Fiat Chrysler's merger
options dwindle as Volkswagen rejects overtures
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[March 08, 2017]
By Andreas Cremer and Agnieszka Flak
GENEVA
(Reuters) - Fiat Chrysler boss Sergio Marchionne's attempts to find a
partner were frustrated for a second time in as many days on Wednesday,
as Volkswagen (VW) joined General Motors (GM) in dismissing any interest
in talks with their smaller rival.
Marchionne said on Tuesday that European market leader VW would be
hardest hit by PSA Group's purchase of Opel, which will create a
stronger European No. 2, and the pressure could prompt VW to sit down
with FCA.
But VW chief Matthias Mueller was quick to rebuff the overtures, saying
his company had enough on its plate already as it battles to recover
from a diesel emissions scandal.
"We are not ready for talks about anything ... we have other problems,"
he told Reuters on the fringes of the Geneva auto show on Wednesday. "I
haven't seen Marchionne for months."
Marchionne has long advocated car industry mergers to share the costs of
making cleaner and more technologically advanced vehicles and on Tuesday
stressed deals were as vital as ever.
"You need to achieve scale or we will end up delivering an incredibly
poor return and margins on this business. We need to fix this," he said,
referring to the wider auto industry.
![](http://archives.lincolndailynews.com/2017/Mar/08/images/ads/current/castlemanor_lda_051916.png)
The PSA-Opel deal leaves FCA in an increasingly difficult position in
Europe. The indebted group has a European market share of only about 7
percent, its operating margin of 2.5 percent lags most rivals, as does
its spending on cleaner and more autonomous cars.
Mueller's rejection follows a similar snub from GM <GM.N>, after
Marchionne said the U.S. company remained his favorite merger candidate
despite its decision to exit Europe by selling Opel and having rebuffed
FCA's approaches several times already.
"We weren't interested before and we're even less interested now," GM
President Dan Ammann told reporters in Geneva.
A combination of VW and FCA could in theory create a European market
leader with a share of around 30 percent, give VW a strong foothold in
North America through FCA's Chrysler operations and fix FCA's lack of
scale in Asia. But the combination could also mean thousands of job
losses that unions and politicians from Italy to Germany would strongly
oppose.
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![](../images/030817pics/busine34.jpg)
Volkswagen CEO Matthias Mueller speaks during Volkswagen event ahead
of the 87th International Motor Show at Palexpo in Geneva,
Switzerland, March 6, 2017. REUTERS/Arnd Wiegmann
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Mueller also stressed scale was not a priority for VW.
"In my opinion, size does not matter," he said. "I have always said volume is
not our sole goal. We want to be a successful manufacturer in every way."
DIESELGATE WOES
Marchionne is courting VW at the worst possible time.
The German company is at the start of a multi-billion-euro transformation to
embrace electric cars and automated driving as it struggles to overcome its
emissions scandal.
While grappling with billions of costs for fines, buy-backs and other charges in
the United States, VW is also facing a mounting challenges from consumer groups
seeking compensation.
The
group is battling with its powerful labor unions too about cost cuts to fund its
new strategy.
Since being rejected by GM, Marchionne has focused on eliminating debt and
shifting production towards higher-margin vehicles, including SUVs, to become a
more attractive merger partner in future. But his options appear to be
dwindling.
"In western countries we believe that Volkswagen remains the main candidate for
M&A, but after dieselgate, which likely stopped everything for a while, the top
candidates for an FCA deal moved to the East (Koreans or Chinese), with all the
risks on timing and political consequences that they would bring," said Angelo
Meda, head of equities at Banor SIM.
![](http://archives.lincolndailynews.com/2016/Aug/26/images/ads/current/ldn_medical_directory_small_2016.png)
Some analysts also question why anyone would buy FCA now when the price could be
set to fall, given the North American market - where it makes most of its
profits - may be peaking.
(Additional reporting by Ilona Wissenbach in Geneva and Danilo Masoni in Milan;
Editing by Mark Potter)
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