Fiat chief searches for Plan B after Opel defeat

Bloomberg

Fiat Chief Executive Officer Sergio Marchionne, spurned in a bid to buy General Motors’ Opel division, may struggle to find a back-up plan and reach his goal of building the world’s No. 2 carmaker.

German officials picked Canadian auto-parts supplier Magna International instead of Fiat over the weekend as the preferred bidder for Opel, which employs 25,000 people in Germany making cars such as the Corsa. The country will provide a 1.5 billion-euro ($2.1 billion) loan for Opel as it negotiates with Magna to conclude a deal.

"It’s going to be difficult to have a real Plan B for Marchionne," said Pierluigi Bellini, an automotive analyst at Global Insight in Milan. "Opel was a good option, the best one in Europe, especially because it’s a bargain sale."

There are few partners big enough to get Marchionne to his target of selling 6 million cars a year. Without Opel, he will be 2 million short and remaining GM assets aren’t enough to plug the gap alone.

Marchionne, who is waiting for a U.S. bankruptcy court to approve Fiat’s plan to take a 20 percent stake in Chrysler, wanted to fold Opel into a new publicly traded company that included Fiat’s auto business and the stake in the U.S. carmaker. The business would have been the largest challenger to Toyota Motor, the world’s biggest automaker.

The 56-year-old Fiat executive is driving consolidation in the global auto industry because he expects only six global producers will survive the recession. He had forecast at least 1.4 billion euros in savings every year from a merger with Opel by combining platforms such as the chassis of Fiat’s Punto and the Opel Corsa.

Italian Finance Minister Giulio Tremonti said Fiat may have lost out on Opel because Marchionne played by market rules and didn’t seek government help with the offer. Speaking on state broadcaster RAI on May 30, Tremonti said the CEO would have had more chance of succeeding if he’d been prepared to approach Prime Minister Silvio Berlusconi about the bid.

Magna’s rescue plan is backed by state-run Russian lender Sberbank.

Credit Suisse analyst David Arnold said in an e-mail that Fiat’s failure to agree a deal with GM may hurt the company’s shares, which had begun to price in savings from a merger, sending them to a 65 percent gain this year. He reiterated his "underperform" rating on the company.

Restructuring necessary

Marchionne says manufacturers need to produce between 5.5 million and 6 million cars to be big enough to make a profit and survive in coming years. "A serious restructuring of this industry is absolutely necessary," he said at a Montreal press conference May 29. "Independence is no longer sustainable."

Car producers mistakenly adopt the view that they are all in a luxury sector and instead should realize that the car business "is a Wal-Mart industry," Marchionne said.

"If ... Opel ... is not available to Fiat, life will move on," he said. "We’ll continue to work with what we have."

His alternatives may include buying GM’s profitable Latin American business, purchasing GM’s Saab unit, or seeking an alliance with another European carmaker such as PSA Peugeot Citroen in France or BMW in Germany.

Fiat produced just over 2 million cars last year. Buying the GM Latin America business would add about 1 million vehicles, on top of the 2 million made by Chrysler.

Giuseppe Berta, a professor of contemporary history at Milan’s Bocconi University, said Marchionne will probably make buying the Latin American division his priority. Adding the unit will establish Fiat as No. 1 carmaker in the region, and without it, "he can’t turn around Chrysler," said Berta, the author of "Fiat After Fiat: The History of a Crisis."