Marchionne pitches for auto mergers

Sergio Marchionne has set out his most detailed and passionate pitch for megamergers among carmakers - even inviting new entrants such as Apple and Google to help cure the auto industry's "value-destroying addiction to capital".

A long-time advocate of consolidation, the chief executive of Fiat Chrysler Automobiles issued a presentation on Wednesday entitled "Confessions of a capital junkie", representing his latest attempt to lure rival bosses into merger discussions.

"We have failed collectively as an industry to deliver values commensurate with the level of capital that is being consumed," he told analysts and reporters in a two-and-a-half-hour earnings call. "Consolidation is the only key to remedying the problem in the short term."

The car industry faces mounting costs as it invests to comply with safety and emissions regulations while meeting consumer demands for connectivity and pioneering the self-driving technologies of the future.

Volkswagen, Europe's largest carmaker, ploughs more into research and development than any other company, at €11.5bn in 2014, and Mr Marchionne said that total industry capital expenditure plus R&D spending was €122bn in 2014 - not including the China joint-ventures or the likes of Google, Apple and Uber.

The outspoken Italian-Canadian, known as the industry's dealmaker, said combining Fiat Chrysler with another major manufacturer could yield annual savings of €2.5bn-€4.5bn after four years, "depending on who we do this with".

"Consolidation carries executional risks but [the] benefits are too large to ignore," he said.

Analysts gave the presentation short shrift, saying that if significant consolidation did not happen in the depths of the financial crisis - when Chrysler went bankrupt - there was no reason for it to happen now, with manufacturers making bumper profits in the US and China.

"Political, union and familial barriers to consolidation remain formidable, and the opportunity of a century may have already been missed in the 2008-09 downturn," said Stuart Pearson, analyst at Exane BNP Paribas.

Max Warburton at Bernstein went further, saying the pitch was a "bizarre" attempt to play automotive industry Tinder - a reference to the dating app used by millennials.

"Are these slides - and indeed the whole pitch - supposed to induce other industry CEOs or families to 'swipe right', and get the dance started?," he asked.

Mr Marchionne stressed that he was not putting Fiat Chrysler up for sale; nor was it a "matter of life or death" for the company or an attempt to bring about his "final big deal".

"In reality, of course, it is all of those things," said Mr Warburton.

Fiat Chrysler, itself the product of a cross-border merger, has in the past been linked with PSA Peugeot Citroen, and Mr Marchionne has been dropping references to "feasible" combinations with General Motors and Ford.

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But London-based bankers have cautioned previously that any M&A for Fiat Chrysler would have to wait until after the company completes the initial public offering of Ferrari, expected in the third quarter of this year, and the spin-off of the company to Fiat Chrysler shareholders at the start of 2016.

The company also reported first-quarter earnings on Wednesday that included a swing to net profit of €92m in the first three months of the year versus a loss of €173m in the same quarter a year ago.

The results included a strong performance in North America - despite low margins - and a second quarter in the black in Europe. However, analysts raised caution at the rate at which the carmaker is burning cash - €1.1bn in the first quarter, leaving net industrial debt at €8.6bn, up by almost a billion from the end of last year.

Earlier on Wednesday, Peugeot - Europe's second-largest carmaker by group sales - reported first-quarter revenues of €13.7bn, a rise of 4.6 per cent on the same period a year ago.

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