Tuesday, July 22, 2014

Why a Potential Acquisition of Fiat-Chrysler by Volkswagen Would Be a Disaster.

Alexander Carabitses

(Image credited to karoto,gr)

Nearly three month after Fiat-Chrysler Automobiles (FCA) unveiled their new 5 year product plan, we already have a somewhat disturbing development taking place.  Well, apparently, Chrysler hasn't learned its lesson from the so called "merger of equals" with Daimler, because now a rumor is out that Volkswagen is looking to acquire FCA.  I guess its not enough that we have a border crisis in Texas, mayhem in the Middle East, and a Malaysian Airlines plane shot down somewhere in the Ukraine; I guess we really need more bad news to show how great our world really is.  

Merging Daimler and Chrysler was former Daimler CEO, Jurgen Schrempp's idea.  There is no doubt that all Daimler wanted was the Jeep and Dodge Truck profits, so that they could make more money.  Eventually the two companies merged... then shit hit the fan.  Chrysler's quality started to go down and the Germans didn't help much.  In the end, all Chrysler got out of the deal was a few good platforms, and a trip to Washington, in order to get bailed out by the taxpayers.  Then Fiat CEO, Sergio Marchionne, came along and took Chrysler off of the government's hands.  Was he after the Jeep and Ram Truck profits?  Most likely he was, but now every Chrysler brand is back to making great products.  And now the rumor is out that Volkswagen wants to buy all of FCA.  

Despite both companies denying this rumor (what did you expect), the possibility of a merger between the two companies cannot be ruled out.  And of course why does Volkswagen (supposedly) want to buy FCA?  Jeep and Ram Trucks (I'm sensing a pattern here).  These two brands are the most profitable of all of the FCA brands, and VW sure could use them to help boost U.S. sales, which are staggeringly low.  There could be some problems with this, however.  The biggest one in my mind is that since the Volkswagen Group is already so big, taking on FCA would be a huge financial task.  Right now as things stand, the only Fiat brand that is doing well is Ferrari (according to the rumor, the Agnelli family, which controls Fiat, wants to focus on Ferrari).  In fact, as a whole FCA has a long way to go to be as strong in the market place, as possible.  Volkswagen will have to sink a ton of money into FCA in order to make them reach their full potential.  Despite being the biggest German auto maker, I don't think VW has so much money to spare.  I also don't think that Chrysler should be fond of working with the Germans, after what happened the last time that they did.  

Long story short, this whole talk of a VW-FCA merger is just a rumor, one which I don't believe is true, due to the reasons listed above.  If it is true, God help both of these car companies.  One is trying to build itself up, while other is so close to the top that it shouldn't get involved with what is really, a new car company in the global automotive industry.   Hopefully the executives and board members at both of these car companies use their heads and do what's right for their companies.  If these two brands even consider the thoughts I listed above, they will each save themselves huge problems in the long term.

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