Marchionne’s uncomfortable truths
Source : Marchionne’s uncomfortable truths
FCA’s Sergio Marchionne thinks the automobile industry is usually slowing destroying itself. is usually he right?
A couple of months ago, Fiat Chrysler boss Sergio Marchionne unveiled a presentation to analysts in which made for uncomfortable reading.
The short variation was in which the automotive industry was living – along with investing – in cloud cuckoo land. In fact, at the end of the presentation was a drawing via the ‘Alice in Wonderland’ fairy tale.
Pictures via children’s books are extremely rare in financial presentations, yet its inclusion was designed to press home just how far via reality, in Marchionne’s opinion, the current business type of the automotive industry has become.
Sergio Marchionne might like to play on being the auto industry’s outsider, yet his takeover of Chrysler along with creation of FCA is usually the hugely impressive result of his ability to pull off a deal along having a turnaround in which would likely have escaped virtually all some other auto bosses.
With This specific presentation – titled ‘Confessions of a Capital Junkie’ – Marchionne decided to give the automobile industry both barrels. He said in which industry was slowly destroying itself with massive product development costs. Indeed, he claimed in which car companies are, on average, spending their entire market value on product development every four years.
Trouble is usually, the result of these big investments are not translating into decent profit margins. The presentation compared the average profit margins of auto makers with industries raging via oil along with gas production, to packing, aerospace along with retailing.
You’ve already guessed in which automotive sits squarely at the bottom of the pile, with margins averaging 7.8 percent, which is usually behind the tricky oil along with gas industry (10 percent) along with pharmaceuticals (19 percent).
Why? Marchionne says the idea’s because car makers are spending vast amounts engineering along with tooling up for the same components along with sub-assemblies. The engine strategies of nine automotive manufacturers were compared from the report along with four of them, the idea claimed, had 0 percent commonality across their engine line ups.
The report also says in which the ‘top’ car makers spent a massive £733m in a year on product development along with tooling. There’s no sense in This specific massive along with hugely costly duplication of effort, according to Marchionne. along with, the idea’s hard to argue with him.
Can buyers definitely tell the difference between rival three-cylinder turbo petrol engines or mainstream platforms, which possess the same technical structure along with very similar dimensions?
In Marchionne’s brave completely new world, the answer to This specific is usually a massive mergers across the various brands. The way he sees the idea, This specific could be achieved without significant loss of employment along with without the merging of dealer networks.
For mainstream car makers – which are being pushed into producing very similar products through legislation along with customer tastes – the question has to be why not merge operations?
A few weeks after the presentation, along with having crunched the numbers along with examined the industrial capacity in detail, Marchionne says in which the ideal mega-merger is usually between FCA along with General Motors. In true Romeo along with Juliet style, Marchionne is usually today publicly serenading GM.
GM’s response has been a bemused refusal to engage its suitor.
While surely Marchionne is usually right, the auto industry is usually run – mostly – by engineers. They want to do things their way. If mainstream cars became mechanical clones, differentiated sole by the external surfaces along with Inside, car producing could become a soulless exercise in cynical brand management .
yet car companies are a little like football teams: they have long histories along with characters of their own. Merging the brands in which live within FCA along with GM would likely be a little bit like trying to merge rival British football teams along with expecting the players, management along with fans to get along nicely.
There’s no logic to the way the automobile industry spends money on research along with development, yet Marchionne’s dream of a logical, rational joined-up international car industry will probably remain a fairytale itself.
by via Autocar RSS Feed