Geopolitics on the rocks

Marchionne, Elkann and Italian capitalism

Italy, North America, Europe

Analyzing Sergio Marchionne's geopolitical impact on Italy

Automobiles will survive until we will learn to fly

Sergio Marchionne

 

In 2015, Fiat Chrysler Automobiles released a video on the manufacturing of the Jeep Renegade in the new Melfi plant in the Basilicata Region. Whenever I think about Jeeps, I am immediately reminded of the Basilicata “miracle” of that year. In 2015, the small southern region experienced 5.5% growth and automotive exports grew by 307.9%.

The strategy adopted by Marchionne and his successor Manley left a unique mark on this region, as those statistics seemed to come straight from the faboulous '50s. Marchionne, however, never lived in the 1950s. He always considered present reality when pursuing value for his shareholders. His long tenure at the helm of FIAT (and later FCA) also had a geopolitical impact on Italy.

Marchionne’s world and Europe’s weakness

If one looks at a map of Marchionne’s deals, one can see that they reflect Italy’s two main geopolitical relationships: the U.S. and Germany.

Italy’s ambiguity vis-à-vis Germany is key to understanding this story. Germany represents “the” European auto industry and is a key part of the value chain of northern Italy’s machinery and components sector, but it was also (with Opel) the target of an acquisition aborted by Marchionne in 2009, which had met with strong opposition from Merkel and the German establishment. Opel was later bought by the French (and Chinese) PSA in 2017.

Marchionne was therefore an early pursuer of consolidation in the European automotive industry, but did not implement this “grand design” himself, never managing to establish a working agreement with the Germans. In his 2015 conversation with Limes, Marchionne judged the EU “almost incomprehensible”, always trapped in paperwork and incapable of real action. In his opinion, the EU was also guilty of “applying economic theory without taking into account economic reality”, for instance entering trade deals without strategic meaning, such as the one with South Korea.    

Marchionne’s special relationship

Marchionne’s world revolved around the United States. He started his spectacular turnaround of the Italian automotive industry by using a put option on General Motors in 2005. Then he acquired Chrysler during the crisis, thus permanently changing the group’s identity. With this move, he renewed Agnelli’s special relationship with the U.S., a key element in Rome’s relations with Washington.

Henry Kissinger considered Giovanni Agnelli his best friend and it was in the U.S. that, in 1971 Agnelli recruited his right-hand man and the family’s “custodian”, Gianluigi Gabetti, when Gabetti was an executive for Olivetti. Gabetti went on to play an important role in 2004 by recruiting Marchionne, already a board member since 2003, for the position of CEO.

Marchionne was a key innovator. He changed FIAT’s special relationship with the U.S. from being linked to the establishment to the reality of industrial organization and strategy and this is made clear in three of his main characteristics.

First, his very American interest in machinery and large agricultural equipment.

Second, his own “art of the deal”, both with politicians and workers’ representatives (even to the point of “it’s my way or the highway”). His key disagreement was with Italy’s association of entrepreneurs, Confindustria, which he left. He promised to return if Alberto Bombassei, a key FIAT supplier and the symbol of Italy’s best mid-caps, were to become president of the organisation, but Bombassei did not win and Confindustria lost its role.

Third, his interest in the “industrial rebirth” of cities and communities, a point argued by the historian Giuseppe Berta, which is very clear in Chrysler's celebrated Superbowl commercial. 

Marchionne went even further. He certainly aimed for a more “American” Italy, both in terms of certain laws and procedures, as well of course as in his bluntness regards to the welfare state. He believed this was consistent with a certain vision of Italian culture. His personal experience also mattered, and he felt far more American than Canadian.

It is certain that the U.S. remained the geopolitical and geo-financial centre of Marchionne’s world. He never believed in an Asian takeover of the U.S., but he knew that Asian consumers could be exploited as far as trophy assets, such as Ferrari, were concerned, while retaining an Atlantic identity with the U.S. at the helm.

Marchionne’s verdict on Italian capitalism

In his geopolitical conversation with Limes, Marchionne said, “I do not believe Made in Italy is the solution to Italy’s industrial problem. We don’t sell jeeps to the Americans because they are made in Italy, even if we often tell ourselves this fairy tale.”

This blunt judgment of Italy’s stereotype came from the man who did more than anyone else to equip Italy with a strong group in the luxury sector, with Ferrari’s listing. Is that not ironical? Marchionne, as a U.S. “guy”, understood how weak Italian capitalism was without a proper relationship with capital for growth and acquisitions. He knew that the separation between industry and finance sounded like a death sentence for Italian capitalism in globalization. “Made in Italy” self-complacency would be just a consolation prize if Italian mid-caps were unable to attain a more important status and therefore project influence. 

Elkann’s future: confessions of a tech junkie

Marchionne was the saviour of the Agnelli family. Italy’s foremost capitalist dynasty survived thanks to him and, given the Exor group’s revenue, now dominates Italy’s economic environment. So, the next interesting question for Italy will be; what will John Elkann do?

Elkann is a reluctant leader, uninterested in the typical business of Italian capitalism, which revolves around banks, and is probably not very interested in the core business and the core city of Turin. The only exception to this rule is the small chip he has invested in the Italian media, a declining business which still guarantees influence and (some) prestige, alongside a more strategic investment in the Economist

Auto sales have been a relevant factor in Italy’s economic revival. It is very probable that the old saying “what is good for Fiat is good for Italy” will be tested again, should Elkann’s commitment to Italy fade even more due to a rebalancing involving moving from the uncertain industrial sector to safer ones, such as insurance. Perhaps, a move by Elkann on Generali could be seen within this logic.

Marchionne offered his view on the future of the auto industry in his “confessions of a capital junkie”. The best case scenario for Italy would be for Elkann to become a “tech junkie”. He could use some elements already present in the FCA galaxy (think Comau, a key player in industrial robotics) to catalyze more investments in AI for the auto industry at large, partnering with U.S. digital companies in the Milan-Turin ecosystem of universities and tech transfer. This would require significant investments, but Elkann is the only Italian who has the resources to be a (small) player in this game.