Fiat Chrysler Eyes GM For An Unlikely Merger The auto industry does need to consolidate to keep up with investor expectations and growing expenses, but the merger might be too big a risk for GM, which already has a lot going for it.
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Fiat Chrysler Eyes GM For An Unlikely Merger

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Fiat Chrysler Eyes GM For An Unlikely Merger

Fiat Chrysler Eyes GM For An Unlikely Merger

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ROBERT SIEGEL, HOST:

Sergio Marchionne wants to merge. The automotive chief is looking to blend his company, Fiat Chrysler, with a rival. And lately, he has been eyeing GM. This spring, Marchionne sent an email to the GM CEO Mary Barra proposing a merger of their two giant car makers. And as Michigan Radio's Tracy Samilton reports, the response was restrained.

TRACY SAMILTON, BYLINE: Oh, to be a fly on the wall. Publicly, GM politely declined the opportunity for a merger. Michael Ward says that was a no-brainer.

MICHAEL WARD: Chrysler merger with GM makes absolutely no sense - zero sense.

SAMILTON: Ward is an investment analyst with Sterne Agee CRT. He thinks the idea of a merger is so crazy maybe we need to rethink Sergio Marchionne's image as a strategy genius. He ticks off a list of why the merger idea is bad - everything that Fiat Chrysler has to offer, like a dealer network, a skilled workforce, factories and some valuable car brands.

WARD: GM doesn't need any of that. Be nice to have the Jeep brand; be nice to have the Ram brand, but they don't need them. They don't need the distribution. They don't need the capacity. They don't need the brands. They have enough brands.

SAMILTON: And then there's what would happen to the little guy - blue collar and white collar alike.

WARD: For GM and Chrysler to combine, you'd probably lose at least half of Chrysler's workforce.

SAMILTON: But Marchionne didn't give up after his proposal was rejected. Analysts say he was inspired by an activist investor who pressured GM to buy back $5 billion in stock from investors. According to Reuters, Marchionne hired investment bank UBS to make the pitch for a merger to investors. Then GM hired its own investment bank to make the opposite case. Marchionne is probably going to lose this one.

STEVE RATTNER: I think you have to put this in about as low a probability category as there is.

SAMILTON: That's Steve Rattner, the former head of the U.S. auto task force. He's the guy who oversaw both GM and Chrysler's bankruptcies. He says there's too many egos involved, too much risk for GM and not enough investor will to force a shotgun wedding. But he says Marchionne is right in one big respect - the auto industry does need to consolidate.

RATTNER: Sergio has been talking about mergers since the first day I met him in 2009, and as is usually the case, he's a clear thinker.

SAMILTON: Rattner says mergers or some kind of joint ventures make a lot of sense because car companies face daunting challenges of growing expenses and investor dissatisfaction. Fiat Chrysler is especially unprepared for those challenges, according to economist Sean McAlinden of the Center for Automotive Research. The automaker has more than $8 billion in industrial debt. It's struggling in Europe and Brazil, lagging badly in China.

SEAN MCALINDEN: Well, they don't have any hybrids or no approach to lightweighting their vehicles, which is needed for higher fuel economy, at all. It's just not a good position to be in. Where he is is not the sweet spot.

SAMILTON: McAlinden also doesn't expect Marchionne to succeed in his quest to merge his company with General Motors. He says that basically leaves Fiat Chrysler with two options - either find another company willing to merge or start the long, slow and painful process of downsizing. For NPR News, I'm Tracy Samilton.

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