http://www.nytimes.com/2015/05/24/business/detroits-chief-instigator.html?_r=0In the middle of March, Mary T. Barra, the chief executive of General Motors, received a lengthy and unusual email from one of her direct competitors, Sergio Marchionne.
Ms. Barra had never met Mr. Marchionne, the C.E.O. of Fiat Chrysler Automobiles. And she was in no way expecting their first contact to be an offer to discuss a potential blockbuster of a merger.
The email, according to two people with knowledge of it and reported for the first time here, laid out in detail how global carmakers needed to consolidate to save money and suggested that a combination of G.M. and Fiat Chrysler could cut billions of dollars in costs and create an automotive superpower.
This analysis did not interest Ms. Barra or other G.M. executives and board members. Instead, Mr. Marchionne’s request for a meeting on the subject was flatly turned down, according to people with knowledge of the situation who spoke on the condition of anonymity.
It was a rare rejection for Mr. Marchionne, the mastermind behind the merger between the Italian automaker Fiat and Chrysler, the American car company that required a government bailout to survive the last recession.
Mr. Marchionne, however, is not one to be put off by rejection. So a month later, on April 29, in a routine analyst conference call, he doubled down. Instead of following the usual script, in which chief executives discuss the current state of their operations, Mr. Marchionne stunned the Wall Street analysts by devoting the entire call to his sudden and intense appeal to automakers to merge.
“I think it is absolutely clear that the amount of capital waste that’s going on in this industry is something that certainly requires remedy,” he said. “A remedy in our view is through consolidation.”
It’s not often that a chief executive announces to the world that his company is eager to find a merger partner. Some might even consider it a sign of weakness and, in fact, F.C.A.’s stock dropped about 10 percent over the next two days. Rather than rally support, Mr. Marchionne’s passionate appeal only highlighted the difficulties that lie ahead for Fiat Chrysler.
Mr. Marchionne has had remarkable success in blending two struggling car companies into the world’s seventh-largest automaker. F.C.A.’s sales in the United States have doubled since 2009. But it still sold only 4.6 million cars and trucks worldwide in 2014, about half as many as competitors like G.M. and Volkswagen. Its valuable brands, like Jeep sport utility vehicles and Ram pickups, don’t compensate for the fact that it makes less money than its rivals, lags in China — the world’s biggest car market — and barely invests in alternative-fuel vehicles that are critical to meeting the coming tougher federal rules on fuel economy.
Mr. Marchionne says he has a detailed plan to improve F.C.A.’s performance, but his current obsession seems to be playing the automotive Cassandra, warning of disastrous consequences if companies continue spending unabated. He has no patience for subtlety or delicate phrasing.
The bigger the issue, in fact, the louder he becomes. He irritated the National Highway Traffic Safety Administration by defiantly defending F.C.A.’s response to safety issues with older Jeep models. N.H.T.S.A. just last week scheduled a hearing to examine the company’s follow-through on recalls, something it rarely does. Mr. Marchionne also appears headed for a confrontation with union leaders in this summer’s contract negotiations because of F.C.A.’s rampant hiring of lower-paid workers. Alone among auto chiefs, he wants to end the current two-tier wage system by phasing out the top wage rate as veteran employees retire.
Detroit hasn’t seen a C.E.O. as provocative and unpredictable since Lee A. Iacocca, Chrysler’s previous savior, in the 1980s. And as with Mr. Iacocca, confidence is never a problem for Mr. Marchionne.
Not From the Ranks
When in the United States, Mr. Marchionne, 62, works out of a tiny office in a wing of the sprawling Chrysler Technical Center in the Detroit suburb of Auburn Hills. He prefers to spend time among engineers and product planners rather than in the lavish suite of executive offices in the nearby headquarters tower. In March, as he settled in for an interview at a small table, a window giving a view over a service drive, he downed the first of several espressos and silenced his four cellphones. Though smoking is forbidden elsewhere in the building, in this sanctuary he lit up one Marlboro after another.
Mr. Marchionne doesn’t look like a typical car executive. His uniform is a black sweater over a button-down shirt with black pants, and you get the sense he can’t be bothered to find a hairbrush. Unlike Ms. Barra or Mark Fields of Ford Motor, both of whom rose through the corporate ranks, Mr. Marchionne never even worked for a car company before taking the top job at Fiat in 2004.
Born in Chieti, Italy, a small city on the Adriatic Sea, he moved to Canada with his family as a teenager. He earned degrees in philosophy, law and business administration before joining an accounting firm at 30. From there, he spent most of his career bouncing through executive posts at unglamorous Canadian and European chemical and industrial companies.
He was an obscure board member at Fiat when the Agnelli family, which controlled the Italian automaker, picked him to reverse its long decline. He moved fast, firing executives, flattening the company’s bureaucracy, eliminating slow-selling models and paring production to match market demand. In a warm-up for Chrysler, he also fostered an entrepreneurial culture in which executives were given wide latitude to meet internal targets.
Since he cut the deal with the Obama administration six years ago to take control of Chrysler, his moves have confounded an industry that tends to adhere to tried-and-true formulas. When other companies streamlined their brand lineups, Mr. Marchionne created new ones, such as splitting off Ram trucks from the larger Dodge division. Rather than glossing over Chrysler’s battered image, he embraced it with soulful advertising campaigns that extolled the tenacious spirit behind vehicles that were “imported from Detroit.”
“I’ve always had this incredible sense of urgency,” he said. “I’ve always had this desire not to let things fester and to really seize the moment, because it’s serendipity.”
He paused. “You create the conditions for it, and it just keeps producing outcomes or opportunities for you to pick,” he said. “And if you don’t pick them, then it’s your own damn fault.”
He saw that kind of opportunity four years ago when he took advantage of Chrysler’s precarious financial condition to negotiate a favorable contract with the United Automobile Workers union. That deal allowed him unlimited use of workers paid on a lower scale — about $19 an hour compared with $28 for veteran employees.
The arrangement opened the door for Fiat Chrysler to go on a hiring spree of cheaper labor in the United States. Today, more than 40 percent of the company’s 36,000 American factory workers earn entry-level wages, compared with about 20 percent at G.M. and 27 percent at Ford.
Before he could benefit from his lower-wage work force, Mr. Marchionne had to strip down Chrysler’s production after its 2009 bankruptcy.
He also retooled Chrysler’s organization by replacing veteran executives with a cadre of younger, unproven managers. While he set ambitious sales and financial targets, he gave his new team free rein to achieve them.
“He creates an environment that I call the pressure cooker approach,” said Bernardo Bertoldi, a business professor at the University of Torino in Italy, who helped write a recent Harvard Business School case study on Mr. Marchionne. “He provides the goals and gives them their freedom, but the pressure is on getting results.”
And after years of dysfunction under the ownership of the German automaker Daimler and then the private equity firm Cerberus Capital Management, Chrysler took off. Once Chrysler joined with Fiat, the combined company began posting double-digit annual increases in revenue, reaching $109 billion last year. And after absorbing losses as it paid back more than $5 billion in loans from American taxpayers, F.C.A. has become solidly profitable, reporting $717 million in net income in 2014. The bulk of its income comes from the Chrysler side of the business.
Chrysler’s revival hinged on streamlining its manufacturing base and pouring resources into its strongest brands, in particular Jeep, which has a cultlike status in this country as the most rugged and stylish of American S.U.V.s and a worldwide appeal dating back to World War II.
“He saw the future with Jeep,” said Mike Manley, the brand’s chief. “I remember talking to him early when we were targeting sales of a half-million, and he said we can do a lot more.”
Fiat Chrysler has opened new plants in Italy and Brazil to accelerate Jeep sales in international markets, and a Chinese factory is coming next. Last year, F.C.A. sold about one million Jeeps globally. Mr. Marchionne is shooting for 1.9 million in 2018, and the success of the brand will be critical to the company’s overall results.
“You can’t help but be impressed with what Sergio has done so far,” said David Cole, former chairman of the Center for Automotive Research in Ann Arbor, Mich. “But the question is whether he can achieve the kind of scale necessary to keep up with automakers twice his size.”
If all his growth targets are achieved, Mr. Marchionne expects Fiat Chrysler to hit seven million in sales in three years. “That plan is predicated on a whole pile of things I want to execute flawlessly,” he said. But in the next breath, he admitted that external events such as fluctuating oil prices and economic downturns could scuttle those ambitions quickly. “If I look at the history of this thing over the last 10 to 20 years,” he said, “we’ve always had something that came out of left field and made us very, very uncomfortable.”
A Union Showdown
Mr. Marchionne might be feeling pretty uncomfortable this summer when Detroit automakers enter contract talks with the U.A.W. When Chrysler last negotiated a contract in 2011, the carmakers were able to win concessions because Detroit’s auto industry was just beginning to recover from its financial collapse during the last recession. Now, however, F.C.A. and the other car companies boast of their robust finances, and the unions are determined to share in the bounty. That could mean an end to Mr. Marchionne’s unfettered use of lower-tier workers.
One of the union’s priorities is to raise wages for new workers and possibly place a cap on the number of lower-paid employees hired. Ford, for example, is required under the current contract to bump entry-level hires to full-wage status when their overall percentage at the company hits certain thresholds. Fiat Chrysler, however, has no such restrictions.
Union workers in its plants say the two-tier system has created rifts on the factory floor. “You can feel the separation in the plant and the animosity,” said Scott McGinnis, who is part of a team that trains workers for the assembly line at a plant in Sterling Heights, Mich. He says lower-tier hires like him resent that they have no way to reach the top of the wage scale, as workers do at Ford. “I’m very fortunate to have a job,” he said. “But with a wage progression system, I would at least know I’m working up toward something.”
Many veteran workers earning top wages are just as supportive of scaling back or eliminating the two-tier system. “It has created an ‘us and them’ mind-set where there’s some mutual resentment,” said Martha Grevatt, a skilled-trades worker at a plant in Warren, Mich., who was hired in the 1980s. “It’s all very detrimental to union solidarity.”
Mr. Marchionne, who last year earned more than $30 million, is unapologetic about his voracious hiring of lower-paid workers. “I’ve just responded to business needs,” he said. “I needed to make cars, and we hired people.”
He defends taking advantage of the two-tier system, but Mr. Marchionne admits that the pay gap among workers creates “seeds of instability.” He advocates a standard wage throughout the plants. The $28-an-hour wage that veteran workers now make should be reset at a lower level when they retire, he proposes. Union workers, however, hate this idea and are instead arguing for wage increases across the board in the coming contract.
Mr. Marchionne’s aggressive use of the two-tier system is characteristic of his forceful style, which has been known to backfire. Two years ago, he challenged federal regulators on their intention to seek a broad recall of older-model Jeeps. Those Jeeps had rear-mounted gas tanks that could catch fire in high-speed rear-end collisions. In a stunning departure from the protocol for resolving car safety issues, Mr. Marchionne requested a private, face-to-face meeting with Ray LaHood, then the transportation secretary, and managed to limit the number of vehicles recalled.
Now, however, N.H.T.S.A.’s new administrator, Mark R. Rosekind, has signaled that the agency will be much stricter in how it handles recalls. Last week, N.H.T.S.A. said it would hold a public hearing in July on whether Fiat Chrysler was doing enough to fix the 10 million vehicles it had recalled in a variety of safety actions, including the 1.5 million Jeeps with vulnerable gas tanks.
The Jeep fire issue is clearly a sore point with Mr. Marchionne. He contends that the S.U.V.s met all federal crash standards when they were built more than a decade ago and that F.C.A.’s agreement to install trailer hitches to mitigate the effect of an accident is a fine remedy.
While safety advocates have criticized the trailer-hitch remedy as insufficient, N.H.T.S.A. said this week that it would not reopen the Jeep investigation to explore other possible remedies. Still, F.C.A. could be facing enormous legal liabilities for gas tank fires. A jury in Georgia awarded $150 million in damages in April to the family of a 4-year-old boy who was killed in a Jeep fire in 2012. Fiat Chrysler has asked for a new trial in the case.
Courting Apple and Google
A few weeks ago, an aide to Mr. Marchionne called and said the C.E.O. wanted a follow-up discussion for this article. He had already sat for an extensive interview, but was steaming over the reaction to his consolidation manifesto in April. And he wanted to vent about it.
He consistently declined to comment publicly about his overture to G.M. or Ms. Barra’s unwillingness to meet with him about it. But during the follow-up interview he became visibly irritated by the suggestion that he had made Fiat Chrysler available for sale by broaching the topic.
“Look, if I wanted to sell I would have called a banker,” he said. “I wouldn’t have done an analysis on return on invested capital and margins that talk about the fact that we’re all in the same hole.”
As he did in an earlier interview, he seethed about how the escalating costs for new technology and products were “driving me nuts.” He contends that automakers waste billions duplicating efforts in developing new engines, safety technology and alternative-fuel vehicles. The conference call outcry was for the good of the entire auto industry and not because Fiat Chrysler was more vulnerable to rising costs than its bigger competitors.
Mr. Marchionne calculates that a combination with a larger automaker, such as G.M., can save several billion dollars a year by sharing costs for new vehicle platforms and parts.
“It’s fundamentally immoral to allow for that waste to continue unchecked,” he said.
No other auto executive has seen fit to agree with him, publicly at least.
Skeptical Wall Street analysts are hard-pressed to envision interested suitors. Ford has stated that it is not looking at mergers. Ms. Barra, in her only public comments on the topic, said that doing a big deal would be a “distraction” for G.M. Volkswagen is said to have had interest in the past in F.C.A., but its management has not addressed the subject outright.
Adam Jonas, a Morgan Stanley analyst, wrote in a research note to investors that auto companies “rarely seek merger partners willingly unless times are desperate.” Yet he did not discount the possibility that Mr. Marchionne’s position might encourage activist investors to push another auto company to consider a merger with F.C.A. “We have no knowledge of how all this will play out,” Mr. Jonas said.
Since opening the door for a possible merger with another car company, Mr. Marchionne has broadened his discussion about the industry’s future to include tech giants like Apple and Google.
Mr. Machionne recently made a three-day visit to California to meet with executives there, including Apple’s C.E.O., Timothy D. Cook. (An Apple spokesman declined to comment.) The trip underscored the evolving relationships between technology giants and traditional automakers. Fiat Chrysler and other car companies are potentially large customers for advanced communications and navigation equipment. But Google and Apple are also developing their own cars, and may one day need to team up with big automakers for manufacturing or marketing. If and when that happens, Mr. Marchionne will be eager to participate.
For now, he praises the companies as “disrupters” who will help redefine how cars are developed and operated, and that includes autonomous vehicles. “These things are real,” he told reporters after a recent speech in Toronto. “It’s not science fiction. They’re coming.”
That Mr. Marchionne expresses enthusiasm for disruption of his industry should come as no surprise. Few believed that he could marry a bankrupt Chrysler with broken-down Fiat and create a viable car company. But he did. Like it or not, the big gesture is the only kind Mr. Marchionne is willing to make.
Mary M. Chapman contributed reporting.
A version of this article appears in print on May 24, 2015, on page BU1 of the New York edition with the headline: Detroit’s Chief Instigator. Order Reprints| Today's Paper|Subscribe
