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Can Good Leadership Trump Bad Corporate Genes? Why Tesla Should Buy Chrysler Out of Fiat

There’s that perennial debate about nature versus nurture. With companies it’s corporate genes and leadership. I think the issue is rearing its head again now that Fiat is buying out the rest of Chrysler that it doesn’t own. My prediction: it’s going to be a bust.

Think about it. Two companies, both perennially unsuccessful, that got together to prop each other up. Both with bad corporate genes. Don’t believe me? Try Chrysler for a start:

  • ·         Exhibit 1: The Chrysler bailout by the US government in 1980 and subsequent loss of market share
  • ·         Exhibit 2: The acquisition by Daimler in 1998 and its failure in 2007
  • ·         Exhibit 3: The acquisition of Chrysler by Cerberus in 2007 and continuing losses
  • ·         Exhibit 4: The second bailout of Chrysler by the US government in 2008 and the subsequent acquisition by Fiat.

Enough said. What makes anyone think that if an acquisition by a company born with a silver spoon in its mouth (Daimler) couldn’t work, one by the runt of the litter (Fiat) would?

And to say that Fiat has bad corporate genes is understating the case. A long history of bailouts from its own government. Troglodyte Italian unions. Medieval labor practices and laws in Italy. The Italian bureaucracy. On every count the Germans were light-years ahead but they still failed.

Let’s look at it some more. Italian company with mainly dated technology “buys” US auto maker also with old tech. Italian company into small cars, US company into large cars. The small cars already just not selling, too small for oversized American girths. The large Chrysler cars largely falling behind. Jeeps are great and the Chinese will love them, but much too little, far too late. The combined entity sorely lacking capital.

Even Marchionne wants to move Fiat HQ out of Italy to the US. Mark my words; the Italian government will never let him.

But Marchionne is an incredible leader and CEO. He is positively the best thing that could have happened to Fiat and even, pro tem, to Chrysler. He had the financial engineering and deal-making skills to put the Fiat/Chrysler deal together, which would have been pretty much impossible for almost anyone else.

But Marchionne is a financial and deal guy, not an engineer or product type. Fiat/Chrysler can’t work unless they put in a product or car person (or gal, see my blog post on Mary Barra at General Motors). That’s why I think Tesla and Elon Musk would be a great fit.

Tesla has the product, vision and the engineering skills of Elon Musk and his team. So the corporate genes are good as well as the leadership. And Musk has the chops to get the necessary capital.

Right now Fiat is valued at around $12 billion. Who would put money into Fiat other than the Italian government? But with Musk at the helm, raising the capital would be a piece of cake. With the Italian unions out of the picture, Tesla/Chrysler would have a fighting chance to succeed. What would you prefer, a Tesla S or a Fiat 500? The consumers have already made their choice.

So why would Tesla swoop in to get Chrysler? My prediction is that at some stage the Fiat-Chrysler will fall apart because of its many internal contradictions. Even before that happened there is the vexed problem of its lack of capital.

If you ditched Fiat, you would be left with Chrysler and Tesla, both American companies so the cultural issues go away. You’ve got good corporate genes in one; you’ve also got two good leaders who could bang heads together and to change the corporate gene pool in the other.

In fact, these two leaders look like the perfect couple. Marchionne is an accountant and deal-maker. Musk is essentially a self-trained engineer but no slouch in the deal-making and financial engineering departments either. Together they could work a deal which would be successful while getting rid of the Italian deadweight unions, labor laws and Italian bureaucracy.

Sure, they probably are too strong-minded to stay together for very long but who cares? If they could forge a new, well-capitalized and innovative auto-maker they would have achieved what is needed. The world doesn’t need yet another auto sloth weighed down with legacy approaches, mindsets and unions.

I have already written about Musk and his value to General Electric. I think the Fiat/Chrysler deal would fit Musk even better.

So yes, I think good leadership can trump bad corporate genes as long as you bring in some other good corporate genes somewhere to help the process along. But I think if you had all bad corporate genes, as you do with both Fiat and Chrysler, it wouldn’t matter how many good leaders you brought in; the venture would/will still fail (again).

How about Musk for Chairman of Tesla/Chrysler and Marchionne for CEO?

Sounds like a plan.

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Saturday, 16 December 2017

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