Faced with an accelerating debt load after several recent US investments, Fiat Chrysler Automobiles reportedly is in negotiations to sell off one of its prime parts suppliers, a transaction that could have a lasting impact on FCA’s Jeep division.
Bloomberg Wednesday said FCA and Samsung were engaged in advanced talks for the sale of part or all of Magneti Marelli. According to Bloomberg, ‘Samsung is particularly interested in Magneti Marelli's lighting, in-car entertainment and telematics business and could consider an acquisition of the whole company.’
Magneti Marelli, together with two other suppliers, form the components division of what had been Fiat Group prior to its 2009 takeover of Chrysler. On the Automotive News list of the 100 largest suppliers, Magneti Marelli is ranked 30th with its total global 2015 sales exceeding $8 billion.
The deal reportedly could be worth more than $3.3 billion – providing much-needed debt relief for FCA, which has pledged over $2.5 billion recently to overhaul assembly lines in Toledo, Ohio, Sterling Heights, Michigan, and Belvidere, Illinois.
These investments primarily will help bring to market the next generation Jeep Wrangler, a new Jeep Truck, and the upcoming Jeep Wagoneer and Grand Wagoneer.
So what would this sale mean for Jeep?
For one, should the Samsung deal go through, the added debt relief would certainly allow FCA the chance to markedly accelerate Jeep production over the next two years.
FCA is already on record that it wants to reach 2 million Jeeps sold annually by 2018. The automaker moved 1.2 million Jeeps in 2015.
With Jeep as its top selling, and most profitable, brand, this could only enhance FCA’s position as well as Jeep’s penetration into new markets – ie truck, high end luxury SUV.
Two, eliminating debt would allow FCA to reposition cash into quality control in order to address the numerous recall and defect issues that have plagued the company, and its Jeep division, for several years.
FCA has already begun to address the issue by overhauling its quality control department earlier this year, but an influx of funds could help it put quality concerns in the rear view mirror.
However, the downside for FCAs Jeep division – especially as it prepares to launch several new vehicles – would be the loss of such a close and necessary supplier. Especially one as heavy into auto lighting as Magneti Marelli.
While FCA could certainly still buy from the spun-off supplier, there is no guarantee it would receive similar pricing or easy access to product. And while FCA may try to negotiate these guarantees into any sales contract, who is to say Samsung doesn’t turn around and sell off pieces of the supplier that FCA needs.
Also, many already believe CEO Sergio Marchionne has plans to either merge with another automaker, or sell off most major pieces of FCA - Jeep included - for the highest price he could get. No doubt this sale would further cement those beliefs. While some would surely welcome the Jeep brand moving to another parent, who is to say this new owner would continue Jeep as we currently know. Unlikely, but still a possibility.
The Bloomberg report is not the first to indicate a potential Magneti Marelli-FCA sale.
Back in 2013, Marchionne was supposedly involved in failed talks with Audi to sell the parts unit, along with one of its top factories and the entire Alfa Romeo brand, to raise funds needed to buy a controlling stake in Chrysler.
And as recently as June, many publications were reporting FCA had denied a bid by a group that had valued the business at less than $2.7 billion, because FCA didn’t want to sell for lower than $3 billion.
FCA spokesman Gualberto Ranieri said two weeks ago that the company hasn’t put Magneti Marelli up for sale. But, according to Bloomberg sources, the company recently informed those interested that it could reconsider its stand.
Samsung, the world’s largest manufacturer of televisions and memory chips, already supplies some components for various automakers. The company appears to be increasing its focus on the auto industry thanks, in large part, to Apple and Google’s growing interest in the market, as well as slowing growth in the smartphone field.
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