CI VIEW: Fiat-Chrysler Marchionne seeks merger with Korea’s Hyundai; China Great Wall stalking horse UPDATE

WASHINGTON/MILAN (CI GCA) – (Update on September 25 2017 to add comments by South Korea Foreign Minister Kang Kyung-Wha and US House Ways and Means Committee Ranking Member Sander Levin (D-Michigan) — Fiat Chrysler Automobiles (NYSE:FCAU) CEO Sergio Marchionne is now setting his sights on a merger with South Korea’s automotive giant The Hyundai Motor Group while at the same time using China’s Great Wall Motor Co as a stalking horse, sources close to the situation said.

[Fiat Chrysler Automobiles FCA CEO Sergio Marchionne speaks to Capitol Intelligence/CI GCA using CI Glass at the Brookings Institution in Washington, DC.]

It is understood that FCA CEO Marchionne began planting rumors of possible Chinese interest in FCA in June after being rebuffed first by General Motors (NYSE:GM) CEO Mary T. Barra and later by troubled Wolfsburg, Germany-based Volkwagen Group (ETR:VOW3).

Jim Trainor, a Hyundai spokesman in the United States, said the company does not comment on market rumors. HMG, world’s fifth largest automotive manufacturer, owns the Hyundai and KIA automotive brands that operates US manufacturing plants in Montgomery, Alabama (Hyundai Santa Fe,, Sonata and Elantra and KIA (Santa Fe, Sorento) in West Point, Georgia.

South Korea Foreign Minister Kang Kung-wha said she has “no updated knowledge” when asked by Capitol Intelligence regarding the possible merger that would create the world’s largest automotive group following a speech at the Center for Strategic & International Studies in Washington, DC.

[South Korea Foreign Minister Kang Kyung-Wha speaks to Capitol Intelligence/BBN using CI Glass on possible merger between Fiat Chrysler Automobiles and Hyundai Motor Group following a speech at CSIS in Washington, DC. September 25, 2017]  

One source said that Italian-Canadian Marchionne — who is as home in the Halls of Congress as in the European capitals of Rome, Paris and Berlin — is fully aware that any merger between a Chinese automotive group and FCA would be blocked by President Donald Trump’s administration through the Committee on Foreign Investment in United States (CFIUS).

“The notion of a Chinese company taking over such an American icon as the Jeep raises hackles not only by the Trump administration but by almost every single member of the Michigan Congressional delegation,” one DC M&A regulatory lawyer said. “CFIUS is a very opaque committee easily influenced by domestic political sentiments.”

[General Motors Chief Executive Officer Mary T. Barra filmed Capitol Intelligence/CI MENA using CI Glass after interview by The Carlyle Group co-founder and co-CEO David Rubenstein at The Economic Club of Washington, DC. February 28, 2017]

However, the rumors of a potential Chinese buyer served in part to soften White House and Congressional opposition of a merger between FCA and Korea’s Hyundai.  Hyundai, unlike its Japanese rival Toyota, is relative late comer to the US market and has the most to benefit in taking over the Chrysler distribution network and iconic Jeep brand.

Unlike Volkswagen and GM, Hyundai-FCA poses significantly fewer manufacturing plant and product overlaps both in the United States and Europe.  The US-South Korean Free Trade Agreement (KORUS FTA)  on top of closer political-military ties between the United States and South Korea over North Korea’s nuclear proliferation — would make a Hyundai-FCA merger more palatable to the Trump administration.

[US House Ways and Means Ranking Member Sander Levin (D-MI) speaks to Capitol Intelligence/BBN using CI Glass on the possible merger between Fiat Chrysler Automobiles and Hyundai Motors Group at Council on Foreign Relations in Washington, DC. September 25, 2017]

“I don’t want to sound too cynical, but all Hyundai CEO Chung Mong-koo needs to do is announce several billions of dollars in new automotive plants and thousands of new US jobs in the states of West Virginia, Michigan, Ohio so on and he won over [President] Trump,” a Trump insider in DC said.

While company insiders say FCA-VW merger would make the most sense, such a merger would face impossible opposition in Germany and Italy due to automotive plant closures notwithstanding VW’s willingness to consider such a merger after its still internally traumatic diesel engine scandals in the US and Europe.

Marchionne himself has repeatedly warned his fellow auto bosses in the United States and Europe not to underestimate the threat Korean manufacturers pose to legacy manufacturers.

Marchionne aggressive pursuit of a merger partner for FCA is due in part by industry overcapacity and pressure on the part of Fiat controlling shareholders the Elkanns and Agnellis. FCA Chairman and family patriarch John Elkann is much more interested in the news media space than in automobiles. Elkann recently took over the controlling stake in The Economist Group from Pearson PLC (NYSE: PSO).

[Fiat Chrysler Automobiles Chairman John Elkann speaks with Capitol Intelligence using CI Glass at Milan’s Malpensa airport. June 3, 2014]

“In fact, John Elkann’s office in London is inside the Economist building,” one source noted.

Marchionne is uniquely transparent is telegraphing his intentions to the market.  His aggressive pursuit of GM’s Mary Barra is meant to show FCA’s determination to find a good merger partners and at the same time illustrates Marchionne’s understated sense of humor and love for mischief making.

Fiat was only saved from imminent collapse by than GM CEO Rick Wagoner who was forced to fork over USD 2bn in cash to Sergio Marchionne to get himself out of a shotgun marriage with Fiat Auto in 2005.

By PK Semler in Washington, DC and Milan, Italy

For more information please call +1-202-549-3399 or email pks@capitolintelgroup.com

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