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Interview mit S. Marchionne

Marchionne: The party is over

Fiat CEO says it is time for auto world's 'Wal-Marts' to totally change way they do business

Luca Ciferri
Automotive News Europe
December 8, 2008 06:01 CET

In October, Fiat group reported its best ever third quarter. Its 5.6 percent operating margin was among the highest in the world.

At the time, Fiat said its would be profitable next year even if unit-sales volumes in all its sectors fell an average of 20 percent.

Things have changed drastically since then.

In an interview with Automotive News Europe Chief Correspondent Luca Ciferri, Fiat group CEO Sergio Marchionne, 56, said the industry needs to completely reinvent itself and it needs to do this fast.

What is your mood given the current crisis facing the auto industry?

I am really gloomy. What we are seeing is unprecedented. I am 56 and I have never seen anything like this.

What is wrong?

There is not one single thing that properly explains the problem. I recognize and understand parts of the problem, particularly in areas where the system has failed, because we have lived through these things before. But I have never seen the simultaneous failure of this many systems at once.

How will this crisis affect western European unit sales in 2009 and 2010?

I honestly do not know. It's not that I refuse to make a projection. I just don't have a reliable context in which to make the projection. The elements that go into predicting demand in a normal, rational world are no longer present. So I abstain.

What do you mean "abstain"?

I abstain from making commitments in terms of volumes. I really do not know how to make a credible assessment for the next couple of years. I am not trying to be an alarmist or to paint a doom-and-gloom picture. I think we'll come out of it.

But I think that the traditional, even avant-garde methods of estimating volumes, market share, the effectiveness of marketing drives, the repositioning of brands, all these things, all those elements require that there be at least one or two points of reference that are reliable.

[Currently] there are none.

As Fiat group CEO, what is your short-term answer to the gloomy scenario?

I have totally revised what I will do in the first part of 2009. We're just going to slam the brakes on, use as many temporary layoffs as needed, cut everything back to essentials. I am going to have one week of production between now and the beginning of January.

After that we're in the dark because I have no idea what demand will be. None.

It's like going swimming but never knowing if you can stand up because the bottom is so unstable that you simply can't tell when you have reached it.

Fiat is ready to weather this uncertainty in 2009, but, to be honest, it will not be easy.

If you have no idea where the bottom is, what could happen to this industry in the next 24 months?

We need to bring people around the table and say: "Look guys, the party is over. Somebody called our bluff and we're not all going to make it so let's fix it."

It may be painful. It may be ugly. But if we want to do the right thing for this industry, let's do it now.

You need at least 5.5 million to 6 million cars [a year] to have a chance of making money. It is not just the absolute number of cars that matters, but the volume associated with each architecture. Fiat is not even halfway there. And we are not alone in this. So we need to aggregate, one way or another.

Our strategy of industrial alliances was a step to get there. But given where demand is now and what we see going forward, it is too slow.

Maybe I am completely wrong, but today my gut instinct is to be truly Draconian. By the time we finish with this, in the next 24 months, as far as mass-producers are concerned, we're going to end up with one American house, one German, of size; one European-Japanese, probably with a significant extension in the US; one in Japan; one in China and one other potential European player.

That makes six volume automakers. I assume Ford or GM, VW group, Renault-Nissan, Toyota, a Chinese survivor and another European player. How could Fiat fit in?

The Wal-Marts of the automotive world, the mass-producers, which is what we are, have to find and agree that there is a new business model required to run our shops.

A number of the Wal-Marts of the auto world should quickly realize this business is going to be completely different. It cannot continue as it did in the past. Independence in this business is no longer sustainable.

I cannot continue to work on cars on my own. I need a much larger machine to help me. I need a shared machine.

So the auto industry will become like computers, where Intel makes the processors for everyone and so on?

Yes, and I don't mind being a participant and part owner of the machine. The rest of it I can dress up. I can give it the colors. I can give you that suspension, that engine, that stuff, but at the end of the day, I can't afford to spend half a billion [euros] on doing a platform.

It's not that I don't have it. I just cannot stand up in front of a shareholder or any other provider of capital and say that I am going to make a reasonable and certain return on this investment. Those days are gone.

How can you move toward a 'common machine' when you still need to develop your future products?

I'm putting the brakes on everything. I'm putting the brakes on model development that has not already gone beyond 80 percent or 90 percent. The Alfa 147 [replacement] is coming out, that won't change. But if you ask me if I will invest in a new SUV for Alfa on my own, the answer is: "No!"

I would like to get my hands on somebody else's architecture and just put the skin on it.

If I can do that for a hundred million euros, I will look like a hero.

If we don't end up thinking of this industry as a Wal-Mart industry, we're going to pay the price for thinking we were in the luxury end of the business. The problem with car guys is that they always thought that they were at the upper end of the food chain and, unfortunately, we are all sitting at the bottom. And now the world has told us so.

Which players would join Fiat to create the other European global giant that makes up to 6 million units a year?

I am looking at the whole world and I am saying: 'This is what I think is going to happen. Do you want to join forces and provide a fix to this problem?' It is no use asking me for names, I won't give you any.

How long will it take for the industry to shrink to just six global players?

You would probably see the first steps as soon as next year. It may not be pretty. It may not be nice. Some people will lose their right to lead. Some of them have been leaders for a period of time that is well in excess of their capabilities.

And that may include me. I am cool and clinical about this. I recognize that the world has changed. To use an idiom, this is the straw that broke the camel's back.

Is it really that bad for the industry?

I may be wrong about how many [volume automakers] survive, but then it's a quality-of-life discussion, right? You may continue to exist, but is it a quality life?

I really think that this industry today has to go through a fundamental re-think about what it does. If it doesn't do it, today's financial markets will have zero tolerance for them.

The world of 18 months ago would have allowed them to exist. The world of today will not give them a single inch of room. Time is up.

We have tried every trick in the book. We sold financial services. We bought financial services. We sold the supplier base. We took back the supplier base. We have done all the monkey acts corporate life allows you to do.

When I got up this morning I said, 'We're going to fix this.' If there are enough smart people out there to get this done, it will get done.

When I made those comments about the six global players what I was really talking about was that there is a difference between being a Wal-Mart and being a Neiman Marcus [highly exclusive retailer]. Ferrari can be Neiman Marcus, Maserati can, Porsche can.

There is probably another layer of relatively upscale players, but it is limited. And then there is the rest of us, the Wal-Marts of the world.

How does your low-cost brand for western Europe fit this vision?

It is part of our global rethinking.

We are Wal-Mart, but we have been living like Neiman Marcus!

The low-cost brand is a natural extension of our market coverage.

How will this crisis affect suppliers?

It is going to be painful for them, too. We have been rationalizing the supplier base but more needs to be done because we have created these incredibly bad habits.

We support the suppliers in this process. We have never forced most of them to clean it up. We went with the wrong supplier base. At Fiat most of the obvious work is done. We have cleaned it up. But much more remains to be done.

In November 2006, you said that you planned to hand over your responsibilities as CEO of Fiat Group Automobiles to someone else. I would imagine that plan is on hold.

In the middle of this? It's impossible.

Does this mean you're starting to really enjoy the auto business again?

I have always enjoyed it. But right now the next challenge is even more interesting. I have two objectives. The first is to contribute to finding a permanent fix for this automotive mess. The second is to make sure that Fiat Group Automobiles is safe because it has some good brands and some good people.

We need to bring some sense to this industry.

The only thing you have to do is look at a chart that shows how much value we have collectively destroyed over the last 20 years. In every normal world, in every industry, if you saw a chart like that the very first thing you would say is: "Give me the names of the guys who did this! I want them all out."

But we're still here. We need to get smart and fix it. Otherwise others will do it for us.