The event scheduled for August 17 at Fiat Chrysler’s Illinois assembly plant was supposed to shine a light on what the company does best: build high-margin Jeep SUVs. Then, for a second time in two months, Fiat Chrysler abruptly called off the official celebration of the plant being retooled to turn out Jeep Cherokees, where the chief executive, Sergio Marchionne, was to have taken centre stage.
Bigger things are on the horizon for Jeep and Fiat Chrysler, however — including a possible break-up of the company. For months, Fiat Chrysler has been in discussions with a number of Chinese companies about potential equity investments or other deals involving its RAM pickup division and the Jeep brand.
As early as last year, Fiat Chrysler sent a team specialising in mergers and acquisitions to China. The officials said an investment or partnership involving a Chinese automaker could be a prelude to a larger agreement.
One Chinese company, Great Wall Motor, emerged publicly this week as an eager suitor for Jeep, Fiat Chrysler’s fastest-growing and most profitable unit. After Great Wall said it was interested in buying Jeep, Fiat Chrysler said it had not been formally approached by the company. Yet Fiat Chrysler did not specifically rule out a sale, a major signal to other companies that it is intent on exploring deals for Jeep and other divisions.
“There is nobody saying there’s no way we would sell the Jeep brand,” said Thomas W. LaSorda, the former chief executive at Chrysler who helped engineer its merger with Fiat. “That sends a message to boardrooms around the world.”
The Great Wall overture sent Fiat Chrysler’s shares up almost 7 per cent in New York trading on August 21, to their highest point in more than two years.
The Italian-American automaker formally took shape in 2014, five years after the bankruptcy and government bailout of the former Chrysler. Marchionne was showered with credit for blending the companies. But for most of the past two years, Fiat Chrysler has been openly seeking a merger partner to survive as a long-term player in the global auto industry.
Several major automakers, including General Motors, Ford and Volkswagen, have disavowed interest.
Known for his outspoken views on hot-button issues like the potential of electric vehicles and the merits of the North American Free Trade Agreement, Marchionne has been uncharacteristically cryptic in his recent comments about the possibility of selling off Fiat Chrysler in pieces. “We have an obligation to purify that portfolio,” Marchionne said last month during an earnings call, referring to whether the company was considering divesting business units.
Asked whether the European brands Maserati and Alfa Romeo might be sold, Marchionne said he would “reserve judgement” on that possibility, then cut off further questions. Industry analysts believe Fiat Chrysler is in a weak business position compared with much larger rivals like Volkswagen, Toyota and General Motors.
The bulk of Fiat Chrysler’s global profits are generated by Jeep SUVs and RAM pickups sold in the American market, and the company has lagged far behind competitors in pursuing advanced technology for autonomous and electrified vehicles.
Sales of its passenger cars, like Chrysler and Dodge vehicles in the US and Fiat models in Europe, have struggled mightily in a market shifting away from traditional sedans.
To compensate, Fiat Chrysler is rapidly converting its American production facilities, including the Belvidere plant, from building cars to making Jeeps and pickups. By the end of 2017, all six of its assembly plants in the US will be devoted to SUVs and trucks. Plants in Mexico and Canada still produce the passenger cars the company sells in the US.
The increased emphasis on trucks and SUVs has only fed speculation that the company is beefing up its most attractive assets for sale.
In the past couple of years, Fiat Chrysler’s chairman, John Elkann, has talked openly about the possibility of a partnership or merger with another automaker. Elkann is the leader of the Agnelli family, which has a controlling stake in Fiat Chrysler though a holding company.
Early last year, Fiat Chrysler completed a spin-off of its luxury-car brand Ferrari, and its shares have since soared. Giuseppe Berta, an economic-history professor at Bocconi University in Milan and a longtime consultant on Fiat’s historical archives, said that Elkann might be pushing for a larger deal before Marchionne’s expected retirement next year.
“What we see now is a strong desire by the ownership to sell FCA,” Berta said. “I think there is only one chance, and that is to break the company up.”
Berta said the uneven performance of business units at the company made it difficult to sell as a whole, and that the initial merger of Fiat and Chrysler was ill-equipped to stand the test of time.
“Since the beginning, there has been limited capacity to invest in the business,” he said. “There have been no plans for autonomous cars or electric cars, and two years ago Marchionne said that the car sector in general was consuming too much capital.”
Industry analysts also question whether the company has the financial capacity to compete in the emerging era of self-driving vehicles. Fiat Chrysler said recently that it would join a partnership with the German automaker BMW to develop such technology, but that hardly ensures it will be able to keep up with automakers like GM or Silicon Valley competitors like Tesla and Google.
One analyst, Kristin Dziczek from the Center for Automotive Research, said the company had significant debt that could hamper its ability to spend money on new technology and models. “That does bode well for investing in future product,” she said.
The possibility of selling Jeep to a Chinese buyer could be problematic. Any deal would probably be subject to government review in China and in the US. And Fiat Chrysler would have trouble replacing the profits and market share generated by its prized SUV division.
Marchionne cautioned in the recent earnings call that the company could not simply sell off its choicest parts to the highest bidder. “We do have to worry about the stump that’s left behind,” he said. Otherwise, he added, Fiat Chrysler will “end up with a suboptimal business that cannot run.”
LaSorda thinks the recent expression of interest by Great Wall will ignite enthusiasm among other automakers. “There isn’t a major company that wouldn’t want Jeep,” he said. “The question is, what is the cost to get it?”
The prospect of a break-up or sale comes at a particularly difficult time for Fiat Chrysler. In the US market, it is suffering from slowing consumer demand and a Jeep line-up stocked with older models. In the first seven months of the year, its sales fell more than 7 per cent, and those of the Jeep unit declined more than 12 per cent.
Worldwide, Fiat Chrysler said, Jeep is still growing, thanks to rising sales in China and elsewhere, although it does not break out global sales by brand. The company is also coping with a federal indictment against its former top labour negotiator over allegations of a payoff scheme involving company and union officials, and a lawsuit filed by federal regulators accusing Fiat Chrysler of configuring its diesel-powered vehicles to cheat on emissions tests.
But controversy and crisis have dogged the former Chrysler for decades, dating back to the federal government’s loan guarantees to keep the company operating in the late 1970s.
Since then Chrysler has been sold three times: first in 1998 to German automaker Daimler-Benz, and later to the private equity firm Cerberus and then to Fiat.
LaSorda, in fact, travelled the world in 2007 as Chrysler’s vice-chairman looking for a partner to save the company from extinction. While the company ultimately joined up with Fiat, one of the sales calls was with Great Wall. “They always had an interest in getting into the US market,” he said.
— New York Times News Service