Why Volkswagen Might Still Devour Fiat Chrysler

Why would a VW-FCA matchup make sense? Here's one reason: VW needs SUVs, and Jeep's are among the best. Source: Fiat Chrysler

Is Volkswagen  (NASDAQOTH: VLKAY  ) really looking to buy Fiat Chrysler  (NASDAQOTH: FIATY  ) after all?

All parties have denied that merger talks are happening. But it's the rumor that won't quite die: Analysts all over the world continue to ponder the possibilities of a deal that really would transform the global automotive landscape. And tantalizing hints keep surfacing that suggest that there might -- might -- be more going on than the parties are currently willing to acknowledge.

So what's the scoop? In this video, Motley Fool senior auto analyst John Rosevear looks at the latest details to emerge this past week, details that suggest -- once again -- that there might be something to these rumors after all.

A transcript of the video is below.

Risk-free for 30 days: The Motley Fool's flagship service
Tom and David Gardner founded The Motley Fool over 20 years ago with the goal of helping the world invest...better. Their flagship service, Stock Advisor, has helped thousands of investors take control of their financial lives and beat the market. Click here to sign up today.

John Rosevear: Hey Fools, it's John Rosevear, senior auto specialist for Fool.com. All parties have officially denied that there are merger talks going on between the Volkswagen Group and Fiat Chrysler Automobiles, but that hasn't stopped the speculation in the world's financial media that there might actually be a deal in the cards. That speculation has been given a boost by reports that hint that those denials might not be iron clad.

Trade publication Automotive News reported this past Monday that an insider told them that VW chairman Ferdinand Piech, and I quote, "has a grand plan that goes beyond his success in building Europe's No. 1 automaker. He envisions a global giant second to none and wants to revive the fabled German brand Auto Union as the name of the holding company."

Piech is the grandson of Ferdinand Porsche, who was a founder of both VW and Porsche, and reports have suggested that he approached the Agnelli and Elkann families, which control Fiat Chrysler, about selling their controlling stake to VW, and the idea is that this is one great automotive family approaching another about joining forces.

Now, if it's true that Piech has this grand vision, well, he's 77 years old, so he's not likely to be willing to wait a long time to see this happen. And this deal makes a lot of sense. VW is very weak in the mass market in the US, the company has been losing market share for a couple of years now in part because they don't have competitive trucks or SUVs, but if they acquire the Jeep and Ram brands, suddenly that changes.

In fact, if you look at total U.S. sales in the first half of 2014, Fiat Chrysler's sales plus VW Group's sales added together would be good enough for second place in the U.S., ahead of Ford  (NYSE: F  ) and behind only General Motors  (NYSE: GM  ) . And FCA's Alfa Romeo brand, which is in the process of developing a whole range of new products, could make a nice complement to Audi and Porsche, in fact VW has approached Fiat in the past about buying Alfa Romeo.

There's a lot to FCA that Volkswagen might not want, like the Fiat brand's big operations in Latin America and so forth, but maybe those could be sold to a Chinese automaker looking to expand overseas. Or maybe VW could absorb them and try to run them more profitably. Fiat has traditionally been better at making money at the very low end of the market than VW has and maybe VW could get some help there. And of course, VW would instantly realize its long-held goal of selling more vehicles around the world than anyone else, they'd blow right past GM and Toyota  (NYSE: TM  ) in global sales.

But there are big risks, too. FCA CEO Sergio Marchionne has done a masterful job of integrating Fiat and Chrysler, but most mergers don't go nearly that well, and maybe the biggest risk is that VW wouldn't be able to integrate the Fiat and Chrysler brands into its global operation in a profitable way without damaging them, without undermining the products.

And there's national pride here to worry about, how would Fiat's Italian unions react to a German takeover? And of course there are antitrust concerns in Europe and the U.S. and in other markets like Brazil, where Fiat and VW are the two big players in that market and regulators might have some big objections to a merger. So lots to think about here, and despite the denials the smoke continues to rise, so that has everyone thinking there might just be a fire here after all. We'll keep you posted. Thanks for watching.


Read/Post Comments (1) | Recommend This Article (3)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On July 28, 2014, at 7:39 PM, antonio311 wrote:

    Yes, this sounds like it could happen....lol. Also I speculate that AMC (American Motors Corp) will come back from the Dead, buy the Jeep line, then with investor capitol, purchase both GM & Toyota, to compete with the HUGE VW group that could perhaps, maybe in some time, happen! Give me a break! The Italian know better than to ever trust a German company! Chrysler will NEVER be in the hands of the calculating Germans again! In a few years FCA will be bigger than VW, for 1 reason only...Fiat, Chrysler & Jeep maker better vehicles than VW & Audi ever will!

Add your comment.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 3045411, ~/Articles/ArticleHandler.aspx, 11/21/2014 10:26:36 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement