Chris Bryant, writes on Bloomberg at the close of a now famous presentation in which he chided the auto industry for its profligate ways, Sergio Marchionne quoted a telling passage from Lewis Carroll’s “Through the Looking-Glass.”
The Red Queen tells a frustrated and exhausted Alice that in her world “it takes all the running you can do to keep in the same place. If you want to get somewhere else, you must run at least twice as fast as that!”
Without Marchionne, who was replaced as CEO of Fiat Chrysler Automobiles NV on Saturday after a sudden deterioration in his health, the Italian and U.S. also-rans he crunched together would probably have expired long ago under their pile of accumulated debt.
Thanks to the ferocious pace Marchionne kept up for 14 years, often under trying conditions, Fiat not only survived, but thrived. His departure leaves a void that his successor Mike Manley, head of the Jeep brand, will struggle to fill – anyone would.
With a trade war looming and the car industry in the midst of unprecedented technological upheaval, fulfilling the targets Marchionne has set will be difficult. But by reviving Jeep, now the chief source of Fiat’s cash flow, Manley has shown himself to be a very capable leader. He also inherits a far stronger company than the one Marchionne took over in 2004.
Marchionne defied predictions of Fiat’s demise by working harder, allocating capital better and creating more value than his peers. During his tenure, he increased the value of Fiat’s assets more than ten-fold.
The fact that he also spoke far more eloquently than most executives, and paid heed to the concerns of investors (not a given in the auto industry) earned him a loyal following in the analyst community and among journalists.
By recognizing the potential of the Jeep brand, spinning off the luxury Ferrari marque, and pivoting early away from low-margin cars toward more profitable SUVs, he was able to revive Fiat Chrysler, and cut net debt to zero. The company will probably achieve about $6 billion of net income this year, roughly the same as Ford Motor Co., which is no mean feat.
It’s some consolation that Marchionne, who was set to retire in April 2019, was able to take a curtain call in June when he outlined new financial targets for the group.
Still, he leaves the stage before the job is quite done. The new targets are ambitious – perhaps too ambitious. Can Fiat really double operating profit to as much as 16 billion euros ($19 billion) and generate 30 billion euros of free cash flow in the next five years?
For now, investors don’t buy it – Fiat’s stock trades on a lackluster five times estimated earnings, less than General Motors Co., Ford and Volkswagen AG.
Weighing on the stock are the heavy investments required to catch up in electric vehicles (where Fiat is perceived to be a laggard) and the risk of a big U.S. fine over its vehicles’ diesel emissions. Plus, at some stage, the already long-in-the-tooth U.S. autos cycle will come to an end – cycles always do.
It’s possible that Manley will decide that the best way to deal with all these challenges is to pursue a merger with a peer – as Marchionne tried and failed to do with GM.
Marchionne’s assessment in his 2015 “Confessions of a Capital Junkie” remains correct: it is madness for automakers to each spend heavily developing near identical technologies, when sharing the burden would be more efficient.
Without a merger, Manley risks finding himself in the same predicament as Alice: running at double speed to avoid standing still.
Chris Bryant is a Bloomberg Opinion columnist covering industrial companies. He previously worked for the Financial Times. This article appeared first on Bloomberg.