FCA CEO: Current Industry Model "Unsustainable"— Consolidation Needed

AUBURN HILLS (WWJ) - Fiat Chrysler CEO Sergio Marchionne is issuing a warning, unless car companies start combining their efforts, the high costs of the auto industry will once again put the industry in a difficult position.

"Unless we find a better paradigm to run this business, we are going to be run into more problems going forward." \

In a conference call with analysts, originally scheduled to discuss Fiat Chrysler's $101 million first quarter earnings report, Marchionne repeated and--in great detail--explained his ongoing call for industry consolidation.

[LINK: Sergio Marchionne's Statement on Industry Consolodation]

This not about putting Fiat-Chrysler up for sale, said Marchionne, it's about reducing costs in a business that does not bring in enough money to justify those expenses.

Combining automakers, Marchionne said, will lower the cost of developing new products, and eliminate a lot of waste.

"It's fundamentally immoral for that waste to continue," he said.

These calls, in the past, have been rejected by other major automakers. Top executives at General Motors and Ford said they are not looking to tie up with anybody else.

During the nearly two and a half hour conference call, Marchionne several times said he was trying to win analyst support for consolidation. He said investors were not taking auto stocks as seriously as they should, because the companies don't provide the return on investment seen in other industries.

"We have failed, I think collectively as an industry, to try to deliver values that are commensurate with the amount of capital that is being consumed."

Cost will only grow, says Marchionne, as carmakers are forced to spend more money to meet coming fuel economy rules.

Reaction was fairly cautious.

"His points are incredibly valid," said IHS automotive analyst Stephanie Brinley. "But, I'm not sure there's going to be a lot of immediate changes within the industry or within the marketplace."

Other auto industry leaders have not joined in Marchionne's calls for consolidation.

"The industry is made up of companies that are operating in their own best interest," said Brinley. "Consolidation may be in the best interest for one company or another. But, it's hard to say on a broad level that that's better."

There was a lot of debate in 2008 and 2009 whether the government should give aid to Chrysler, as well as General Motors. At that point, Marchionne was the only major auto executive willing to take on the challenge of turning Chrysler around.

He showed obvious irritation when asked if saving Chrysler six years ago, was at odds with his calls for fewer carmakers today.

"I think it's incredibly naive to assume that the extinction of Chrysler as an entity in the marketplace would have fundamentally changed the paradigm for the other two."

The rescue, says Marchionne, also saved the supply based and helped other carmakers.

Marchionne says his calls for consolidation reflect his views on the industry, and are not--as has been promoted--his attempts to make one more "big deal" before his planned retirement.

"I hate to tell you that most of that stuff is absolute hogwash."

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