Fiat Wants Opel but Doesn’t Want to Spend Any Money

By Brendan Moore

05.04.2009

fiat-group-logo-small1Fiat’s Sergio Marchionne met with Karl-Theodor zu Guttenberg, German Economy Minister, this morning in Germany, and, according to Guttenberg, the Fiat CEO told him that Fiat wants Opel, but has no intention of spending any of their own money to get Opel.

Instead, Fiat wants somewhere between five and seven billion euros (6.7 billion and 9.3 billion dollars USD) in bridge financing for their vision to become Europe’s largest automaker, as well as one of the largest automakers in the world.

Fiat intends to spin off Fiat automobiles into a separate company, and then add Chrysler and Opel (and probably Saab and Vauxhall, the other parts of GM Europe) to the new enterprise, which, by some calculations, will make it the second-largest automaker in the world – behind Toyota and ahead of VW (although it should be noted that estimates are still coming in at this point, and vary somewhat).

Well.

First of all, major props to Sergio Marchionne for coming up with such a plan. If this isn’t audacious, I don’t what is. If anyone had suggested this combination even six months ago, they would have been labeled as barking mad. And, Marchionne is basically betting the farm that it will work, because Fiat will be ground down to a fine powder if this all goes bad in a hurry.

Second, will this even work? The plan calls for a tremendous amount of integration and right-sizing. There are a lot of parts to this puzzle, and Marchionne will have to be a wizard to get it right. He has told reporters that Fiat believes there is $1 billion USD in savings through synergy if all of the above-mentioned disparate pieces are combined, but as a general rule, companies cannot save their way to profitability, they have to sell enough units in order to do that. That would seem to be the case in this instance as well.

It wasn’t so long ago that Fiat itself almost tottered into bankruptcy. And now they are the new royalty of the automotive world. It’s really quite amazing when you think about it.

No word yet on the financing; all the German minister had to say at this point was that the plan needed a closer look and that it was an “interesting approach”.

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Author: Brendan Moore

Brendan Moore is a Principal Consultant with Cedar Point Consulting , a management consulting practice based in the Washington, DC area. He also manages Autosavant Consulting, a separate practice within Cedar Point Consulting. where he advises businesses connected to the auto industry. Cedar Point Consulting can be found at http://www.cedarpointconsulting.com.

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2 Comments

  1. I admire his sand, but I think their chances of making it would increase consideraly if they left Chrysler by the side of the road where it belongs. If they keep Chrysler, it doesn’t stand a chance.

  2. Fiat is betting the farm (plus quite a lot more) that this approach provides a cheaper way into a major enhancement in production capacity and volume for Fiat as opposed to just building a few more car assembly plants (of which there are too many in the world already anyway).

    That’s the sort of guts, machismo & wonky thinking that makes Alfa Romeo such a pleasure to drive but a nightmare to own……

    VW, Toyota and even Ford must be beside themselves with glee. If this new form of Fiat ends up working like a typical Lancia (flat out for five minutes before failing in a wail of oil and rust) then the European & US automotive markets post 2010 will be laid open to them like a centrefold…..

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