DETROIT – Fiat CEO Sergio Marchionne is bearish on the European economy, which could mean a more conservative financial outlook as the auto maker inches closer to finalizing its ownership in Chrysler and establishing firmer footing in the European market.
The auto maker is “not interested” in relinquishing any of its stake in Chrysler to balance the books, Marchionne tells reporters at the North American International Auto Show, but realizes it will be a “long and painful” process before Fiat is fully profitable and the European market recovers.
Marchionne predicts a similar financial collapse in Europe that occurred in the U.S. in 2008, if the auto industry doesn’t deal soon with overcapacity issues. He estimates the industry runs at a €4 billion-€5 billion ($5.3 billion-$6.7 billion) operating loss, a recipe for disaster.
“If you run a business that’s (devouring) €5 billion worth of value, you have now just laced the cloud structure with a potential for a storm the size of a tornado. It just cannot go on forever,” he says. “We have just seen that type of cloud formation in the U.S. back in 2007 and 2008 that led to the bankruptcy of Chrysler and General Motors and the fundamental restructuring of the business.
“That’s why a lot of people are putting a brave face on this and trying to describe it as something it’s not,” Machionne adds, indicating he believes the current downturn is more of a structural issue than merely the low point in another routine economic cycle.
Fiat may escape the crisis by the skin of its teeth with a revival of its premium brands, specifically Maserati and Alfa Romeo, in Europe.
“We’re not the most exposed to the European market,” Marchionne says, pointing to its two luxury marques that have the potential to help offset the economic squeeze faced by the volume-oriented Fiat brand. “Certainly, we’re lucky enough that we have alternatives.”
Maserati will introduce three new vehicles worldwide this year, while Alfa Romeo puts into place a new roadster built from Mazda architecture due in 2015 and readies its 4C sports car for a U.S. debut by the end of this year.
Not every car maker has that option,” Marchionne says of the plan to lean more heavily on Fiat’s luxury brands. “The problem with Europe is not just a question of volume but also a question of pricing power.”
Fiat and Chrysler both announce quarterly earnings tomorrow. Expect Marchionne to focus some of the conversation on Chrysler’s growing Ram division, as pickups take the spotlight this year.
“I think you’re going to see a number of announcements in 2013 in 2014 that will strengthen the pickup lineup. I’m pleased with what we’ve done, but there’s more to be dealt with,” he says.
A third shift was added to Chrysler’s truck plant in Warren, MI, last year, and additional shifts were put in place at plants assembling the Jeep Grand Cherokee and Jeep’s forthcoming Liberty successor.
“We are utilizing every ounce of capacity that we have in the system today,” Marchionne says.
Chrysler vehicles accounted for more than half of Fiat’s sales worldwide last year: 2.4 million units of 4.1 million total. But an initial public offering for Chrysler stock may be delayed until Fiat works out a deal to purchase shares held by the United Auto Workers union’s Voluntary Employees Benefit Assn. retiree health-care trust.
In dispute is how much those shares are worth, the subject of a lawsuit filed by the UAW-affiliated trust.
“Ultimately, the VEBA wants cash, and we need to find a way to get cash,” Marchionne says, adding that he hopes to resolve the lawsuit over the price Fiat offered to purchase an additional stake in the trust.
