Sergio Marchionne: I am not Europe’s Don Quixote

I’m sitting in the airport editing the Sergio Marchionne video, “I wouldn’t be Don Quixote” Marchionne quips. The guys around me have flights that are delayed, as I do, so we’ve gotten to know each other in a simpatico friendship kind of way.

Hey guys, if I said to you I didn’t want to be a Don Quixote, what would that mean to you? The lawyer, that has been in depositions all day and just wants to get home to his wife and kid, described Quixote as a dreamer. The Pharmaceutical person thought Quixote was a guy that went against the grain.

Put the two of them together and you’ve got the Peugeot Citroen (PSA) scenario that Marchionne was describing, the scenario that is costing PSA $200 million Euro a month in cash. Marchionne described Peugoet Citroen as a classic example of a company that, in the midst of an economic freefall, heavily invested in the rejuvenation of the product line-up and is losing $200 million Euro a month in cash.

Marchionne said he felt the pressure to rejuvenate his line-up, but in the spirit of friends don’t let friends drink and drive Marchionne wasn’t sipping the kool-aid that was being offered to Peugeot Citroen, and didn’t think any other car company should feel the pressure from any country either.

I looked on Peugeot Citroen’s (PSA) first half 2012 financial statements that are online. The first half of 2011 shows the net operating income was 806 million Euro. The first half of 2012 the net operating loss was 819 million Euro. The difference in revenue between the first half of 2011 and first half of 2012 was a drop of 1.582 billion Euro, a loss of almost 200 million Euro a month.

The footnote provided by Philippe Varin, Chairman of the PSA Peugeot Citroën Managing Board, speaks volumes:
“The Group is facing difficult times. The depth and persistence of the crisis impacting our business in Europe requires the launch of the reorganization of our French production base and a reduction in our structural costs. We have a clear understanding of how hard this project is for a large numbers of our employees, but it is our duty to ensure that it is carried out with an exemplary social dialogue.
Restoring the Groups competitiveness will secure it’s future and will permit to pursue the development of it’s brands Peugeot and Citroën worldwide. The Paris Motor Show will mark an occasion to measure the progress of our upscaling, with the extension of the Citroën DS and Peugeot 208 ranges.”

When I listen to what Marchionne said, I hear multiple levels of angst about Europe. It’s in all the papers that there is no brotherly love lost between Volkswagen and Fiat. On another level, as Chairman of the European automotive group, Marchionne sees no cohesion between countries or car companies at the time when it is needed the most.

PSA’s footnotes forecast a further contraction in Europe for the Europe 30 automotive market by 8 percent. PSA is predicting growth in China by 7 percent, Latin America by 2 percent and Russia by 9 percent.

PSA has a purchasing power relationship with General Motors that should help GM and GM’s subsidiary, Opel. The financial results should start to be seen in the second half of 2012. That seems to be the only cohesive relationship that has been put into place with regards to solving financial purchasing issues.

Currently, there is no plan for capacity constriction, the polite way of saying we have too many workers for the amount of cars we’re selling. It is the crux of the Achilles heel in Europe. Countries are concerned about keeping people working, car companies need to stay alive if countries want anyone to stay working. It’s a battle of the wills and every leader I talk to says that they don’t want to be the first group to fall, but once one car company makes the move all of them will. They all need to make cuts in order to survive. Marchionne says this should be done across the board, so that not one country, and not one car company takes the hit.

Is it a problem of leadership to solve the capacity issues cohesively, or the problem of each country wanting to save it’s own car company? Instead of coming together for the good of all countries the leaders of the car companies that are the largest investors in research and development and capital expenditures in Europe, are waiting for the other car company to move first.

As President of the European industrys trade association ACEA and CEO of FIAT S.p.A Marchionne has not been able to build the cohesiveness to bring the car companies together. But that doesn’t mean he doesn’t see the problems clearly.

About the Author:

Lou Ann Hammond is the CEO of Carlist and Driving the Nation. She is the co-host of Real Wheels Washington Post carchat every Friday morning and is the Automotive, energy correspondent for The John Batchelor Show and a Contributor to Automotive Electronics magazine headquartered in Korea. Hammond is a member of the North American Car and Truck of the Year (NACTOY), Women's World Car of the Year (WWCOTY), and the Concept Car of the Year.