How has Fiat become such a powerful force in global car production?

Why are we asking this now?

A Canadian-trained accountant who made his career as an executive in Swiss business met with German politicians yesterday to discuss merging the Italian car maker he runs with a string of ailing rivals with operations in the US, the UK and Sweden, amongst other places.

Sergio Marchionne's empire-building would look ambitious to the point of insanity at the best of times, let alone during the worst of times for the car industry. But then if you were to learn that Mr Marchionne runs Fiat, and that his mega-merger scheme would turn the little Turin company – once given the derisory nickname "Fix it again, Tony" – into the world's second-largest producer of cars, you might conclude that the world really has been turned on its head by the financial crisis.



Is this a serious plan?

Not only that, but it might just come together. Mr Marchionne has already signed a deal that would effectively given Fiat control of Chrysler, the No 3 car maker in the US, whose brands also include Jeep, which was put into bankruptcy last week. Barack Obama has endorsed that alliance, and it seems likely the Fiat boss will take on the additional role of Chrysler chief executive.

Now he is also proposing that Fiat takes over the European operations of General Motors, the even bigger US car company, which makes Vauxhall vehicles at Ellesmere Port in the UK, Opel vehicles mainly in Germany and Saab in Sweden. Like Chrysler, GM is in dire straits and is also only still on the road thanks to money from the US government. Its European division is a drain it could do without, which is why it has already said it will sell Saab and could be tempted to offload the rest to a willing buyer.



So who is Sergio Marchionne?

The bespectacled 56-year-old, whose family transplanted from Italy to Canada when he was 14, is not known for his modesty – but then he does have some major business achievements to boast about. Even before he got to Fiat, he had established a formidable reputation for turning round ailing companies in Switzerland, and nowhere was the word "ailing" more appropriately used than in relation to Fiat when he was tempted back to Italy to run it in 2004.

The historic conglomerate's biggest subsidiary, Fiat Auto, was losing market share to the likes of Peugeot and a resurgent Renault, and its Italian factories were chronically inefficient. Things were so bad that, after a year running the parent company, Mr Marchionne grabbed the wheel of Fiat Auto, too, and he has engineered one of the car industry's most impressive turnarounds.

Its market share leapt as models such as the Grande Punto proved popular across Europe, and those factories are profitable once again. In one irony, hard-bargaining Mr Marchionne also got General Motors to pay €1.55bn in 2005 to get out of a deal that could have forced the US company to buy it – money that GM sure could do with right now.



Isn't Fiat too small to roll up so much of the industry?

Mr Marchionne would say that Fiat is too small not to do this. There were too many car companies chasing too few buyers, even before the financial crisis led to a slump in sales. To be a profitable player when the industry emerges from crisis, the wily old accountant calculated earlier this year, a manufacturer will have to produce upwards of 5.5 million vehicles annually. When Mr Marchionne made that pronouncement, everyone thought he was effectively putting Fiat Auto up for sale, but the irony of the credit crisis is that bigger companies have fallen hardest, and Fiat now looks one of the stronger players. Moreover, its long history of producing small cars and its investment in fuel-efficient engines means it has technology that other companies are in dire need of.

Why the meeting with German politicians?

GM's Opel is headquartered in Germany and is one of the country's largest private-sector employees. Just like the US government did last year, the German government has concluded it mustn't be allowed to fail, so it is leading efforts to find a new investor, and may offer loan guarantees to sweeten a deal. The UK government, too, might be tapped for aid to support Vauxhall. Time is short. GM said its European operations could go bust within weeks, threatening 50,000 jobs across the continent.

In order to persuade Germany to deal, Mr Marchionne is promising there will be no plant closures after a merger, and job losses would be spread across the 11 factories in Germany and nine in Italy. There could be €1bn a year in savings from the cuts and from sharing technology.

Essentially, he is there to persuade the Germans of his vision: that, brought together, Fiat Opel (or Opel Fiat – he said he'd reverse the title if it would make them happy) could emerge as a strong European champion at a time when the US car makers are falling by the wayside. The combined group would draw level in sales with Volkswagen behind Toyota, with the carved-up GM falling behind them all.



What other obstacles are there in Mr Marchionne's way?

Plenty, to be sure. He is certainly not the only one eyeing GM Europe. The German government has sounded out a Canadian firm, and there were reports that a Russian consortium was being pulled together to consider a bid. Competition authorities may have something to say about combining so many of Europe's biggest brands, too.

And the Chrysler alliance is not a done deal, either. All sides had hoped to have signed on the dotted line last week, but some of the US firm's creditors refused to agree to swallow the losses that were being asked of them, so the whole restructuring package has been handed to a bankruptcy judge to examine. In bankruptcy, almost anything could happen – and although the Obama administration thinks the deal will be rubber-stamped in less than two months, there is a Jarndyce and Jarndyce nightmare scenario from which Chrysler never emerges.



Is creating such a sprawling company a good idea?

There seems lots to commend each piece of the jigsaw. Combining with Chrysler gives Fiat a toehold in the biggest car market in the world and adds SUVs and trucks to its repertoire, while providing the opportunity to sell Chrysler vehicles through its strong Latin American dealership network. Combining with Opel gives the opportunity for big cost cuts.

But car sales are still in the doldrums on both sides of the Atlantic and Fiat is hardly sheltered from that storm. In fact, the European Union's industry commissioner questioned last week if debt-burdened Fiat's finances really were strong enough to sustain so many loss-making operations – remarks that Mr Marchionne dismissed as "not helpful to the ultimate goal of re-establishing a sound footing on which to build the future of this industry".

And then of course there is Mr Marchionne himself. After finishing meetings in Berlin yesterday he was on a plane again for another trip to New York, Washington and Detroit. He's already been in New York, Turin and Monaco in the past week. For all his achievements and self-confidence, banging so many ailing businesses into shape at once might be more than any one man can manage.

Could Fiat emerge as the world's No 2 car maker?

Yes...

*Sergio Marchionne has put Fiat in a stronger position than almost any other car maker



*There are lucrative cost cuts from merging with GM and growth opportunities from buying Chrysler



*Desperate governments will help out with subsidies for any credible saviour

No...

*Management would have to fight too many crises in too many countries



*Fiat's own finances are still not on a firm enough footing to withstand a long recession



*There are too many legal and political hurdles in the way of Mr Marchionne's dream

s.foley@independent.co.uk

Start your day with The Independent, sign up for daily news emails
ebooks
ebooksAn introduction to the ground rules of British democracy
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

SThree: Trainee Recruitment Consultant

£20000 - £25000 per annum + OTE £45K: SThree: SThree were established in 1986....

Recruitment Genius: Compliance Manager

£40000 - £60000 per annum: Recruitment Genius: A Compliance Manager is require...

SThree: Talent Acquisition Consultant

£22500 - £27000 per annum + OTE £45K: SThree: Since our inception in 1986, STh...

Recruitment Genius: Experienced Financial Advisers and Paraplanners

Negotiable: Recruitment Genius: This extremely successful and well-established...

Day In a Page

Seifeddine Rezgui: What motivated a shy student to kill 38 holidaymakers in Tunisia?

Making of a killer

What motivated a shy student to kill 38 holidaymakers in Tunisia?
UK Heatwave: Temperatures on the tube are going to exceed the legal limit for transporting cattle

Just when you thought your commute couldn't get any worse...

Heatwave will see temperatures on the Tube exceed legal limit for transporting cattle
Exclusive - The Real Stories of Migrant Britain: Swapping Bucharest for London

The Real Stories of Migrant Britain

Meet the man who swapped Romania for the UK in a bid to provide for his family, only to discover that the home he left behind wasn't quite what it seemed
Cheaper energy on the way, but it's not all sunshine and rainbows

Cheaper energy on the way, but it's not all sunshine and rainbows

Solar power will help bring down electricity prices over the next five years, according to a new report. But it’s cheap imports of ‘dirty power’ that will lower them the most
Katy Perry prevented from buying California convent for $14.5m after nuns sell to local businesswoman instead

No grace of God for Katy Perry as sisters act to stop her buying convent

Archdiocese sues nuns who turned down star’s $14.5m because they don’t approve of her
Ajmer: The ancient Indian metropolis chosen to be a 'smart city' where residents would just be happy to have power and running water

Residents just want water and power in a city chosen to be a ‘smart’ metropolis

The Indian Government has launched an ambitious plan to transform 100 of its crumbling cities
Michael Fassbender in 'Macbeth': The Scottish play on film, from Welles to Cheggers

Something wicked?

Films of Macbeth don’t always end well - just ask Orson Welles... and Keith Chegwin
10 best sun creams for body

10 best sun creams for body

Make sure you’re protected from head to toe in the heatwave
Wimbledon 2015: Nick Bollettieri - Milos Raonic has ability to get to the top but he must learn to handle pressure in big games

Nick Bollettieri's Wimbledon files

Milos Raonic has ability to get to the top but he must learn to handle pressure in big games
Women's World Cup 2015: How England's semi-final success could do wonders for both sexes

There is more than a shiny trophy to be won by England’s World Cup women

The success of the decidedly non-famous females wearing the Three Lions could do wonders for a ‘man’s game’ riddled with cynicism and greed
How to stop an asteroid hitting Earth: Would people co-operate to face down a global peril?

How to stop an asteroid hitting Earth

Would people cooperate to face a global peril?
Just one day to find €1.6bn: Greece edges nearer euro exit

One day to find €1.6bn

Greece is edging inexorably towards an exit from the euro
New 'Iron Man' augmented reality technology could help surgeons and firefighters, say scientists

'Iron Man' augmented reality technology could become reality

Holographic projections would provide extra information on objects in a person's visual field in real time
Sugary drinks 'are killing 184,000 adults around the world every year'

Sugary drinks are killing 184,000 adults around the world every year

The drinks that should be eliminated from people's diets
Pride of Place: Historians map out untold LGBT histories of locations throughout UK

Historians map out untold LGBT histories

Public are being asked to help improve the map