Sergio Marchionne's high-wire act at Fiat-Chrysler

  @FortuneMagazine July 12, 2013: 7:31 AM ET
sergio marchionne chrysler
(Fortune)

Not only does Fiat Chrysler CEO Sergio Marchionne know where the levers of power are, he knows better than anyone how to use them. Take the past 40 days as a for instance. He has been all over the map, taking up issues that guide all his auto companies' day-to-day, at the same time that he patiently notches progress in his long-term strategic plan. In June, he made stops in Chicago and Venice in addition to his regular visits to Fiat's headquarters in Turin and Chrysler's in Auburn Hills and engaged subjects that ranged from U.S. federal safety regulations to European labor laws to cooperative ventures in China.

It is a dazzling one-man show that the auto industry hasn't seen since Carlos Ghosn rescued Nissan in the early 2000s and Lee Iacocca lifted Chrysler from near-bankruptcy in the 1980s. While it raises obvious questions about operational bottlenecks, consensus management, and succession planning, the Marchionne Flying Circus is a spectacular high-wire act, performed without a net. You can't take your eyes off the action. Marchionne is the one, after all, who squeezed General Motors' Rick Wagoner out of $2 billion, acquired 20% of Chrysler for nothing in 2009, and has kept Fiat alive against all odds. What trapeze will Marchionne swing to next?

There is more to Marchionne's method than pure theatre. Time is not his friend. Fiat's future remains perilous, and Chrysler has a ways to go before it broadens its car line beyond Jeeps and pickup trucks to become fully competitive. Marchionne is moving with almost superhuman speed to bulk up the two companies to the scale of a global powerhouse -- or collapse under the strain of watching six Blackberrys, dealing with dozens of direct reports, and consuming countless cigarettes. (Marlboros are his favorite U.S brand.)

Here's what the sweater-clad CEO been up to lately:

Fiat boosts production in Italy

This assembly plant investment is key to Marchionne's aims to make more high-margin vehicles and build them in Italy if possible. Plans were revealed to Automotive News that Fiat-Chrysler plans to build up to 280,000 small SUVs a year in Italy, with production to start in June 2014. Some 150,000 of the vehicles will be branded Jeeps while the remainder will be called Fiats. The Jeep model, known internally as the B-SUV, looks like a small Wrangler and will be offered as a four-wheel-drive model. The Fiat, perhaps to be named the 500X, will be available with either two- or four-wheel drive, the trade monthly revealed.

Marchionne lays down the law to labor unions

In the struggle to wring overcapacity out of the European auto industry, the biggest obstacles have been labor unions that block plant closings and the politicians who support them. Marchionne wastes no opportunity to challenge them, and he did so again at the opening of a new $1 billion plant in Italy that Fiat built with Peugeot to assemble commercial vans. There, he threatened to move production of new Alfa Romeo models out of Italy unless he gets clarity on union work rules. "The relaunch of Alfa Romeo will continue for sure," Marchionne told reporters, according to Bloomberg News. "Italy should decide if they want it to happen in this environment or not as Fiat and Chrysler have several alternatives." Fiat intends to introduce 19 Italy-produced models through 2016, including nine Alfa Romeo-badged vehicles and six Maseratis, and the rights to make them will be a valuable prize.

Fiat boosts its stake in Chrysler

For the past year, Marchionne has been exercising options to buy Chrysler shares from VEBA, the medical benefits trust for Chrysler's retirees. His latest purchase of 3.3% increases Fiat's ownership to 68.49%. He's using new and refinanced debt as a stopgap to make the purchase. Marchionne wants full control of Chrysler so he can use its finances to help prop up Fiat, and he has the right to increase Fiat's stake to 75% if he can get it done by July 2014. He's still fighting with VEBA over the price of the remaining shares. VEBA thinks they are worth $10.3 billion; Marchionne $4.2 billion. The difference will be settled by a Delaware court.

Chrysler fights back against Jeep recall

Marchionne takes on NHTSA

In a highly unusual move, Marchionne decided to fight a federal recall of 2.7 million Jeeps for fuel-tank leaks that cause fires in rear-end collisions. Marchionne was said to believe that Jeep's rate of fatal rear-impact crashes was no greater than the rate for other vehicles. To make his case, Marchionne met face-to-face with U.S. Transportation Secretary Ray LaHood, at LaHood's request, at a sit-down in Chicago. After the meeting, Chrysler agreed to recall only some 1.56 million older-model Jeeps, so that it can install trailer hitches that protect the gas tank, and designate the rest of the 2.7 million as part of a less-onerous "customer service action" -- by all appearances a considerable victory for Marchionne.

Marchionne messes with the heads of his China partners

From a distance, it looked like Marchionne was playing mind games with his Chinese partner, Guangzhou Automobile Group. Chrysler aims to produce more than 100,000 new Jeep models in China in 2014, and under government rules for foreign automakers, it must pair up with a domestic company to build them. Just in case GAG thought it had an inside track for the deal, Marchionne decided to rattle its cage. "In China we have a good partner, and we have the possibility to use a second one to develop Jeep," he was quoted by Reuters as saying. He added that nothing was certain but that he had had "a number of expressions of interest" from other Chinese automakers. If he wanted to extract better terms from GAG for the deal, he couldn't have used a more effective bluff.

How effective all this will be is unclear. The Delaware court's decision on share prices is still to come and could take months, and Marchionne will likely find it harder to tangle with NHTSA again after getting some negative press. But give him all the credit for being there in the public eye, leading from the front. General Motors (GM, Fortune 500) CEO Dan Akerson likes to fashion himself after Teddy Roosevelt as "the man in the arena, whose face is marred with dust and sweat and blood." But Sergio Marchionne is actually living like one. To top of page



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