NEW YORK (TheStreet) -- Bought or be bought? Sergio Marchionne, CEO of Fiat Chrysler Automobiles (FCAU - Get Report), would rather not say. What he will discuss is the auto industry consolidation, in which FCA intends to participate.
Earlier in the week, sources told Reuters that Marchionne is determined to execute a major deal before stepping down in 2019, possibly in the U.S. and possibly with General Motors. The Agnelli family, Fiat's founders, is interested in GM, whose strengths and weaknesses complement FCA's.
The reason for Marchionne's ardor to deal is simple: FCA lacks the global scale to compete at a time when rising investment costs for technology, for environmental compliance and for vehicle development make small-scale manufacturing unfeasible.
"Marchionne has clearly planted the 'for sale' banner," a banker close to PSA Peugeot Citroen and GM said in Automotive News. "He's been sending out feelers everywhere in an attempt to create optionalities, but so far no one is biting."
The clock is ticking. For the moment, new-vehicle sales and profits are pretty good in some markets and reasonable in others. Yet auto making is a cyclical business: Lean times always return, and with little warning. An automaker caught with too much plant capacity and too much debt in a period of weak sales risks insolvency -- that's exactly why Fiat was able to claim Chrysler after the latter's 2009 bankruptcy.
Here's why a GM-FCA merger might make sense. GM needs help in Europe, where its attempted tie-up with Peugeot failed and its Opel brand is in recovery mode. FCA is weak in China, where GM has a substantial market position. Together, their full-size pickup truck businesses would afford them market leadership over Ford in the U.S. Both automakers sell too many cars that don't make money; consolidation would allow them to trim or cut losers.
A merger might not be needed. How about an equity exchange and alliance like the one that has kept Nissan and Renault in good shape for the past 16 years? Perhaps the companies should jointly develop their next Ram and Silverado pickup trucks. GM spurned an invitation to join the Renault-Nissan alliance prior to the global financial meltdown, a decision that -- had GM chosen otherwise -- might have saved it from bankruptcy.
Officially, GM says it isn't interested in a tie-up with FCA. That may be its unofficial stance, too. But GM directors and top management would do well to keep an open mind. GM shares have risen less than 7% during the past five years, compared with an S&P Index that rose about 70%.
FCA shares are up more than 80% since its initial public offering last fall. The company is much smaller than GM, in terms of market capitalization. But Marchionne & Co. may bring something else to a GM tie-up: a grittiness and ingenuity borne from the need to merge and revitalize Fiat and Chrysler, two industry weaklings.
A lingering hurdle could be GM's bitter memories of a Fiat-GM tie-up in Europe more than a decade ago that went terribly wrong. But that was then.
Marchionne is shrewd and won't stake too much on a deal with GM. He's earlier shown an aversion to dealing with Volkwagen AG, which has cast a covetous eye on FCA's luxury brands. That, too, was then.