Fiat Chrysler Automobiles (FCA) chairman and chief executive Sergio Marchionne is setting his sights on a merger with South Korean automotive giant Hyundai Motor Group (HMG) while at the same time seemingly using China’s Great Wall Motor Co as a stalking horse, sources close to the situation say.
It is understood that Marchionne began planting rumors of possible Chinese interest in FCA in June after being rebuffed first by General Motors CEO Mary Barra and later by troubled Wolfsburg, Germany-based Volkswagen Group.
Jim Trainor, a Hyundai spokesman in the United States, said the company did not comment on market rumors. HMG, the world’s fifth-largest automotive manufacturer, owns the Hyundai and Kia automotive brands that operate US manufacturing plants in Montgomery, Alabama (Hyundai Santa Fe, Sonata and Elantra), and Kia (Santa Fe, Sorento) in West Point, Georgia.
One source said that Italian-Canadian Marchionne – who is as home in the halls of the US Congress as in the European capitals of Rome, Paris and Berlin – was fully aware that any merger between a Chinese automotive group and FCA would be blocked by US President Donald Trump’s administration through the Committee on Foreign Investment in the United States (CFIUS).
“The notion of a Chinese company taking over such an American icon as the Jeep raises hackles not only of the Trump administration but of almost every single member of the Michigan congressional delegation,” one Washington M&A (mergers and acquisitions) regulatory lawyer said. “CFIUS is a very opaque committee easily influenced by domestic political sentiments.”
However, the rumors of a potential Chinese buyer served in part to soften White House and congressional opposition of a merger between FCA and Korea’s Hyundai. Hyundai, unlike its Japanese rival Toyota, is a relative latecomer to the US market and has the most to benefit from taking over the Chrysler distribution network and iconic Jeep brand.
Unlike with Volkswagen and GM, Hyundai and FCA would face significantly fewer manufacturing-plant and product overlaps both in the United States and Europe. The US-South Korean Free Trade Agreement (KORUS FTA) – on top of closer political-military ties between the United States and South Korea over North Korea’s nuclear proliferation – would also make a Hyundai-FCA merger more palatable to the Trump administration.
“I don’t want to sound too cynical, but all Hyundai CEO Chung Mong-koo needs to do is announce several billions of dollars in new automotive plants and thousands of new US jobs in the states of West Virginia, Michigan, Ohio [and] so on and he [has] won over Trump,” a Trump insider in Washington said.
While company insiders say an FCA-VW merger would make the most sense, such a merger would face impossible opposition in Germany and Italy because of automotive-plant closures, notwithstanding VW’s willingness to consider such a merger after its still internally traumatic diesel-engine scandals in the US and Europe.
Marchionne himself has repeatedly warned his fellow auto bosses in the United States and Europe not to underestimate the threat Korean manufacturers pose to legacy manufacturers.
Marchionne’s aggressive pursuit of a merger partner for FCA is due in part to industry overcapacity and pressure on the part of Fiat controlling shareholders the Elkanns and Agnellis. FCA chairman and family patriarch John Elkann is much more interested in the news-media space than in automobiles. He recently took over the controlling stake in The Economist Group from Pearson PLC.
“In fact, John Elkann’s office in London is inside the Economist building,” one source noted.
Marchionne is uniquely transparent in telegraphing his intentions to the market. His aggressive pursuit of GM’s Mary Barra was meant to show FCA’s determination to find a good merger partner and at the same time illustrates Marchionne’s understated sense of humor and love for mischief-making.
Fiat was only saved from imminent collapse by then GM CEO Rick Wagoner, who was forced to fork over US$2 billion in cash to Sergio Marchionne to get himself out of a shotgun marriage with Fiat Auto in 2005.
Copyright Capitol Intelligence Group – Turning Swords into Equity®