On the Record: FCA Chief Sergio Marchionne Speaks Out
“My saving grace was that I did not know how to build cars”
TURIN, Italy -- The only request is that no photography be taken, and when Sergio Marchionne steps into the room, it is clear why. Despite a quick shower and fresh clothes, the CEO of Fiat Chrysler Automobiles still looks dog tired after another transatlantic flight. Before sitting down, he empties his pockets and produces four trademark utensils: two smartphones, a fresh packet of Muratti Privat filter cigarettes, and a lighter.
FCA's 64-year-old captain gets straight to the heart of the matter in his melodious bear-wants-honey drawl: "This industry is at a crossroads. I don't think any of us has an idea as to what the right answer is. To me, the biggest issue is the impact technology has on what we are doing. Like the formation of a driverless environment, which is a mandatory future option and not even expensive. Products will go through a cycle of becoming either technologically obsolete or technologically relevant. The car already recognizes who you are; it's one of the main interfaces between the world you are in and the world beyond. All this stuff is here to stay. It is going to be available at the speed of light, so we must act like a flash."
Everyone is drinking mineral water except the boss, who brought his own pale-yellow tea-and-lemonade mix in two small transparent bottles. No alcohol, no main course, no dessert. Marchionne has lost weight lately, and he looks physically fit even on a day like today when the spectacle lenses sparkle brighter than the eyes behind them.
Is the end near for the classic combustion engine? "Although the relevance of combustion will decrease, it will still be an important driver of mobility. Electrification may be the next big thing, but I'm amazed by the impact of Tesla's new Model 3," Marchionne says. "With 300,000 orders in hand [around 400,000 at last count], their stock is up — again. It reminds me of the internet bubble. But where is the business model that will work in the long term? People should realize that there is nothing another company cannot replicate."
Except that the Tesla was the first carmaker to go fully electric with up-market products, and they made this concept stick. In fact they created an icon, just like Apple did with its iconic iPhone. Is this not an approach FCA could mimic? "Welcome to the world of icons!" quips Marchionne. "I don't make iPhones. I make cars. Why don't I make the iPhone of cars? Because if it looks and smells like Tesla, I don't know how to make that economic model work. There is nothing Tesla does that we cannot also do. We build cars, sell them, and are still able to pay the bills. But I'm not even sure you can recover all of your costs — let alone generate a profit — through electrification. The answer is bound to be somewhere else, and the question is whether we are doing enough to try explore that somewhere else."
Disarmingly open-minded and aggressively forward-thinking, Marchionne manages to retain some old-school habits in his personal life. Like listening to records played on a high-tech turntable, preferably opera or classical music. Or reading books, about 250 pages per long-haul flight; heavy stuff like philosophical and scientific writings. A couple of floors down in his personal office in the vast Lingotto complex, which serves as FCA's headquarters, the walls are lined choc-a-bloc with listening and reading material. Up here in the light but barren makeshift dining room, you don't need more than the fingers of one hand to count trinkets like flowers or paintings.
Although talking and eating don't mix, Marchionne wastes no time hammering his message home. "Contrary to what some of my colleagues believe, we are not in the mobility business. We don't move people around. There was a time when everyone started buying rental car companies because we thought that was an easy sales channel. For similar reasons, we were in the finance business. But at the end of the day, we are only building the tools that allow people to be mobile. I don't want to buy into the distribution machine like GM did by paying $500 million for a 10-percent stake in Lyft."
During our two-hour session, Sergio's phones remain silent. But there is no doubt that digitalization and Big Data play an increasingly important role in the business life of the quick strategic thinker. Apple, Uber, and Google are names that automatically come to mind in this context. Even though he does not want to turn FCA into a mobility service provider, that's exactly the approach Apple, Google, and Uber have chosen to chase the consumer attention and money.
Marchionne keeps emphasizing that "we have no skills to provide such services. But there are partners out there who would love to share their skills. Now this could be a business model that works. To find out, we have to let them in." He pauses for breath, sends one text message, lights a cigarette and pours one more glass of ambrosia. "Google can buy every automaker out of petty cash. And Apple, they made a net profit of $24 billion in one quarter. This is nonsense. What are we defending? What?"
By the time the waiter takes the first set of plates away, Marchionne is beginning to enjoy our little conversation, shifting up one gear with every new topic. "My approach is to be completely open to technology. I think the next paradigm of this business is a paradigm that involves the cooperation for technology with the disruptors. Google is one. Apple is another, even Uber. It's all about access to the complete information on what people do in the car. That's when the consumer has time on hand and the business case blossoms. The key is to find a way in which we can coexist with the disruptors and bring our set of skills to the table. Speed is essential here. We must establish a link ASAP, must talk to the big players, the newcomers, and the underdogs, everybody. The goal is job sharing on a high level. We build the cars, they build the technology that goes into them. Ideally, I can take this technology and use it across my other brands."
As we wait for the main course, the discussion drifts into the vague undergrowth of ifs, whens, and buts. After all, what the industry is facing is the clash of two worlds. Old vs. new, slow vs. flexible, old-fashioned structures hampered by high fixed costs vs. slim and highly flexible start-ups, single-digit profit margins vs. 50 or 75 percent margins. In a win-win proposal, FCA would integrate the Apple ecosystem into a set of modified vehicles. At the same time, they would make room for Google and its map services, connectivity know-how and software power. On a scale from good to bad, Apple has been described by analysts as Snow White while Uber has more of a Darth Vader touch. Google is somewhere in the middle, plenty of potential tied to numerous possible pitfalls. Does Marchionne see the charm of a scenario in which Apple would, for instance, connect with Jeep, Alfa Romeo, Google, and Dodge with Uber? "That would be a really nice network," is the answer, accompanied by a broad grin. "It's brand relevance with a strong technology link."
Is this man an ingenious maverick or a notorious tightrope walker? A gambler in a game with revolving players, facedown cards, and no limit? Why, one must ask, are most of his competitors working on proprietary mobility concepts that encourage intra-industry integration while generating and protecting their customers' data? One could perhaps see Fiat Chrysler come to individual agreements with the likes of Apple but surely only as a junior partner, a production puppet on a string, the Foxconn of car manufacturers. Marchionne ponders this, nods, and says: "I have got to be able to find an economic model that allows me to survive the event. My successor has to inherit at least the propensity to absorb, to let these things come in, even nurture them in our environment, then strike a deal. Because they ain't going away."
The Marchionne regency will end in 2018 at the latest. But who is the designated next king of FCA castle? What are the qualities he or she must bring to the throne? Should that person be a car guy or a side-entrant like Marchionne was when he joined 12 years ago? Which additional skills are required to prepare the group for new challenges like electromobility and digitalization?
"My successor is in the house," answers the current ruler. "There is a list of people but no favorite. None of them is a traditional car guy. They would never tell you trivial things nor would they tell you dogmas. They are totally open and have the ability to move and shift. If they recognize a mistake or that things have changed, they address that issue and fix it. We set a bunch of targets for 2018, and they are fundamentally the only ones who are essential in consolidating our position as a reputable car company. Because that is what we now are."
FCA thus has less than three years to secure 9 billion euro in operating profit per annum and to accumulate more than 5 billion euro in cash. This would be a remarkable achievement for what once was a moribund enterprise that was hemorrhaging millions of euro a day back in 2004. The question is: Can Marchionne, his present allies, and his successor go this alone? Is the chairman's pet subject, consolidation with another big player, a precondition for survival, accepting plant closures and job cuts as unavoidable collateral damage? If so, where are the suitable brides?
General Motor CEO Mary Barra said no, the Chinese partner needs more time to grow, Toyota is overwhelmingly powerful, Mazda is too small. Presumably the suitable candidate should be strong in Asia but can be weak in North America. Ten months ago, that candidate was Volkswagen. Although VW's board of directors — above all the labor leader Bernd Osterloh — was not yet fully convinced, a deal was in the process of being put together. But then Dieselgate rocked Wolfsburg.
Marchionne would neither confirm nor comment on it, but a merger with FCA could bring to VW instant credibility in North America by fixing almost all their issues with the support of a company that understands the U.S. market. Further upside potential includes Fiat's cost-efficient ("The marque is now profitable in 28 European markets. ") small car infrastructure in Europe ("We know how to do cheap. "), the appeal of the flourishing Jeep brand in a world that has gone SUV crazy, and the attraction of Alfa Romeo and Maserati, which would be a splendid fit to any automaker's premium product portfolio. The man in the black pullover sweater is listening to all this, poker-faced, and unusually tight-lipped. His sparse remarks are either off the record or non-committal, but there is little doubt that according to the boss's mindset FCA would one of the best things that could happen to VW.
Then there's the matter of Ferrari. On the stock exchange, Ferrari is now worth about 10 billion euro compared to Fiat Chrysler at about 17 billion euro. Ferrari netted 265 million euro last year, but despite repeated management changes, it remains a sports-car manufacturer and not a luxury goods brand. Selling caps and T-shirts may in fact be counter-productive in the business environment of the very wealthy to whose Ferrari brand values don't stretch much beyond V-8 or V-12-engined driving machines. Marchionne claims not be worried about this and directs the conversation to Formula 1 where "watch this space; we shall very soon be within striking distance to the leaders."
What about the Ferrari road cars? When are we going to see the Dino V-6 and LaFerrarina, a less extreme version of LaFerrari? "We normally don't talk about these things. But let me ask you: Where should that Dino be positioned? How much should it cost? How would it relate to the next 488? What is the right balance between too many and not enough units? We haven't found answers to these questions yet. And by the way, the only future product connected to LaFerrari is the Spider. Which is no secret since potential customers have already been approached."
Not surprisingly, Sergio's dream garage contains exclusively FCA products. Here are his top five: LaFerrari, Enzo, Alfa 4C coupe, Giulia QV, and any Dodge powered by that awesome 707-hp Hellcat engine. In real life, the CEO drives (or is driven in) the baddest available Ram. Bullet-proof, with an armed body guard in the passenger seat, sandwiched between two chase cars, each manned with a couple of security pros.
When he feels like playing, Fiat's top gun goes to the company's Balocco test track where his favorite Ferraris are stored in a garage. "I have a 599 Aperta and a 599 GTO, but I also like the California T because it is so manageable. The 488 and the F12 are true animals. Thanks to their racing DNA, they are Ferraris at their best. The moment you start the engine, you know you can never get out again. The way the 488 takes a turn — Jesus! And as soon as electrification is ready, we'll have a bunch of even better performing Ferraris."
It turns out that two hours are not long enough to discuss a wider range of topics. Like the future of Lancia, which has no future unless the Ypsilon is replaced for the Italian market. The very late arrival of not enough plug-in hybrids and electric vehicles. Why Chrysler and Dodge are slowly moving out of the car business without adding fresh crossovers. The overdue fusion of all rear-wheel drive platforms into a scalable global architecture. The last-minute withdrawal of the proposed near full-size Alfa Alfetta. The consequences of spending a growing chunk of the juicy profits made from conventional vehicles on costly new high-tech low-volume urban runabouts. The decision on whether the next Giulietta should be front- or rear-wheel drive. The still uncertain funding for the Maserati Alfieri, which needs to be a serious Porsche 911 fighter, not a downsized GranTurismo.
Coffee for everyone and one more smoke followed by a few closing remarks. "This is an extremely complex business," acknowledges "the kid who borrowed $8 billion from Obama and paid it all back. I know that e-mobility is a must in our fight against emissions. But there is no model that we have analyzed or reconstituted that says electrification is a solid basis on which you can build cars with even a marginal return on investment and a guarantee of survival. I certainly don't know one. Autonomous driving? We'll see plenty of new vehicles embedding incredibly high levels of technology, which give you a choice between to drive and not to drive. But the car will not take over unless you ask it to. And there is more. Like how to get a handle on the highly critical infrastructure, how to jump the safety-related and legal hurdles, how to stop people perceiving carmakers as national champions, like airlines. Instead, it's the big picture that counts. To be in it, I'm prepared to strike a deal with the devil."