CEO Marchionne’s Fiat-Chrysler coup only the beginning; automaker ‘a work in progress’

1/3/2014

Sergio Marchionne, Chrysler Group LLC chairman and chief executive, inspects a vehicle at Chrysler’s Toledo Assembly in July. He visited the plant to celebrate the launch of the Jeep Cherokee.

PARIS — Fiat SpA’s deal to take full control of Chrysler Group LLC on better-than-expected terms has cemented Chief Executive Officer Sergio Marchionne’s deal-making reputation, but he might run out of road to channel that drive into operational success for the business.

The toll of two years of talks and an accompanying investment freeze has delayed the Italian carmaker’s recovery, and as Mr. Marchionne has said he might retire in 2015, his legacy could hinge on how his successor plays the hand.

Under the $4.35 billion deal unveiled New Year’s Day, Fiat will acquire the 41.4 percent of Chrysler it does not own from the United Auto Workers’ retiree health-care trust. But Bernstein analyst Max Warburton expects Fiat shares, which got a 16 percent boost Thursday, would be kept in check by the task ahead. “Fiat and Chrysler is still very much a work in progress,” he said.

The deal’s timing and price — below expectations and financed mostly by Chrysler cash, not Fiat’s — impressed even those familiar with the Marchionne track record.

In 2005, soon after joining as CEO, he persuaded then-General Motors Corp. 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 Motor Co. Ltd. CEO Carlos Ghosn got cold feet over a similar cash-free deal he had negotiated with Chrysler.

More recently, Mr. Marchionne has pulled off the Italian carmaker’s separation from farm machinery maker Fiat Industrial and secured the latter’s merger with CNH Global N.V. after sweetening a buyout offer to minority investors.

Those successes reflect Mr. Marchionne’s “very tough” negotiating tactics and aversion to compromise, said Enzo Masini, an official with Italy’s metalworkers 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,” Mr. 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.”

Across the Atlantic, the UAW had sought $5 billion for the stake held by its health-care trust before accepting the $4.35 billion — of which just $3.65 billion is to be paid up front.

Until Wednesday, many investors braced for a potentially damaging Chrysler IPO after the union said it would exercise its right to float some shares in New York. Fiat-Chrysler had raised the stakes by warning a flotation could jeopardize the alliance.

Averting a share sale without paying the asking price was another classic feat of Marchionne brinkmanship, those who know him well say. “[Mr.] 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.”