What Fiat Chrysler chief Sergio Marchionne told us over lunch

Published: 02 September 2016

► The CAR interview: Sergio Marchionne
► We meet the boss of Alfa, Fiat, Chrysler, Jeep
► Lunch with the visionary chief exec of FCA

Scusi amici, but no photography. When Sergio Marchionne steps into the room, it is clear why. Despite a quick shower and fresh clothes, Fiat-Chrysler’s (FCA) numero uno still looks dog-tired after another transatlantic flight. Before sitting down, he empties his pockets and produces four trademark utensils: two smartphones, a fresh packet of Muratti Privat filter cigarettes and a lighter.

The 64-year-old captain of the industry goes straight at the heart of the matter. ‘This industry is at a crossroads,’ he states in his melodious bear-wants-honey drawl. ‘I don’t think any of us has an idea as to what the right answer is. To me, the biggest issue is the impact technology has on what we are doing. Like the formation of a driverless environment, which is a mandatory future option and not even expensive. Products will go through a cycle of becoming either technologically obsolete or technologically relevant. The car already recognises who you are, it’s one of the main interfaces between the world that you are in and the world beyond. All this stuff is here to stay, it is going to be available at the speed of light, so we must act like a flash.’

Everyone is drinking mineral water except for the boss who brought his own pale-yellow tea-and-lemonade mix in two small transparent bottles. No alcohol, no dessert. Marchionne has lost weight lately, looks physically very fit even on a day like today when the spectacle lenses sparkle sometimes brighter than the eyes behind them. Is the end near for the classic combustion engine? ‘Although the relevance of combustion will decrease, it will still be an important driver of mobility. Electrification may be the next big thing, but I’m amazed by the impact of Tesla’s new Model 3. With 300,000 orders in hand, their stock is up – again. It reminds me of the internet bubble. But where is the business model that will work in the long term? People should realise that there is nothing another company cannot replicate…’

Except that Tesla was the first carmaker to go fully electric with upmarket products, and they made this concept stick. In fact they created an icon, just like Apple did with its iconic iPhone. Is this not an approach FCA could mimic? ‘Welcome to the world of icons!’ quips Marchionne. ‘I don’t make iPhones. I make cars. Why don’t I make the iPhone of cars? Because if it looks and smells like Tesla, I don’t know how to make that economic model work. There is nothing Tesla do that we cannot also do. We build cars, sell them and are still able to pay the bills. But I’m not even sure you can recover all of your costs – let alone generate a profit – through electrification. The answer is bound to be somewhere else, and the question is whether we are doing enough to try to explore that somewhere else.’

Disarmingly open-minded and aggressively forward thinking, Sergio Marchionne still manages to retain some old-school habits. Like listening to records played on a high-tech turntable, preferably opera and classical music. Or reading books, about 250 pages per long-haul flight, mainly heavy stuff like philosophical and scientific writings. A couple of floors down in his personal office in the vast Lingotto complex which serves as Fiat’s headquarters, the walls are lined with listening and reading material. Up here in the light but barren makeshift dining room, you don’t need more than the fingers of one hand to count trinkets like flowers or paintings.

Although talking and eating don’t mix, il grande capo wastes no time hammering his message home. ‘Contrary to what some of my colleagues believe, we are not in the mobility business. We don’t move people around. There was a time when everyone started buying rental car companies because we thought that was an easy sales channel. For similar reasons, we were in the finance business. But at the end of the day, we are only building the tools that allow people to be mobile. I don’t want to buy into the distribution machine like GM did by paying $500m for a 10% stake in [US ride-sharing company] Lyft.’

Lunch with Marchionne

During our two-hour session, Sergio’s phones remain silent: no calls, no ‘You Have Mail’ ding-a-ling. But there is no doubt that digitisation and Big Data play an increasingly important role in the business life of the quick strategic thinker. Apple, Uber and Google are names that automatically come to mind in this context. Even though he does not want to turn FCA into a mobility service provider, that’s exactly the approach Apple, Google and Uber have chosen to chase the consumers’ attention and money. Sergio Marchionne keeps emphasising that ‘we have no skills to provide such services. But there are partners out there who would love to share their skills. Now this could be a business model that works. To find out, we have to let them in’. Marchionne pauses for breath, sends one text message, lights a ciggy and pours another glass of ambrosia. ‘Google can buy every auto maker out of petty cash. And Apple – they made a net profit of $24bn in one quarter. This is nonsense. What are we defending? What?’

By the time the waiter takes the first set of plates away, SM is beginning to enjoy our conversation, shifting up one gear with every new topic. ‘My approach is to be completely open to technology. I think the next paradigm of this business is a paradigm that involves the cooperation for technology with the disruptors. Google is one, Apple is another, even Uber. It’s all about access to the complete information on what people do in the car. That’s when the consumer has time on hand and the business case blossoms. The key is to find a way in which we can co-exist with the disruptors, and bring our set of skills to the table. Speed is essential here. We must establish a link asap, must talk to the big players, the newcomers and the underdogs, everybody. The goal is job sharing on a high level. We build the cars, they build the technology that goes into them. Ideally, I can take this technology and use it across my other brands.’

Unveiling the Alfa Giulia, summer 2015

As we wait for the main course, the discussion is drifting into the vague undergrowth of ifs, whens and buts. What the motor industry is facing here is the clash of two worlds. Old vs new, slow vs flexible, old-fashioned structures hampered by high fixed costs vs slim and highly flexible start-ups, single-digit profit margins vs 50 or 75%. In a win-win proposal, FCA would integrate the Apple ecosystem into a set of modified vehicles. At the same time, they would make room for Google and its map services, connectivity know-how and software power. On a scale from good to bad, Apple has been described by analysts as Snow White while Uber has more of a Darth Vader touch. Google is somewhere in the middle, plenty of potential tied to numerous possible pitfalls. Does Marchionne see the charm of a scenario in which Apple would, for instance, connect with Jeep, Alfa with Google and Dodge with Uber? ‘That would be a really nice network,’ is the answer, accompanied by a broad grin. ‘It’s brand relevance with a strong technology link.’

In fact, in the weeks since I sat down with Marchionne FCA took its first tentative steps by signing a deal with Google to supply 100 Chrysler Pacifica vans, which will be turned into self-driving vehicles to take Google’s autonomous trials to the next level. Google will own the vehicles, and both companies will be free to work with other partners, but crucially the deal places FCA in the box seat to become the carmaker that eventually brings Google’s tech to the road. GM had been talking to Google, but they disagreed over who owns technology and data.

At this point in our interview, my mind is briefly straying from unreserved admiration to lingering doubt. Is this man an ingenious maverick or a notorious tightrope walker? A gambler in a game with revolving players, facedown cards and no limit. Why, one must ask, are most of his competitors working on proprietary mobility concepts which encourage intra-industry integration while generating and protecting their customers’ data? One could perhaps see FCA come to further individual agreements with the likes of Apple, but surely only as a junior partner, a production puppet on a string, the Foxconn of car manufacturers. Marchionne ponders, nods and says: ‘I have got to be able to find an economic model that allows me to survive the event. My successor has to inherit at least the propensity to absorb, to let these things come in, even nurture them in our environment, then strike a deal. Because they ain’t going away.’

The end of an era

The Marchionne regency will end in 2018 at the latest. But who is the designated next king of FCA castle? What are the qualities he or she must bring to the throne? Should that person be a car guy or a side-entrant like SM was when he joined 12 years ago? Which additional skills are required to prepare the group for new challenges? ‘My successor is in the house,’ Marchionne says. ‘There is a list of people but no favourite. None of them are traditional car guys. They would never tell you trivial things nor would they tell you dogmas. They are totally open and have the ability to move and shift. If they recognise a mistake or that things have changed, they address that issue and fix it. We set a bunch of targets for 2018, and they are fundamentally the only ones that are essential in consolidating our position as a reputable car company. Because that is what we now are.’

FCA thus has less than three years to secure €9bn in operating profit per annum and to accumulate over €5bn in cash. This would be a remarkable achievement for what once was a moribund enterprise which lost five million dollars a day back in 2004. The question is: can Marchionne and his allies and his successor do this alone? Is the chairman’s pet subject, consolidation with another big player, a precondition for survival, accepting plant closures and job cuts as unavoidable collateral damage? If so, where are the suitable brides? Mary Barra said no, the Chinese partner needs more time to grow, Toyota is overwhelmingly powerful, Mazda is too small. So would the suitable candidate, who should be strong in Asia but can be weak in North America, please step forward. Ten months ago, this candidate was Martin Winterkorn’s VW.

Although the Volkswagen board of directors – above all the labour leader Bernd Osterloh – was not yet fully convinced, a deal was in the process of being put together. But then dieselgate rocked Wolfsburg, and it became very clear that the management style imposed by Piëch and Winterkorn no longer worked, and probably never did.

Marchionne would neither confirm nor comment on it, but a merger with FCA could bring to VW instant credibility in North America by fixing almost all its issues with the support of a
company that understands the US market. Further upside potential includes Fiat’s cost-efficient (‘the marque is now profitable in 28 European markets’) small car infrastructure in Europe (‘we know how to do cheap’), the appeal of the flourishing Jeep brand in a world that has gone SUV-crazy, and the attraction of Alfa Romeo and Maserati which would be a splendid fit to the Germans’ premium product portfolio. The man in the black pullover is listening to all this, poker-faced and unusually tight-lipped. When it comes to VW, it seems I simply can’t coax him onto the record.

Now running Ferrari too

The one brand we can’t avoid talking about is Ferrari, of which Marchionne has just appointed himself CEO in addition to his existing role as chairman. On the stock exchange, Ferrari is now worth about €10bn compared to Fiat-Chrysler at about €17bn. Ferrari netted €265m last year, but despite repeated management changes, it still is a sports car manufacturer and not a luxury goods brand. Selling caps and T-shirts may in fact be counter-productive in the business environment of the very wealthy, to whom Ferrari brand values don’t stretch much beyond V8- or V12-engined driving machines.

Marchionne claims not to be worried about this and directs the conversation to Formula 1. ‘Watch this space – we shall very soon be within striking distance to the leaders.’ What about the road cars though? When are we going to see the Dino V6 and LaFerrarina, a less extreme version of LaFerrari? ‘We normally don’t talk about these things. But let me ask you: where should that Dino be positioned? How much should it cost? How would it relate to the next 488? What is the right balance between too many and not enough units? We haven’t found answers to these questions yet. And by the way, the only future product connected to LaFerrari is the Spider. Which is no secret since potential customers have already been approached.’

Marchionne and F1

Not surprisingly, Sergio’s dream garage contains exclusively FCA products. Here are his top five: LaFerrari, Enzo, Alfa 4C coupe, Giulia QV and any Dodge powered by that awesome 707bhp Hellcat engine. In real life, the CEO drives (or is driven in) the baddest available Dodge Ram. Bulletproof, with an armed bodyguard in the passenger seat, sandwiched between two chase cars each manned with a couple of security pros. When he feels like playing, Fiat’s top gun goes to the Balocco test track where his favourite Ferraris are stored.

‘I have a 599 Aperta and a 599 GTO, but I also like the California T because it is so manageable. The 488 and the F12 are true animals. Thanks to their racing DNA, they are Ferraris at their best. The moment you start the engine, you know you can never get out again. The way the 488 takes a turn – Jesus! And as soon as electrification is ready, we’ll have a bunch of even better performing Ferraris.’

Taking the pulse of FCA

It turns out that two hours is not long enough. There are so many topics, such as the future of Lancia, the reasons why FCA is, at close to 6.0% net, twice as profitable as VW, the late arrival of plug-in hybrids and EVs, the overdue fusion of all rear-wheel-drive platforms into a scalable global architecture, the last-minute withdrawal of the proposed near full-size Alfa Alfetta, the decision on whether the next Giulietta should be front- or rear-wheel drive, the still uncertain funding for the Maserati Alfieri. But we are out of time.

Coffee for everyone, one more smoke followed by a few closing remarks. ‘This is an extremely complex business,’ acknowledges ‘the kid who borrowed $8bn from Obama and paid it all back’. ‘I know that e-mobility is a must in our fight against emissions. But there is no model that we have analysed or reconstituted which says electrification is a solid basis on which you can build cars with even a marginal return on investment and a guarantee of survival. I certainly don’t know one.’

And autonomous driving? ‘We’ll see plenty of vehicles embedding incredibly high levels of technology, which give you a choice between to drive and not to drive. But the car will not take over unless you ask it to. And there is more. Like how to get a handle on the highly critical infrastructure, how to jump the safety-related and legal hurdles, how to stop people perceiving carmakers as national champions, like airlines. Instead, it’s the big picture that counts. To be in it, I’m prepared to strike a deal with the devil.’

Now 64, Marchionne's tenure at FCA is coming to an end