Sergio Marchionne: a (Mostly) Benevolent Dictator Who Rescued and Revived Car Companies, His Way

On May, 21 2014 I had the pleasure of conducting an on-stage interview with Sergio Marchionne at the Brookings Institute in Washington. It marked the fifth anniversary of America’s automotive bankruptcies and bailout, in which Marchionne, as CEO of what became Fiat Chrysler, played a pivotal part.

I had to depart quickly after the interview to fly to St. Petersburg, Russia, for an interview with President Vladimir Putin two days hence. (I was managing editor of Reuters at that time.)  As I was leaving I said, quite irreverently, to Marchionne: “This is special for me, Sergio. I’m interviewing two dictators in the same week.”

It wasn’t entirely a joke.  Marchionne was an ultra-demanding boss, and could be unreasonable at times. One of his aides winced, but Sergio himself guffawed. Marchionne has the great virtue, often absent in powerful people, of being able to laugh at himself. I’m quite sure I never would have liked working for Sergio. But I admire him as a remarkable CEO, probably the best car-company boss on the planet during the last decade.

Former Ford CEO Alan Mulally also deserves a nod, of course. But what sets Marchionne apart for hard-core automotive enthusiasts is his success not only with mainstream cars but also with prestigious marques: Maserati, Alfa Romeo and, most of all, Ferrari.

The 2014 Brookings on-stage interview was about to be reprised next month at the Pebble Beach Concours d’Elegance, perhaps the world’s most exclusive classic-car show. Marchionne had agreed to be interviewed by me and Miles Collier, founder of Revs Institute museum and archive in Naples, Fl., and the world’s No. 1 car collector as judged by a European enthusiast publication, The Key. Sadly, Marchionne has fallen seriously ill due to complications from recent surgery, so that interview won’t happen.

Marchionne’s accomplishments and his unique persona are worth reviewing now that his health challenges have brought his time as CEO of Fiat Chrysler and Ferrari to a premature end. The 66-year-old had planned to retire from Fiat Chrysler early next year while staying on as CEO of Ferrari. Now he’ll do neither.

 

Marchionne took the helm of a desperately ailing Fiat in mid-2004 after his success in running other companies in the Agnelli family’s industrial empire, of which Fiat Automobile is a crucible. Less than a year later he stared down General Motors, extracting a $2 billion settlement for GM to be released from a contractual obligation to buy Fiat. The American automaker, quite simply, paid dearly to avoid getting stuck with a pig in a poke.

Marchionne fired dozens of Fiat executives, though he didn’t fire workers. He used the $2 billion from GM to return Fiat to profitability.

Then in 2009, amid the global financial crisis, he convinced the American government to give him control of bankrupt Chrysler for niente, not a single dollar. No other willing buyers stepped forward and the only alternative was liquidation, which the Obama administration couldn’t countenance.

At Chrysler, Marchionne found disrepair after years of ownership by Germany’s Daimler and then by private-equity firm Cerberus Capital Management.  “When you walk into a plant and you know that you won’t use one of their bathrooms,” he said at the Brookings interview, “well, this can’t be right.”

So he ordered a refurbishment program “with bathrooms, with lunchrooms, with parking lots, with reception areas, with everything that … was just unpresentable.”  How’s that for respecting your employees?  They respected him in return.

Marchionne worked like a maniac (and demanded the same of his colleagues) to run his transatlantic tie-up, which was perhaps fitting for man with personal, and modest, transatlantic roots.  He grew up in Italy and Canada, the son of Italian-immigrant parents, and has citizenship in both countries.  “I spend 75% of my time on Fiat and 75% on Chrysler,” he joked. He sometimes made three round-trips between Europe and America in a single week, reports Reuters’ David Shephardson. He flew on his corporate jet, but still.

Eventually Fiat Chrysler Automobile became incorporated in the Netherlands and headquartered in London despite having virtually no employees in either city. Operational headquarters were in Turin, Italy and Auburn Hills, Mich. Though convoluted, this was the best structure for paying dividends to shareholders, as Marchionne — a lawyer by training — well knew.

Marchionne seemed to live on cigarettes and espresso, though he reportedly gave up both about a year ago. He also eschewed the auto industry’s suit-and-tie dress code for black jeans and a black sweater, though he did make an exception when he met the pope. Marchionne and his boss, Agnelli heir John Elkann, were the ultimate Mutt and Jeff figures: Elkann tall, blond and soft-spoken, Marchionne short, dark and blunt.

He took less than two years — during which executives grimly joked about a corporate cost-control regimen worthy of St. Francis of Assisi — to return Chrysler to profitability on the strength of Jeep and Ram trucks. The turnaround came just in time. In a remarkable role reversal, Chrysler’s prosperity propped up Fiat, which was struggling in Europe’s 2011-2016 economic malaise.

Marchionne also brought the Fiat and Alfa Romeo marques back to America, and launched new Maserati models. But perhaps his boldest stroke of genius was with Ferrari.

In 2015 Marchionne dumped the long-time CEO of Ferrari, the aristocratic Luca Cordero di Montezemolo, assumed the CEO post himself and took Ferrari public. Since then Ferrari’s shares have nearly tripled, making them the best-performing automotive shares anywhere — including Tesla.

Marchionne’s strategy was simple: sharply boost production on the bet that more Ferrari cars wouldn’t dent their exclusivity. Montezemolo had steadfastly dismissed that idea, but so far Marchionne’s bet is paying off.

Marchionne made mistakes, of course. He was slow to invest in electric and self-driving cars, partly because he believed Fiat Chrysler needed more scale to afford the outlays. To get that scale he tried convincing GM to buy the company.  But the American automaker that had acceded to his demands a dozen years earlier rebuffed him.

And Marchionne could be stubborn to a fault. At his behest, Fiat sued Reuters in 2014 for reporting, supposedly inaccurately, disparaging remarks he had made to a business-school audience about Matteo Renzi, then mayor of Florence and soon to become Italy’s prime minister. But tape recordings showed the reporting was accurate.

I called Marchionne personally to tell him this, and to suggest that both sides might save copious lawyers’ fees if he would quietly drop the case. But Marchionne refused. Eventually the lawsuit was dismissed — by an Italian court, no less, which shows how weak the case was. But Marchionne held no grudges. Neither did I.

Marchionne recently gave a presentation on Fiat Chrysler’s outlook to investors and financial analysts. During the presentation he said: “FCA is a company of leaders and employees that were born out of adversity and who operate without sheet music. That is the only way we know.”

Indeed it is, for Sergio Marchionne.

 

The Interview That Won’t Happen at Pebble Beach

By Paul Ingrassia

It had promised to be a “double E” interview: entertaining and enlightening.

On Saturday, Aug. 25, I was going to take the stage at the Inn on Spanish Bay on the Monterey Peninsula with Miles Collier, founder of Revs Institute and — according to a European publication called The Key — the world’s No. 1 car collector.  Together, Miles and I would interview Sergio Marchionne.

Marchionne, of course, is the man who saved Italy’s Fiat Automobiles S.p.A. from near-certain demise back in 2004-2005, and then rescued Chrysler as part of America’s automotive bailout in 2009. It had taken months of dogged pursuit for us to secure this interview.  And just when we had given up, Sergio said yes.  We were elated.

Miles and I weren’t going to ask Sergio anything about Fiat Chrysler (the merged company).  This being the Pebble Beach Concours — the world’s greatest classic-car show, we wanted to query him about the other company at which he served as CEO: Ferrari N.V.

The remarkable turnarounds at Fiat and Chrysler had marked Marchionne as the world’s top automotive CEO.  But for enthusiasts, his bold strategy with Ferrari was of paramount interest.

Marchionne did a “flotation” (in European terms) or an IPO (Initial Public Offering, the American term) of Ferrari in the fall of 2015.  Since then, Ferrari’s shares have nearly tripled.  That makes Ferrari shares the best-performing automotive investment on earth. (Yes, including Tesla.)

But there was a rub, of course. For the newly public Ferrari to meet Marchionne’s financial projections, the company would have to nearly triple its traditional annual production cap of 7,000 cars a year.  Given the market pressure on public companies to post steady and significant earnings gains, just how would Ferrari do that while maintaining the ultra-exclusivity that underpinned its value for enthusiasts?

And in an era of revolutionary automotive technology (electric, connected, autonomous), how would Ferrari embrace the future, and what role would its heritage play?

Last weekend’s sad news that Sergio is gravely ill following complications from surgery — so ill that he had to be replaced immediately in his executive roles — means we won’t get the chance to ask him those questions.  Instead, we at Revs Institute will be pulling and praying for his full recovery.