Fiat Chrysler: exhaust-ed

Fiat Chrysler chief executive Sergio Marchionne complained this week about the auto industry's addiction to capital spending, and called for consolidation. The message is hardly new. He has been calling for consolidation since before Fiat acquired Chrysler over six years ago.

The numbers are striking. In 2014 the world's main carmakers spent €2bn a week on capital expenditure and research and development. At this rate the average carmaker spends its enterprise value every three to four years - faster than other industries (Mr Marchionne says telecoms companies take 13 years, and aerospace/defence companies 19).

Over the next decade, cars need to change dramatically to meet stricter emission limits, more stringent safety regulations and customers' desire for more connected cars. This is costly. But rather than working together, carmakers are each trying to build their own solution.

Mr Marchionne wants investors to force the industry to consolidate. That is one solution, but outsourcing basic engine design and manufacture is also an option - most customers would not know the difference. Joint ventures (such as Renault Nissan) might also be useful, but they are not always easy to pull off. Mergers and acquisitions are unlikely now that car companies are making money again. In any case, large state and family shareholdings in the sector make dealmaking difficult.

However much Fiat Chrysler may need a deal (it burnt €1bn of cash last quarter) Mr Marchionne's familiar message is likely to fall on deaf ears.

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