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Marchionne makes pitch for auto mergers

2015-04-30 13:13

PUTTING HEADS TOGETHER: Sharing costs will help everyone concerned, says Fiat Chrysler's boss. Image: Shutterstock

MILAN, Italy - Fiat Chrysler Automobiles CEO Sergio Marchionne says the auto industry faces grave risks if companies don't accelerate consolidation to share soaring product development costs.

Marchionne has been pitching consolidation lately; on Wednesday (Apl 29 2015) he made a case for industry mergers using a 25-page PowerPoint presentation during FCA's first-quarter earnings presentation.

The company posted a first-quarter net profit of the equivalent of R1.1-billion compared to a net loss of R2.3-billion in the same period of 2014.

RESEARCH AND DEVELOPMENT

The CEO presented data showing that it took automakers an average of four years to reinvest the total value of their companies into research and development and capital expenditures, compared with an average of 20 years across other industries.

Oil and gas companies average seven years, retail companies 36 years, Marchionne said.

"We're risking capital at tremendous rates and the markets are not buying it," Marchionne told analysts and investors on a conference call. "We live in a world of our own. This is incredibly insular."

'PURE ECONOMIC WASTE'

The main problem, Marchionne said, was that the auto industry spent enormous amounts developing proprietary parts, such as engines and transmissions, that made no difference to the consumer. He estimated FCA could save R32-billion to R59-billion each year by sharing product development costs with another automaker.

"It is, in its purest form, economic waste," he said.

Marchionne's petitions for consolidation have so far found no takers among other automakers. He also said that he would consider merging with Apple or another tech company.


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