The Great Compression: The coronavirus pandemic could drive a long-overdue consolidation of the global auto industry (GM, F, FCAU, TSLA, RACE)

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The coronavirus pandemic brought about the previously unthinkable in the auto industry: a near-total global shutdown of production.
Throughout the industry, a wide-ranging discussion has developed about what the post-COVID-19 car world could look like.
The industry has long suffered from excessive manufacturing capacity and what the late Fiat Chrysler CEO Sergio Marchionne trenchantly decried as an addiction to capital.
Post-COVID, the auto industry could undergo a massive consolidation, with mergers and partnerships preparing automakers to compete in a new world.
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The late Sergio Marchionne was many things, besides CEO of both Fiat Chrysler Automobiles and Ferrari: dry wit, loose cannon, financial engineer, Sphinx to journalists — and, often, an auto-industry scourge. Prior to his death, following complications from surgery in 2018, Marchionne had been planning his retirement after decades in the car business, but not without frequent excoriations over what he believed was the industry’s single biggest problem.

Too many carmakers.

Marchionne infamously consolidated his thoughts in a widely discussed, debated, and circulated 2015 presentation self-loathingly titled “Confessions of a Capital Junkie.” I never got to ask Marchionne if he was making a reference to the essayist Thomas De Quincey’s “Confessions of an English Opium-Eater” from 1822, a work considered by many to be the first addiction memoir, but even if he wasn’t, addiction was his subject.

Specifically, the self-described “capital junkie” was Marchionne himself, and the addiction was to the cash that flows through the seemingly stable yet actually quite ragged and fragile veins of the global car business. The global auto industry is a multitrillion-dollar colossus, and it needs to be, because in Marchionne’s estimation, the destiny of much of that money was to be wasted.

Big carmakers, he argued, “spend vast amounts of capital to develop proprietary components, many not really discernible to customers.” Lurking over the horizon was an even more disturbing nightmare of waste, with companies pouring research-and-development into equally undifferentiated but extremely expensive electric powertrains, advanced safety features, infotainment systems, and autonomous technologies. The sins of the past would simply become the pricier sins of the future.

Getting the capital monkey off the auto industry’s back

Marchionne’s conclusion was that the “capital consumption rate by [automakers] is unacceptable—it is duplicative, does not deliver real value to consumers and is pure economic waste.” His solution was consolidation: fewer carmakers working with a smaller range of components and getting the capital monkey off their backs.

Marchionne put his company — Fiat Chrysler Automobiles, formed from the shotgun marriage of Fiat and bankrupt Chrysler during the 2008-09 financial crisis — where his mouth was. First, he borrowed a theme from the Chapter 11 struggles of General Motors and Chrysler and in 2015 courted GM CEO Mary Barra for a merger. Rebuffed, he kept the idea alive, and in 2019, after his death, FCA attempted to join with Renault, but the deal collapsed. Later, it found success in combining with the PSA Group, although in 2020 the tie-up still hadn’t been completed.

In context, an FCA-PSA combination …read more

Source:: Business Insider

      

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