Sorry, Sergio, the Industry Doesn’t Need an FCA-GM Merger
Moment of Zenlea
Sergio Marchionne is stepping up his campaign for a merger between FCA and General Motors. In a frank (and frankly creepy) interview with Automotive News published this week, he pressed for "physical contact" between the companies to discuss joining forces. His oft-repeated message, beyond the specific benefits he imagines for GM and FCA, is that auto companies spend too much money developing very similar products and parts and should consolidate to reduce what he describes as "pure economic waste."
"It's fundamentally immoral to allow for that waste to continue unchecked," Marchionne said back in April.
Forgive me for asking, Sergio, but when did competition become "wasteful"? And for whom?
It is true that certain parts of cars are the same regardless of what you drive. We probably don't need dozens of companies building brake rotors, for instance. It is thus no surprise that the number of auto suppliers -- the guys who actually build such parts for the automakers -- has fallen drastically over the last decade and continues to dwindle.
But there are other parts that should not be the same from car to car and, more important, should not stay the same. For instance: the hybrid powertrain. Some automakers put electric motors in the transmission. Others put them in the wheels. Some use lithium ion batteries. Others say nickel metal-hydride is smarter. Who's right? We'll see. This is how competition fuels progress -- multiple companies innovate and the customer decides which solution is best. The more ideas, the better.
Lost in all the talk about consolidation is the fact that we've already tried it. From the end of the Second World War through the mid 1970s, the U.S. auto industry was controlled by three automakers (sorry, AMC didn't count). General Motors alone commanded about half the market.
This period, not coincidentally, saw few technical innovations reach the U.S. auto market. Cars got longer, lower, and more powerful, but their core structures and technology remained the same. John DeLorean, the iconoclast engineer who left GM in the 1970s, noted in his scathing memoir, "On a Clear Day You Can See General Motors," that "there hadn't been an important product innovation in the industry since the automatic transmission and power steering in 1949." At the same time, the Big Three teamed up to fight tooth and nail against safety and technology regulations.
All this was bad for consumers. Ultimately, it was also bad for the Big Three. The lack of competition left them completely unprepared for the oil shortages of the '70s and early '80s. It also discouraged them from streamlining their own businesses. This is what GM's Mary Barra was getting at when, in response to Marchionne, she said, "We're still merging with ourselves." Growing bigger by buying other companies is just a way to stave off the really hard work of getting smarter.
And make no mistake: Some of the smartest automakers these days are the smallest. Mazda, which sells less than a third as many cars as FCA, has dramatically pared down the number of different components it puts in its cars, so that a Mazda CX-5 is remarkably similar under its skin to a Mazda6. Mazda benefits from spending less money to make two cars. Customers benefit from the fact that those cars are really good.
Small companies also tend to be the ballsiest. The CEOs of most big companies, Marchionne included, scoffed when Elon Musk said he was going to build a battery-powered sport sedan. Now they're all scrambling to compete with Tesla.
Marchionne's real problem is that his company is neither that big nor that smart. Let us not forget that FCA is a random hodgepodge of brands, many of which suffered from years of underinvestment. This company trails behind most its competitors in fuel efficient technology -- it pays fines to the federal government for missing fuel economy targets -- and builds cars and trucks off too many platforms that have little in common with one another. You can't blame Marchionne, faced with all these issues, for latching onto a radical solution like a merger with GM. But that's not an industry-wide problem. That's one man's mess.