daimler and then the private equity firm Cerberus Capital Management, Chrysler took off. 

Once Chrysler joined with Fiat, the combined company began posting double-digit annual increases in revenue, reaching $109 billion last year. 

And after absorbing losses as it paid back more than $5 billion in loans from American taxpayers, FCA has become solidly profitable, reporting $717 million in net income in 2014. 

The bulk of its income comes from the Chrysler side of the business.

Chrysler’s revival hinged on streamlining its manufacturing base and pouring resources into its strongest brands, in particular Jeep, which has a cultlike status in this country as the most rugged and stylish of American SUVs and a worldwide appeal dating to World War II.

“He saw the future with Jeep,” said Mike Manley, the brand’s chief. 

“I remember talking to him early when we were targeting sales of a half-million, and he said we can do a lot more.”

Fiat Chrysler has opened plants in Italy and Brazil to accelerate Jeep sales in international markets, and a Chinese factory is coming next. 

Last year, FCA sold about 1 million Jeeps globally. 

Mr. Marchionne is shooting for 1.9 million in 2018, and the success of the brand will be critical to the company’s overall results.

“You can’t help but be impressed with what Sergio has done so far,” said David Cole, former chairman of the Center for Automotive Research in Ann Arbor. “But the question is whether he can achieve the kind of scale necessary to keep up with automakers twice his size.”

If all his growth targets are achieved, Mr. Marchionne expects Fiat Chrysler to hit 7 million in sales in three years. 

First Published May 26, 2015, 4:00 a.m.

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Fiat Chrysler’s valuable brands include Jeep sport utility vehicles, such as this Cherokee being built in Toledo. The company also assembles the Jeep Wrangler at the plant.  (THE BLADE)  Buy Image
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