The reversal of Chrysler’s fortunes wouldn’t have been possible without the Marchionne magic.
Fiat and Chrysler boss Sergio Marchionne has appeared lately on many professional magazines covers lately with headlines reading something like "The Magic of Marchionne." And maybe that wasn't what some editors had in mind, but a surge of 25 percent in Chrysler's sales in 2011 is real magic. Marchionne, wearing his trademark dark turtleneck sweater over an open collar shirt and with his hair nonchalantly slicked back, doesn't look your customary automaker CEO.
In truth, however, he is actually managing and merging two automakers, Fiat and Chrysler, into one. Just recently Marchionne was given two awards: the first was the Deming Cup, "an annual prize, recognizing world leaders who make outstanding contributions in operational excellence and foster continuous cultural improvements." The second was the "Global Leadership Award" by the Business Council for International Understanding. Holding those two awards, Marchionne is now recognized as a global business leader and his achievement in saving Chrysler has been clearly recognized by the American establishment.
In 2004, Marchionne was drafted to save Fiat of Italy from destruction. At that time Fiat's best option for survival seemed to be exercising its put option, i.e. to be sold to none other than General Motors. No one today believes that exercising this option would have saved Fiat. Luckily for Fiat and Italy, Marchionne had other ideas. He managed to stop the rot at Fiat and while doing so concluded that only a huge multinational company will be able to survive in the world's automotive jungle with annual sales of at least six millions cars.
That sales number was needed, according to him, in order to enable economies of scales within the company and with it profitability and survival. In 2008, when GM tried to offload its European division, Marchionne was one of the bidders. Fiat was rejected by GM which preferred to sell it to components to manufacturer Magna. That deal was later called off after it was concluded, in typical GM manner. His next chance to secure Fiat's future came in 2009 when Chrysler filed for Chapter 11 bankruptcy protection and the Obama administration was eager to save it rather than shut it down.
Unlike GM, there was no way for Chrysler to emerge from Chapter 11 on its own. The company that for the last 13 years was managed first by Daimler executives and then by Cerberus's outsiders, needed a patron and leader who could guide it and turn it around. Marchionne was eager to take that job. As Chrysler emerged from bankruptcy in the summer of 2009, Fiat received 20 percent of the new company's share with the option to increase its stake depending on performance. In exchange, Marchionne, the turnaround specialist, became Chrysler's CEO and Fiat contributed senior managers as well as small car technology to its new US ally.
Two years later, ironically, Chrysler became Fiat's savior. In the last quarter of this year, Chrysler contributed most of Fiat Group's profits and that's not going to change anytime soon. The debt crisis in the Eurozone has thwarted Fiat's growth prospects as the American auto market is expected to recover further in 2012. So far, Marchionne has managed Chrysler's turnaround based on two old Chrysler staples: Jeep and Dodge. Sales of the former have jumped in the first 11 months of 2011 by an amazing 44 percent to 357,772 units, led by surge of 54 percent of Grand Cherokee sales (110,398 units).
Ram brand sales grew by 22 percent to 231,015 units and Dodge sales grew by 17 percent to 409,492 units. However, Chrysler brand sales grew by a dismal 7 percent, a small blot on Marchionne's sweater, though in line with the trends in the American market where SUVs and pickups were the main growth centers. Those are also the more relevant market segments for Chrysler's operating profit that, in the first three quarters of 2011, has rocketed to $927 million. Now compare that to Fiat's plummeting operating profit to $582 million. If Fiat's recovery is only tentative, then Ferrari, 90 percent of which is owned by the Fiat Group, is storming ahead.
Although there were rumors of a possible IPO of the Prancing Horse, Marchionne is clearly very prudent with such a move. He might have preferred selling Alfa Romeo (Volkswagen is clearly interested), but selling the talisman of Italian car manufacturing will not prove popular among Italians. Since Marchionne is not what traditionalists refer to as "car guy," it's easier for him to come up with out of the box ideas. One of them is to use the two admired brands from the Fiat-Chrysler portfolio, Alfa Romeo and Jeep, as the foundations for the alliance.
It goes without saying that these two brands represent two very different car philosophies, but that's probably what makes that vision a logical proposition. "We need to globalize Jeep and Alfa, so the development of architectures and engines that are designed to support these two brands is crucial," said Marchionne to Autonews.com. That explains, for example, why a Jeep-based Alfa Romeo crossover is in the cards. Chrysler's rebound is still fragile and the company is also exposed to a potential crisis more so than other automakers.
Unlike his counterparts at GM, Marchionne didn't permit Chrysler's management team to invest heavily in alternative propulsion technologies. By doing so he saved the company a small fortune and enabled it to concentrate on its key products, SUVs and pickups. It's the same policy he applied to Fiat when he arrived there in 2004. And for the time being even the fate of those two companies is still not guaranteed as the effects of the shocks and aftershocks that shook the world's economy are still being felt.
But in 2011, Marchionne's strategy for saving Chrysler proved to be spot-on, as sales have jumped 25 percent, profits have soared and the future of the historic automaker looks more promising than ever. And that is why he is CarBuzz's 2011 Person of the Year.