How likely is a Fiat Chrysler/Hyundai merger?

Eric D. Lawrence, Detroit Free Press Published 4:43 p.m. ET July 2, 2018

(Photo: PIERO CRUCIATTI/AFP/Getty Images)

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Acquisition speculation never really goes away for Fiat Chrysler Automobiles.

This time, South Korean automaker Hyundai has been cast in the role of potential suitor, a variation on speculation that spread last year.

Asia Times published a story last week highlighting a scenario where Hyundai Motor Group CEO Chung Mong-koo would launch a "takeover bid" for the Italian-American automaker at some point before FCA CEO Sergio Marchionne retires next year.

The story relied on unnamed sources, and Jim Trainor, a spokesman for Hyundai in the U.S., called the rumor "completely groundless."

But a Hyundai and FCA merger would offer some intriguing possibilities.

Michelle Krebs, Autotrader executive analyst, called it a situation to watch.

"I have long thought – on paper – that an FCA and Hyundai-Kia alliance makes some sense. Hyundai and Kia are strong in cars and Asia. FCA is strong in utilities – far more so than HK – and strong in trucks, which Hyundai doesn’t have at all," Krebs wrote in an email, noting a history that has included working together primarily before Chrysler was part of FCA on engines.

Marchionne also floated a possible connection last year with Hyundai on fuel cell technology development.

But Krebs also noted that alliances do not always succeed even when they appear to make sense.

"While an alliance may look good on paper, it may not work in terms of mindsets of the companies and the culture. I would note that the Daimler Chrysler 'merger' made sense on paper. It was a disaster due to the clashing cultures. The Nissan-Renault alliance didn’t make obvious sense, but it is nearly 20 years old now," Krebs said.

For FCA, the speculation about being purchased is familiar. Last year, numerous Chinese companies were rumored to be interested in the automaker, and at least one, Volvo-parent Geely held informal talks with FCA, according to Bloomberg. Geely ultimately opted to invest $9 billion in Daimler apparently instead.

Part of the speculation has also been fed by Marchionne's penchant for making public overtures to other automakers, such as General Motors and Volkswagen. He's long suggested more consolidation was needed in the auto industry, and FCA has taken a team approach to areas such as autonomous vehicle development such as through its partnership with Waymo.

But Marchionne was forceful during the North American International Auto Show in Detroit in January in pushing back against specific talk of selling off the company — with most focus on the highly valuable Jeep brand — in pieces.

"The answer is no we’re not going to break up anything," Marchionne said at the time. "We have no intention of breaking it up and giving it to the Chinese."

The assumption has been that FCA needs more help to offset the huge costs associated with development of electric and autonomous vehicles, areas that several of its competitors have focused much more on. With solid financial performance in recent quarters and a share price that has consistently beaten Ford, that talk had cooled a bit.

But with no successor to Marchionne named, the questions about the company's future will continue to percolate, even though the five-year plan laid out last month in Italy was received generally favorably.

Contact Eric D. Lawrence: elawrence@freepress.com. Follow him on Twitter: @_ericdlawrence.

ABOVE IS FROM:  https://www.freep.com/story/money/cars/chrysler/2018/07/02/fiat-chrysler-hyundai/751490002/