- Photo Credit: HJ Pizarro

A Case For A Hyundai And Chrysler Merger

1y ago

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In 2009, during a time of economic turmoil, Fiat bought Chrysler Corporation as part of the much publicized automotive financial bail out. Since then, Sergio Marchionne (the head of Fiat Chrysler Automobiles - FCA for short) has been pretty open with the world about his desire to merge FCA with another automotive manufacturer. Merging would enable greater reduction in costs due to greater scale purchasing power and also lend to the strengthening of brands within the portfolio through more tech swapping opportunities between the two powerhouse manufacturers. So, the fact that there have been rumors floating around in recent years of this manufacturer or another going to the nuptial altar with FCA is not surprising.

Those merger rumors were also fueled by some conversations that were more public than others. GM turned down the idea of a merger with FCA, but not before accusations of a potential hostile takeover started flying. Ford and Volkswagen also turned down the merger concept, although more quietly.

Since then, merger rumors have continued and a few short months ago they began centering on Marchionne entertaining manufacturing companies from China, including Great Wall Motors. That was a big surprise. Immediately, Jeep fans cried foul. Jeep, a brand under the FCA umbrella, has been an American icon forged from the fires of World War II, and has been called by the United States government on occasion to build special military projects. So, the idea that the Jeep brand and the associated manufacturing trade secrets could possibly go to a Chinese company didn’t sit well with the Jeep nation. In addition, a deal with a Chinese firm would also be more complex due to trade and political hurdles.

The Chinese rumors wouldn’t matter though because the Marchionne eventually responded publicly to the rumors by announcing that there were no offers for FCA or any of its individual brands. This left Marchionne with less suitors for his grand merger goal. But hold on! Less possibilities doesn’t mean a total lack of them. Sergio Marchionne doesn’t give up that easy!

This is where the Hyundai variable is introduced. Hyundai is a South Korean manufacturing company that already has a dealer network established in the United States selling Hyundai and Kia vehicles. In the years since Hyundai has been on U.S. shores, the product offerings have diversified and quality ratings have improved. As such, the company is looked upon more favorably by automotive consumers who are now buying their products in droves each year.

FCA also has inroads to China. Why would this important to Hyundai? Exports to China of Hyundai products have been hurting in recent months. The recent political tensions between North Korea, South Korea, and China, leads many to think that those political tides are unlikely to change soon. But, FCA has a good foothold already in China despite the political brouhaha, which is something Marchionne can use as leverage. He can offer greater positioning for China under the FCA banner and maybe restore some lost ground for Hyundai.

There’s another point that Marchionne can leverage to move negotiations in a favorable manner for FCA. That is, Hyundai doesn’t have truck offerings. FCA most certainly does through its Dodge, Ram, and Jeep brands. It’s no secret that Hyundai has considered introducing trucks. They’ve even developed and shown concepts over the years. But, nothing has launched yet (the Santa Cruz has been approved but it still not available). So, FCA’s current truck offerings could look very appealing to Hyundai, filling that truck void.

Since we are talking leverage, a merger of FCA and Hyundai would create the largest global auto manufacturer based on sales, surpassing GM, Toyota, and Volkswagen. This would speak directly to the economies of scale Marchionne is looking to reduce. Plus, how could being number one not play on the ego?

Granted, there’s a bit of juggling that will need to go on if Hyundai does purchase FCA. For example, there may be some product overlap with the Alfa Romeo, Genesis, and Maserati brands. So, it’s questionable if all the brands would co-exist, or if one or more might be sold off individually after a theoretical Hyundai and FCA merger. Also, Chrysler's current stable of electric or hybrid vehicles is weak. So, a merger would give Chrylser the access it needs to Hyundai’s portfolio of electric and hybrid tech.

Overlaps and electrification aside, the case for a merger between the two companies seems plausible, seemingly yielding more benefits than cons. Considering an established dealer network for both Hyundai and Chrysler, a Chinese inroad, and truck offerings at the ready, it wouldn't surprise many in the auto industry if such a merger were to proceed. In fact, as we head into the Holidays, would anybody be surprised to hear of such a Christmas gift for Marchionne?

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