A long haul for Detroit’s new prince

By John Gapper

Sergio Marchionne likes to be at the centre of attention and he got his wish in Detroit this week.

When I first came across the chief executive of Chrysler and Fiat at the auto show, he was surrounded by photographers and was showing off a Fiat 500 to Nancy Pelosi, speaker of the House of Representatives.

Mrs Pelosi had good reason to pay attention since the US government has staked $12bn (€8.3bn, £7.4bn) on his ability to resurrect a company that Barack Obama’s auto task force decided was unviable on its own. Without him, it might not have paid for the smallest of the Big Three to travel through Chapter 11.

A lot rides on whether he can repeat his trick at Fiat, where he restored a failing company to stability, if not to parity with global rivals. “Our reputation and credibility is at stake. We’ve put the whole damn thing on the line, including my life,” he told me.

The jumper-wearing Mr Marchionne is not given to self-doubt. In a recent speech, he quoted Machiavelli’s precept that “a return to first principles in a republic is sometimes caused by the simple virtues of one man”. He regards himself as that man.

His chances of success, however, depend on how you define the target. If it is to stabilise Chrysler, refurbish its line-up, repay $7bn of government money and refloat it with an initial public offering in, say, 2011 (none of them trivial achievements), I reckon he will probably manage it.

If, however, success is defined in his own terms – promoting Chrysler-Fiat into the premier league of global volume carmakers alongside Ford, Toyota, Volkswagen and others – I doubt it. His empire is too much of a mish-mash of domestic brands to conquer the world.

Mr Marchionne has altered the mood at Chrysler, whose share of the US car market has been declining since the late 1990s, battered first by a disastrous takeover by Daimler and then a period owned by Cerberus Capital, a private equity firm, which he calls “the Twilight Zone”.

It has a bad product portfolio, with not only the Chrysler brand but Dodge skewed towards the US, and trucks and vans. Its passenger cars suffer from poor design and quality problems, none being recommended by Consumer Reports, although Jeep is still a good property.

Meanwhile, Ford in particular is showing signs of a revival, having based its new Focus car on design and technology from its European arm, and selling the model across the world. Even the accident-prone General Motors has much stronger international reach and is bringing out a global range of cars, including its Aveo and Cruze models.

The Obama administration’s auto task force wavered over whether to put Chrysler out of its misery, which would have been braver and better for an industry suffering from huge over-capacity, but lost its nerve.

Inside, morale was as low as you would expect at a company making poor cars with cheap interiors, such as the Sebring. “We have engineers who have been biting their tongues until they were bleeding, saying this car could be better,” says Ralph Gilles, the head of Dodge.

The two dozen executives who form Mr Marchionne’s court at Chrysler now look energised, if a bit scared (those who do not measure up are soon fired). They hang on his every word, which can be hard since he mumbles, and are hard at work on his five-year plan.

It looks like he did a smart deal, taking advantage of the US government’s weak bargaining position and Chapter 11 to gain control of a distressed asset for free. In return for technology and his time, Fiat will probably end up with 35 per cent of Chrysler by 2011.

He can put together Lancia and Chrysler, using the latter as the group’s main brand with technology from the former, build on Jeep’s potential and figure out something for Dodge. With a revival under way in US car sales, he needs only to squeeze a few points of market share, and an IPO beckons.

Short-term recovery is, however, not the same as long-term prosperity, and Fiat-Chrysler’s prospects of achieving the latter look dim. Mr Marchionne may be an expert player, but his cards are weak.

The Chrysler and Fiat stands at the Detroit show were instructive to observe. Compared with the focus on fewer models and brands at other companies, it looked like a collection of small enterprises – Chrysler, Dodge, Fiat, Lancia, Alfa Romeo, Maserati and Ferrari.

Dodge is an ageing blue-collar name with only one strong model – the Ram truck – which is being turned into a separate brand. Mr Marchionne admits that Dodge has value only in the US, and the reason he did not shut it was “volume” – it was too big to fail.

Meanwhile, Chrysler has enough of a challenge on its hands to do better in its domestic market. Expanding it into Asia, or making Lancia and Fiat into broader European brands to rival Volkswagen, Renault or Opel would be extremely hard.

Mr Marchionne insists that he can deploy his brands around the world by sharing common platforms, rather than needing a single marque like Ford or Toyota. “Brand proliferation is not a novelty, and it is profitable if you execute it well,” he says.

Perhaps, but Machiavelli would not have advised his prince to rely upon it. If and when Mr Marchionne fixes Chrysler and repays the US, he will need to think again.