Ferrari spinoff sets up Fiat for new deal

MILAN: Sergio Marchionne, the architect of the auto industry’s biggest deal in more than a decade, may not be finished yet. Even as he completed the merger of Fiat and its US Chrysler unit last year to create Fiat Chrysler Automobiles (FCA), Marchionne said the industry is still fragmented and ripe for further consolidation.

His planned spinoff of Ferrari this year puts the $14 billion automaker into position for another combination that could form a group to vie with No. 1 Toyota Motor or help address shortcomings in Asia.

Manufacturers are under pressure to join forces amid slowing growth and rising costs to develop cleaner cars and add automated driving functions and smartphonelike technology. By lowering debt with the cash raised from cutting loose Ferrari, Fiat Chrysler (FCAU) becomes a more attractive partner.

The spinoff also gives Marchionne more leeway to set up a transaction by ensuring the Agnelli family, Fiat Chrysler’s biggest shareholder, retains control over supercar-maker Ferrari.

While the Agnellis want to keep Ferrari, they would probably be “open to strategic combinations that will reduce, or eliminate, their stake” in Fiat Chrysler, said Max Warburton, a Singapore-based analyst with Sanford C Bernstein & Co. Volkswagen, Ford Motor and General Motors all fit criteria that Marchionne outlined last year for a suitable partner, while Mazda Motor and Suzuki Motor could be viable Asian merger candidates, analysts and investors said.

“There’s room for megadeals in the car industry in the medium term as carmakers will be forced to share development costs,” said Stefano Aversa, MD of AlixPartners in London.

“No carmaker can sustain the investment needed alone, not even the biggest ones.” By announcing the Ferrari spinoff just days after completing the Fiat-Chrysler merger in October, Marchionne, a self-proclaimed corporate “fixer,” signaled he may be open to another deal down the road. With the 62-year-old chief executive officer planning to stay at the helm to complete a strategic plan that runs to 2018, he’s still got time to consider a transaction.