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 The toll taken by two years of talks and an accompanying investment
freeze has already delayed the Italian carmaker's recovery, and as
Marchionne has said he might retire in 2015, his legacy could depend
on how his successor plays the hand.
Under the $4.35 billion deal unveiled on New Year's Day, Fiat will
acquire the 41.46 percent of Chrysler it does not already own from
the United Auto Workers (UAW) union's retiree healthcare trust.
But Bernstein analyst Max Warburton predicted that Fiat shares,
which got a 16 percent boost from the deal on Thursday, would
hereafter be kept in check by the scale of the task ahead.
"Fiat and Chrysler is still very much a work in progress," he said.
The deal timing and price — below expectations and financed mostly
by Chrysler cash rather than by Fiat — impressed even those familiar
with Marchionne's track record.
In 2005, soon after joining as CEO, he persuaded General Motors <GM.N>
to pay Fiat $2 billion not to exercise an option to sell its auto
division to the U.S. carmaker.
Four years later he took control of bankrupt Chrysler through an
initial 20 percent stake, stepping in after rival Nissan <7201.T>
CEO Carlos Ghosn got cold feet over a similar cash-free deal he had
negotiated with Chrysler.
More recently, Marchionne has pulled off the Italian carmaker's
separation from farm machinery maker Fiat Industrial <FI.MI> and
secured the latter's merger with CNH after sweetening a buyout offer
to minority investors.
Those successes reflect Marchionne's "very tough" negotiating
tactics and an aversion to compromise, said Enzo Masini, an official
with the FIOM union, which has clashed repeatedly with the Fiat boss
over pay and conditions in Italian plants.
"He always tries to negotiate from a position of strength," Masini
said. "If he doesn't feel he has an advantage, a situation where he
can pin you against the wall, he won't open a negotiation."
PLAYING HARDBALL
Across the Atlantic, the UAW union had been seeking $5 billion for
the stake held by its healthcare trust, before finally accepting the
$4.35 billion — of which just $3.65 billion is to be paid up front.
Until Wednesday, many investors were braced for a potentially
damaging Chrysler IPO after the union said it would exercise its
right to float some of the shares in New York.
Fiat-Chrysler had raised the stakes by warning that a flotation
could jeopardize the alliance.
Averting a share sale without paying the asking price was another
classic feat of Marchionne brinkmanship, according to those who know
him well.
"Marchionne must have convinced them the IPO would have been
executed at an even lower price," said a senior Italian banker who
is close to Fiat. "That's hardball — exactly where his strengths
lie."
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At stake is the completion of a transatlantic tie-up already five
years in the making, which has shielded Fiat from the European slump
threatening some of its peers.
Getting access to Chrysler's cash and industrial scale is critical
to Marchionne's expansion plan for the Alfa Romeo and Maserati
brands, designed to help Fiat's idling Italian plants export their
way out of trouble.
But Marchionne's determination — some say obstinacy — in holding out
for the right price has led to costly delays for Fiat's investment
and recovery plans.
And the Italian factories are still waiting as they tick along at
just 41 percent of capacity, according to 2013 estimates from IHS
Automotive.
The Fiat brand's ageing models have seen their Western European
market share tumble from 6.7 percent in 2007 to 4.5 percent in the
first 11 months of last year, a loss of ground that may prove hard
to recover.
While completing the Chrysler buyout may be his last big stunt for
Fiat and its controlling Agnelli family, it could well be his
successor who has to navigate the complex realities of a
cross-cultural car merger, which have proven insurmountable for many
other pairings.
While the CEO has said only that his replacement will be drawn from
Fiat-Chrysler's 20-member executive council, Fiat No.2 Alfredo
Altavilla is often cited as favorite.
Fiat maintains that product plans were never entirely frozen pending
the buyout agreement, and development work has continued on shared
vehicle architectures.
"Engineers haven't been sitting around waiting for the deal," a
company spokesman said.
"What we haven't been doing is making final investment decisions in
Europe to industrialize products," he said. "But you can do that
very quickly — within about a year."
(Additional reporting by Stephen Jewkes
and Agnieszka Flak in Milan, Sophie Sassard in London and Alexandre
Boksenbaum in Paris; editing by Will Waterman)
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