- The Washington Times - Tuesday, December 8, 2009

Here’s a twist: An Italian auto executive comes to Washington and lectures Germany on its auto industry. Sergio Marchionne, chief executive officer of Fiat and the struggling Chrysler, ripped auto legend Germany Monday for keeping too many auto plants open but praised the United States for amputating excess capacity while General Motors and Chrysler were near death.

“There has not been any car factory that has been closed since the war” in Germany, he said during a critique of the industry in a speech to the Peterson Institute for International Economics in Washington.

He blamed nationalist motives in Germany, known for its luxury cars, for the failure of General Motors’ effort to sell Opel, its European brand.

The hard-charging Mr. Marchionne, who cut his business teeth in Canada, said the industry cannot thrive at current levels of excess production capacity. He said consolidation, alliances and platform sharing are vital to the industry’s health.

“It is only by joining forces with a suitable partner that it is possible to effectively reduce the risk of being in this business,” he said.

“No region of the world had reached the level of production capacity to realize adequate returns on investment,” Mr. Marchionne said.

Automakers have the capacity to produce 94 million cars per year, which is about 30 million more cars per year than the market can handle, he said.

“Approximately one third of this capacity is in Europe,” he said.

While the industry ran at only 75 percent of capacity last year, Mr. Marchionne predicted capacity utilization would come in at 65 percent this year.

“Not only has [the industry] generated unacceptable returns, it has actually destroyed value and consistently destroyed value,” he said. “It is necessary to bring it to a point where it is economically sustainable.”

Noting that Europe has allowed industry consolidation before, such as in the steel industry in the 1980s, he said it has never happened in the auto business and “with today’s political climate, it appears highly unlikely.”

In the United States, the Obama administration and its task force, winning concessions from all stakeholders, were able to direct substantial reductions in General Motors’ and Chrysler’s manufacturing footprint.

Mr. Marchionne praised President Obama for his steps to restructure the industry and promote green technology.

“We have witnessed the courageous structural shift in the U.S. with the government, companies, trade unions and financial institutions working side by side to do more than merely save the auto industry.

“Real and significant measures were taken to rationalize production. It is a true rethinking of the model from an ecological standpoint, it is an attempt to create a solid foundation on which the sector can be rebuilt,” he said.

Mr. Marcionne’s plans to introduce small, fuel-efficient Fiat-based cars in the United States could benefit from efforts to promote lower-emissions vehicles.

On his acquisition of Chrysler as part of its bankruptcy restucturing this spring, he said progress will be gradual.

“We are not planning any miracles at Chrysler,” he said.

Noting wryly in a room full of journalists that most of them and other observers have predicted failure for the Chrysler deal, Mr. Marchionne said, “I actually don’t mind being an underdog.”

He defended the franchise terminations of 789 Chrysler dealers and the process for them to appeal the loss of their businesses.

“I think it’s incredibly equitable,” he said. “It’s a fair solution to what has been an unnecessarily thorny issue.”

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