The good times are rolling where Walker Road meets Tecumseh Road in Windsor, Ont.
Buyers of Jeeps, Ram pickup trucks and Pacifica minivans are driving off the new car lot regularly at Motor City Chrysler, making it one of the country’s top 10 Chrysler dealerships by sales. On the south side of Tecumseh, the sprawling Chrysler assembly plant that cranks out the minivans is running full tilt, three shifts a day.
It’s unlikely that when Sergio Marchionne began Fiat SpA’s 2009 rescue of Chrysler LLC, he was thinking about this otherwise nondescript stretch of road in a mid-sized Canadian city. But the fact that there is still a Chrysler dealership here in Windsor, selling Chrysler vehicles made in a factory across the street, speaks to Mr. Marchionne’s achievement – leading the revitalization of an auto maker that was all but dead nine years ago.
Back then, Chrysler was on the verge of chapter 11 bankruptcy protection amid the biggest plunge in sales the auto industry had encountered since the Great Depression. Led by Mr. Marchionne, the company’s Italian-born, Canadian-educated chief executive, the merged company’s stock has outperformed its peers, and its business is now global. “Fiat Chrysler today is a pretty healthy company,” says long-time industry observer John Casesa, “and he created it out of two very unhealthy companies.”
There were advisers on the Obama administration’s auto task force who believed Chrysler should not be saved, even with bankruptcy protection, and thought its assets should be liquidated. The product cupboard was bare; vehicle sales had dropped to the point where the company shut all its plants for a month; it could barely afford to rent spotlights to display its cars at early 2009 auto shows; and president Tom LaSorda had spent months on a fruitless global search to find a buyer for the company.
Job one then was survival, initiated by a complete overhaul. Chrysler roared back to life and allowed the merged company, Fiat Chrysler Automobiles NV, to thrive. The turnaround benefited from Mr. Marchionne’s repair job, from the economies of scale created by the merger, from record industry sales in the U.S. market and a shift in consumer tastes that plays to the company’s strengths in utility vehicles and trucks.
By one measure, it is now more profitable than its Detroit rivals, Ford Motor Co. and General Motors Co.
All of that came with Mr. Marchionne at the helm.
Now, however, the 65-year-old change agent is facing a new challenge as he puts the finishing touches on his latest five-year business plan. It will be unveiled June 1 in Italy.
In his last plan as chief executive officer before he departs next year, he will have to lay a foundation for the company to sustain itself in a new automotive era – one that encompasses the end of the internal combustion engine and the rise of autonomous vehicles.
Fiat Chrysler is not considered a leader in electric or self-driving technology. It’s known mostly for trucks, Jeeps and other large vehicles that are not very fuel-efficient. Mr. Marchionne has made a bet that participating in alliances with other industry players and technology firms such as Google, as well as the potential to purchase off-the-shelf technology, might be the best way to participate in the disruption.
Even though he has work to do to prepare Fiat Chrysler for that new era, he has experience – he already saved one company that was given up for dead.
He is among the most unusual executives in the industry and has no fear of speaking his mind on company and industry issues. He sets financial targets, made them public and generally met them.
The success of the turnaround at Chrysler caused analyst Adam Jonas of Morgan Stanley to offer effusive praise – beyond the usual analyst congratulations on a successful quarter – during the company’s first-quarter conference call earlier this year.
“You took €2-billion [$3-billion] roughly and you turned it into, I think, around €72-billion," Mr. Jonas told Mr. Marchionne. “And you beat the skeptics every step of the way. So I just had to say: God bless you, Sergio. We’re never going to see anyone like you again.”
Mr. Marchionne was born in Italy in 1952 and arrived in Canada in 1966, spending his formative academic years here – some of them earning a commerce degree and an MBA at the University of Windsor.
He gained manufacturing experience at Canadian packaging company Lawson Mardon Group and later at an aluminum and chemical company then called Alusuisse-Lonza, but had never run an auto maker before landing at Fiat as its new CEO in 2004.
When he was appointed, “Fiat was a laughingstock,” he wrote in a 2008 first-person piece in Harvard Business Review. (The company refused repeated requests to interview Mr. Marchionne for this article.) Fiat had run up huge losses and debts, but he restored profits in part by identifying and promoting talented younger managers and cutting the development time for new vehicles by more than half. The new Fiat 500 subcompact caught the European market’s attention and became a huge hit.
“I’m a conduit for change, but it’s the people in my organization who actually make change happen,” he added in his Harvard Business Review essay.
He was already well known in one head office in Detroit, having engineered a US$2-billion payment from the then-General Motors Corp. in 2005 that relieved GM of the burden of having to buy Fiat’s automotive business. The cash gave Fiat a cash boost that helped restore that battered company to profitability.
By the time of the Great Recession, Fiat was healthier, but it needed to expand in key markets where it was all but non-existent. Chrysler offered an instant presence in North America, even though the notoriously boom-and-bust company was in even worse shape than Fiat had been in 2004.
The fear was pervasive – right down to the dealer level. “It was the scariest time in my life,” says Motor City co-owner Tom Mayhew, who then owned Tilbury Chrysler, a 45-minute drive southeast of Windsor.
Chrysler was so desperate that it was offering huge rebates that amounted to a fire sale, Mr. Mayhew recalls.
Jason Bray, who was at Motor City during that period and is now the dealership’s general manager, says Chrysler was so strapped for cash that it couldn’t provide dealers with spare parts to cover warranty work.
“We had to go to a wrecker to find parts for warranties on customers’ cars,” he says.
The federal U.S. auto task force that had been set up to examine whether to bail out GM and Chrysler concluded that the smallest of the Detroit Three wasn’t worth saving.
But the task force was overruled by National Economic Council director Larry Summers, who recommended that the government instead preside over a Fiat/Chrysler wedding.
After back-and-forth negotiations, the United States, Canadian and Ontario governments provided loans for a deal in the spring of 2009 that gave Fiat a 20 per cent stake in Chrysler and management control, plus another 15 per cent once it met certain U.S. manufacturing and marketing targets. Fiat did not put up any cash.
The bargaining was tense and volatile, Steven Rattner, chief of the Obama auto task force, wrote in his book Overhaul, an account of the crisis.
Mr. Rattner recounts Mr. Marchionne swearing at underlings during meetings and heading to an Apple store in Washington to cool off when things weren’t going his way.
The U.S. government believed Chrysler to be worthless, says one former Obama administration source intimately familiar with the negotiations. But negotiators knew that Chrysler had value to Fiat, this source says, because it provided an opportunity for instant global expansion of the auto maker. Though a force in Europe and South America, Fiat had almost zero presence in North America.
The repair job at Chrysler borrowed some of the elements Mr. Marchionne used to fix Fiat. He flattened the management structure and promoted younger managers.
He took an office among the engineers on the fourth floor of the technical centre at Chrysler headquarters in Auburn Hills, Mich., not the 15th floor of the head office tower where previous CEOs had resided.
He installed Fiat’s so-called World Class Manufacturing System at Chrysler factories. Chrysler established a training academy in Warren, Mich., to educate workers and managers about the system, which calls for zero waste, zero defects, zero inventory and zero breakdowns.
He invested billions to expand Jeep, which, with its loyal customers and strong brand, was one of the crown jewels of Chrysler. Jeep had global cachet, but had languished while the company tried to conserve cash.
Now, Jeep is Fiat Chrysler’s leading brand, notes Paul Nieuwenhuis, co-director of the Centre for Automotive Industry Research at Cardiff University in Wales.
“One of the strengths of Marchionne has been that he has recognized that,” Prof. Nieuwenhuis says. “Jeep is one of the strongest brands worldwide in that it is recognized everywhere. Even countries that have not seen a Jeep know what a Jeep is.” The brand accounted for about 45 per cent of Fiat Chrysler’s U.S. sales in the first quarter of 2018.
Another key move was streamlining the confusing array of vehicles in the Dodge division by stripping Ram trucks out of Dodge and setting up Ram as a separate division.
The shabby interiors of Chrysler vehicles were upgraded with higher-quality materials, which helped end the debilitating necessity of offering massive rebates in order to move the metal.
By 2011, the combined entity was in the black, reporting a profit of €1.65-billion, or US$1.93-billion at current exchange rates.
The company is now a strong player on three continents and has launched its luxury Alfa Romeo brand in Asia.
One measure of his success is found in Fiat Chrysler’s stock price, says Mr. Casesa, who followed both companies as a Wall Street analyst and for a time held a senior executive position at Ford Motor Co.
Since the combined Fiat Chrysler was listed publicly in October, 2014, its shares have risen fourfold, compared with a slight dip in shares of Ford and a small rise in those of GM over the same period.
“His record is so clear. He’s outperformed the rest of the industry, but he’s outperformed an extremely hot stock market, too,” Mr. Casesa says.
By the crude measure of final profit per vehicle delivered, Fiat Chrysler also outshone both its Detroit rivals in the three months ended March 30. Fiat Chrysler’s profit per vehicle stood at US$1,090 at an exchange rate of US$1.229 to €1. Ford clocked in at US$1,044, while GM trailed at US$499.
When it comes to vehicle quality, however, Mr. Marchionne has failed to launch the company into the top ranks among auto makers.
Four of its five brands ranked below the industry average in 2017 in a widely followed study of quality. While that was an improvement on the 2016 rankings when all five divisions were below industry average, the Fiat brand was at the bottom of the list.
On Friday, the company announced a recall of 4.8-million vehicles in the U.S. market to repair cruise control modules that potentially won’t shut off.
Fiat Chrysler also came under fire for how it calculated its monthly sales results in North America. U.S. dealers in Illinois sued the company in 2016, accusing the company of offering bonuses to some dealers that inflate its monthly sales results. The suit is on-going in the U.S. District Court in Northern Illinois; Fiat Chrysler has rejected the allegations.
At least one U.S. media outlet is banned from attending events involving Mr. Marchionne because of coverage the company considers unfair.
Mr. Marchionne stands out from the legions of buttoned-down auto industry CEOs.
Part of that is his attire – never a tie, but always a black sweater, usually over a blue checked shirt. He once described the rationale for this as saving him three seconds every morning.
But a bigger difference from the rest of the auto industry is his blunt manner of speaking, which differs from the standard CEO utterances that seem to be run through a computer program that eliminates anything controversial.
The federal and Ontario governments heard an earful in early 2014 when he was negotiating with them for financial support for an investment in the Windsor and Brampton assembly plants.
Canada is “a guppy in shark-infested waters,” he said in noting that Fiat Chrysler had other places where it could spend its money.
Senior Fiat Chrysler executives can also be subject to his wrath.
Documents released last week in a class-action suit against Fiat Chrysler and reported by U.S. news agencies showed that he sent a blistering e-mail to public relations chief Gualberto Ranieri in 2015, chastising him for releasing a statement in the middle of the Volkswagen AG diesel engine scandal saying that Fiat Chrysler had not made similar moves.
The e-mail said the statement was “utterly stupid” and asked Mr. Ranieri if he was “out of his goddam mind [sic].”
But it was his extraordinary “Confessions of a Capital Junkie” presentation in April, 2015, that marked him as a CEO who would be unusual in any industry.
The document was a public call for a consolidation among auto makers. In typical Marchionne fashion, he quoted such diverse figures as Lewis Carroll and the late U.S. Senator Daniel Moynihan to outline how the sector had destroyed value for generations.
He criticized the long-held industry practice of each auto maker spending billions to develop its own engines, transmissions and other components that customers never see and don’t care whether they differ from one another.
His analysis of nine sectors showed the return on invested capital among mainstream auto makers was 7.8 per cent in 2014, the lowest ranking of the industries he studied. The packaging industry generated 14-per-cent returns and the consumer and retail business led with 22 per cent.
“A horrible part about this, and the thing that I find most offensive, is that the capital consumption rate is duplicative,” he said on a conference call accompanying the presentation. “It doesn’t deliver real value to consumers, and it is, in its purest form, economic waste. It is fundamentally immoral to allow this waste to continue unchecked.”
That public argument went unheeded, as did a 2015 e-mail message to Mary Barra, CEO of GM, proposing a merger. GM’s board studied the offer and rejected it.
GM and other companies have their own reasons for staying on their current courses. Among them is a buoyant vehicle market in North America, cultural differences in merger and acquisition activity – the Japan-based companies, for example, do not buy foreign rivals – and history. The marriage of Daimler AG and the old Chrysler Corp., for example, ended in divorce after less than a decade.
Having scale is a necessity, says Mr. Casesa, and so Fiat Chrysler will likely need to get bigger.
“This is a mature industry and there will only be more margin pressure as the Chinese build scale. There will be increased pressure to consolidate over time, not just for FCA, but for the others as well,” he says.
So Mr. Marchionne has fallen short of realizing his grandest consolidation ambition, just as regulatory changes that require the companies to improve fuel economy and reduce vehicle emissions begin to come into force and all but demand that auto makers improve their economies of scale.
They are spending billions to develop electric vehicles and others that use less gasoline or no gasoline at all. They’re also in an the midst of an expensive race to design and perfect autonomous-vehicle technology.
A company that can spread the costs of these two initiatives over a greater number of vehicles produced should have an advantage.
Fiat Chrysler, for example, can’t afford to be a leader in developing the new technologies, Mr. Casesa notes, because it’s not as big as high-volume auto makers such as GM, Toyota Motor Corp. and Volkswagen AG.
“Because of their size, they have to be very judicious with their capital and find a way to stay in the marathon, but not spend what it takes to be at the front of the pack,” he says.
That raises a big issue for Mr. Marchionne in his 2018-22 plan to be introduced next week, because so far, Fiat Chrysler lags its rivals in preparing for disruption.
Mr. Marchionne has noted that the company loses US$20,000 on every electric Fiat 500 subcompact it sells, and he told reporters in Detroit in January that he doesn’t believe any auto maker is currently turning a profit on electric vehicles.
On the company’s first-quarter conference call last month, he pointed to new European regulations on emissions as being the most difficult in terms of complexity.
“Anything that we do, vis-à-vis 2022, has to take that issue into account, and that needs to be the single largest driver of the repositioning of the business,” he said. The fines and penalties for non-compliance “need to be avoided like the black plague.”
The key change is that beginning in 2020, vehicles will be allowed to emit 95 grams of carbon dioxide for every kilometre travelled, compared with 130 grams per kilometre now.
The regulations will force the industry to speed up the introduction of electric vehicles, says Ferdinand Dudenhoffer, co-director of the Centre for Automotive Research at the University of Duisburg-Essen in Germany.
That’s a critical issue for Fiat Chrysler, Prof. Dudenhoffer notes, “because in my point of view they are very, very weak in this discipline, and far behind competition like Renault or Volkswagen.”
Another key question is whether the remaking of the company, which has all but eliminated its debt, has left the auto maker financially strong enough to survive another industry slump and leave its roller-coaster financial history behind.
“The perpetual challenge will be how to make the European business healthy,” Mr. Casesa observes. “Fiat’s under intense competitive pressure.”
It’s not possible to know how the tectonic changes now roiling the industry will affect the 6,100 people who make minivans in Windsor. Then there are the 5,774 other Fiat Chrysler Canada employees who work at a car assembly plant in Brampton, Ont., an engine parts factory in Toronto and the Canadian head office, also in Windsor.
The 2020s will likely be rosier for those staffers than the grim days the company endured in 2009. Many of their jobs – perhaps all of them – would have vanished had Mr. Marchionne and Fiat decided against the takeover, and had Chrysler been liquidated, which was the only other likely scenario in the depths of the Great Recession.
“If he didn’t make that decision, Chrysler is not here today,” declares Ken Lewenza, who was Canadian Auto Workers president at the time and who also is a Windsor native who toiled in the assembly plant there before anyone had ever heard the word minivan. “There were no other takers.”
Mr. Lewenza wants the new business plan to include a new vehicle for the minivan plant, although a hybrid-electric version of that vehicle will be some help as the regulations become more stringent.
As someone who worked in the plant more than four decades ago, and as someone who has purchased his last 10 vehicles from Motor City, Mr. Lewenza knows how vital Fiat Chrysler is to Windsor.
What if there were no Fiat Chrysler in Windsor, he is asked over a medium double-double at a Tim Horton’s a couple of blocks east of the plant on Tecumseh Avenue.
The city “would not recover,” he says grimly. “It’s the engine here. It is everything.”