One Of America's Biggest Automakers Could Be Sold To The Chinese

Rumor

No, not Tesla. Think Detroit.

Fiat Chrysler Automobiles (FCA) CEO Sergio Marchionne has made no secret of his desire for a merger, notably with GM. Although the cross-town rival has rejected Marchionne’s overtures, FCA is still looking for a big name consolidation partner. Automotive News had gotten wind of something very interesting that may pan out. Supposedly, “representatives of a well-known Chinese automaker made at least one offer this month to buy Fiat Chrysler Automobiles at a small premium over its market value.”

However, the offer was rejected because it’s wasn’t big enough. Rejected this time, but will this Chinese brand come back to FCA with an even sweeter deal? Perhaps. There are also other major Chinese automakers said to be interested in FCA. One source told Auto News that “FCA executives have traveled to China to meet with Great Wall Motor Co. And Chinese delegations were seen last week at FCA’s headquarters in Auburn Hills, Michigan.” Sounds like something is up to us. But why is FCA talking with Chinese automakers? Partially because Chinese companies, in general, are under pressure from the Chinese government to expand internationally. Buying up foreign companies is a quick and relatively simple way to make that happen.

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FCA is an ideal acquisition for Chinese automakers for many reasons. First off, Jeep and Ram are very profitable and continue to have solid outlooks. The deal, if one were to proceed, would also likely include Chrysler, Dodge and Fiat. Maserati and Alfa Romeo, however, are excluded, and would likely be spun off, like Ferrari. Reason being is this would maximize returns for the Agnelli family, which has a controlling interest in FCA. But the really big attraction FCA offers the Chinese is direct access to the very profitable North American market. So far, Chinese car brands have been unable to do this for a number of reasons, such as quality perception. In the past, Chinese automakers have had a negative reputation when it comes to quality.

Up until a couple of years ago this was true. But previous Chinese acquisitions, specifically with Volvo, have proven the quality gap can be narrowed or closed entirely by learning from the expertise of others. For now, FCA, not surprisingly, is not commenting, but something is almost certainly cooking. Marchionne, in his annual Geneva Motor Show media-only press conference, stressed again his belief that automaker consolidation is essential. Cost-cutting, mainly through shared production facilities, suppliers and even dealerships, is the main reason why. If FCA were to receive a substantial and attractive offer, meaning a big enough check, then the deal could be finalized. We’ll just have to wait and see what happens.

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