Economy First Look

How a VW merger with Fiat Chrysler would change the auto industry

At Volkswagen's annual conference, the company's chief executive, Matthias Mueller, said he is leaving the door open to a potential merger with Fiat Chrysler.

German carmaker Volkswagen CEO Matthias Mueller addresses the company's annual news conference in Wolfsburg, Germany, on March 14, 2017.
Fabian Bimmer/Reuters
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Speaking with reporters on Tuesday, Volkswagen Chief Executive Matthias Mueller said he would not rule out holding talks with Fiat Chrysler about a potential merger.

The comment, which followed VW’s annual news results conference, represented a marked change from just last week. At that time, Mr. Mueller said his company was occupied enough with its business transformation amid efforts to recover from its emissions scandal, appearing to dismiss all possibility of a union between the massive automakers.

"We are not ready for talks about anything," Mueller told Reuters last week at the Geneva auto show. "I haven't seen Marchionne for months," he added, referring to the Fiat Chrysler head Sergio Marchionne.

Following the recent acquisition of General Motors’s Opel brand by Peugeot’s parent PSA Group, however, some speculate that Mueller may have had a change of heart, realizing that his company could be facing dramatically increased European competition.

While he did not say if his change in perspective had anything to do with PSA Group’s recent procurement, Mueller did tell reporters his company was “more open” to merger discussions.

“I am not ruling out a conversation,” he told reporters when asked about Fiat Chrysler, though he added that he hadn’t been in communication with the Fiat Chrysler head in months. “It would be helpful if Mr. Marchionne were to communicate his considerations to me and not just to you,” he said, according to Reuters.

For his part, Mr. Marchionne has been an advocate for consolidation within the auto industry for some time.

At Tuesday’s news conference, Volkswagen also discussed its 2016 operating profit, bolstered in part by strong sales from its high-end Porsche division.

VW's results released at the conference showed that, due to the company’s 2015 diesel admissions scandal, underlying operating profits for their primary VW brand fell 10 percent to 1.9 billion euros ($2 billion US), with the profit margin dropping to 1.8 percent from 2 percent in 2015, Reuters reported.

Yet in 2016 VW overtook Toyota as the world’s largest automaker, as strong sales in China helped offset the drop in profit margins within the United States.

While Volkswagen as a whole performed well in 2016, PSA’s recent purchase of Opel has the potential to put pressure on VW in its home European market, where it still holds the top spot.

Previously, Mueller had declared his belief that his company’s turnaround could in part be achieved by shifting its overall structure and scheme, instituting pay cuts for senior executives and appointing more women to top leadership positions, according to the Financial Times. Mueller has also announced Volkswagen’s ambitious objective of dominating global markets for electric and autonomous vehicles, stating that the company will launch 10 electric vehicles by the end of the year and will have 30 fully electric automobiles on the road by 2025. Volkswagen also recently announced plans to partner with India-based Tata Motors.

From a strategic point of view, a merger with Fiat Chrysler could offer advantages to VW. While VW has struggled to regain market share in the United States, Fiat Chrysler currently owns the profitable Jeep and Ram brands, although its flagship Chrysler, Fiat, and Dodge lines have not been performing as well.

As of yesterday, however, "there are no plans and have been no discussions" between the two companies, Volkswagen spokesperson Jeannine Ginivan told USA Today in an email.