Fiat Chrysler Automobiles’ CEO Sergio Marchionne’s quest to merge his company with General Motors continues to garner attention and draw suggestions that GM might be shooting itself in the foot by ignoring the offer to talk. Two respected sources weighed in on the drama, most notably CNBC anchor and ex-hedge fund manager Jim Cramer who has lost confidence in GM management and dumped his shares of the company.
In a TheStreet.com piece, Cramer was rightfully complimentary of Marchionne’s talents. Marchionne is a savvy leader who took advantage of the Obama Administration’s desperation, lack of vision and poor negotiating skills during the 2009 auto bailout process when the Italian automaker was given a free stake in a sinking Chrysler corporation at the low point of the auto sales cycle. Cramer was also right on point with his criticism of GM CEO Mary Barra. From the piece:
As for Cramer, he said he admires the management prowess of Sergio Marchionne, Fiat Chrysler's chief executive. He argues that GM made a mistake by spurning recent overtures by Fiat to talk about a merger.
"The man's a visionary," Cramer said. "If you could get (GM) together with Marchionne that would be terrific, a lot of shareholders would like it. I know Mary (Barra) doesn't want it. She was dismissive of Marchionne. That's just arrogance, I don't have room for in my portfolio for that."
The GM chief executive might have at least opened the door, he added. "You have to be open-minded. The reason is simple, your stock is awful," referring to GM shares. "If you work at Netflix you can be close-minded, if you work at Amazon you can be close-minded," given the high share prices of those stocks.
As for Cramer’s description of Barra as arrogant, it is understandable that she may have picked up a bit of that trait having been nurtured by the failed bureaucracy at GM for years before the ultimate culmination of arrogance by the Obama team in the 2009 takeover of the company. It is really her competency that should be called into question, and was, by an even more knowledgeable source on the industry.
Freelance journalist and auto industry consultant Edward Niedermeyer has been one of the most perceptive analysts of GM. Niedermeyer was an early critic of the Chevy Volt, a viewpoint which has proven to be very prescient. He also lambasted GM after the ignition switch recall debacle which cost the lives of over 120 motorists. I especially respect the fact that he does not kowtow to Barra just because she is a woman executive in the male-dominated auto industry. Barra’s gender is not in question, but her effectiveness certainly is. GM has floundered under her leadership, or lack thereof. Niedermeyer addresses this in a Bloomberg article stating:
What once seemed to be Marchionne's search for a love match has revealed itself to be far more about fear than attraction. With his advances to just about every automaker in the industry going unanswered, Marchionne has settled on the target that shows the most managerial weakness. Though General Motors is far bigger and more profitable than Fiat Chrysler, its plodding leadership has revealed a lack of strategic creativity and tendency to buckle to shareholder pressure. Forget the industrial logic that Marchionne says makes a GM-FCA tie-up inevitable; he is pursuing the much larger firm because he thinks he can get away with it.
This weakness starts at the top: After her initial laudatory tour of the press as the industry's first female CEO, GM's Mary Barra has shrunk from the public eye as GM's massive quality and safety crisis has overtaken its image. Unable to defuse concerns about a GM culture that she has never been outside of, and battered by opportunistic investors seeking to raid GM's giant post-bailout cash pile, Barra's media appearances have been markedly controlled by her PR people. Sensing weakness, Marchionne has asked repeatedly to meet with Barra about a merger, yet her handlers have refused to let the two CEOs into the same room. Though Barra commands a firm large enough to easily feed on a small and struggling FCA, Marchionne's fearlessness and killer instinct has Barra acting like the prey.
In an extended interview with Automotive News this week, Marchionne goads GM's leadership, saying, "Look, I'm a tough negotiator and people know it, right? I am who I am, but so what? Send somebody else in. Send the shark. I'd come off the table."
If GM has a shark that can face off with Marchionne, it's clearly not Barra, whose response to FCA's advances has been to say that GM is still in the process of "merging with itself." Though GM still has yet to fully leverage its massive scale since the U.S. bailout, Marchionne heaps scorn on the concept that a 107-year-old firm might not have had enough time to achieve industrial maturity. After all, FCA also lacks the modular platforms and common architectures that help the industry's most formidable competitors such as VW and Toyota take advantage of their huge size.
There is not much to add to those succinct points. We can, however, summarize the facts. Mary Barra is controlled by people with much influence and she does not seem to be up to the task of leading GM. She caved to ex-Auto Task Force member Harry Wilson’s demand to buy back $5 billion worth of GM shares, a move that has done nothing to support share price but has further diminished the taxpayer-supplied cash hoard. Other missteps include an all-in, money-losing focus on electric plug-in vehicles that have no mass-market appeal like the Chevy Volt and Cadillac ELR. The latest multi-billion dollar tie-up with China looks like a fumble as well.
Sergio Marchionne is a straight shooter, something that is very refreshing to see after watching the leadership at GM. Here’s a guy that actually said he doesn’t want consumers to buy his electric cars because they lose him money! The politically correct (and politically motivated) leadership at GM could never be so honest. A company that is beholden to Washington masters would rather lose billions of dollars than take such a stance. The feeble leadership at GM will not survive an auto industry downturn if it cannot prosper at a time when auto sales in the US are at all-time highs. That is why shareholders should demand that Barra listen to Marchionne’s pitch or send someone more competent in that would.
Mark Modica is an NLPC Associate Fellow.