No takeover deal for FCA as it waits on car brand spin-off

04 September 2017

Fiat Chrysler Automobiles (FCA) has found itself making headlines in the past month, with talk of acquisitions, spin-outs and potential mergers with larger vehicle manufacturers to consolidate the company.

During August, Chinese vehicle maker Great Wall was linked with a takeover of the company’s Jeep brand. This news was met with some scepticism by analysts, especially as the off-road manufacturer is considered as the ′jewel’ in FCA’s crown, valued at more than the rest of the group’s brands combined. This was confirmed when Great Wall distanced themselves from reports, suggesting it had made a brief enquiry but had not heard back from the Italian firm.

Following this, there was much speculation about the future of FCA, with CEO Sergio Marchionne suggesting that in order to unlock value in the company, brands Alfa Romeo and Maserati could be spun out into a separate company, while its parts division could also be wound out. This could then make the carmaker more attractive to a takeover or partnership with a larger manufacturer.

However, speaking at the recent Italian Grand Prix in Monza, Marchionne told journalists that the company has not received any offer for a takeover, nor was it working on any ′big deal’. The CEO admitted that the company was still working on ′purifying’ its portfolio and that its components business would be separated by the end of 2018.

′There are activities within the group that do not belong to a car manufacturer, for example the components businesses. The group needs to be cleared of those things,’ he said. When asked about the timescale for an announcement, he said it was up to the board, who would be meeting at the end of September.

Spinning off the components section of the business, which includes brands like Magneti Marelli would reduce FCA’s net debt by 38%, even as it reduces adjusted operating profit by 8%, according to Bloomberg. The spun-out division could be valued at up to €5 billion.

However, Marchionne also suggested that the time is not yet right for a spin-off of the Alfa Romeo and Maserati brands into a premium car company, suggesting that the brands need to become self-sustainable entities first and be able to ′stand on their own two feet and make sufficient cash.’

′The way we see it now, it’s almost impossible, if not impossible, to see a spin-off of Alfa Romeo/Maserati, these are two entities that are immature and in a development phase,” he said. ′It’s the wrong moment, we are not in a condition to do it.’

However, he did concede that the idea of separating the brands from the company’s core business made sense, but suggested it would not happen under his tenure, which lasts until his planned retirement in April 2019.

Following the sale of Opel to PSA, Daimler chief Dieter Zetsche suggested that FCA was the last standalone brand in the automotive industry, but would need to consolidate with another manufacturer to secure its future. This is something that Marchionne agrees with, and has long been a vocal proponent of carmakers’ consolidation, arguing that the industry wastes money by developing multiple versions of the same technology.

Those pressures have only intensified as countries such as the UK and France set deadlines to eliminate combustion engines, while self-driving technologies and ride-hailing services threaten to upend auto manufacturers’ traditional business model. The company is looking to work with VW on a commercial vehicle plan, although talks on developing cars together have not come to fruition.

Photograph courtesy of FCA