THE “R” WORD.

By Peter M. De Lorenzo

Detroit. Last week, with the VW crisis in full bloom, I outlined the ramifications and implications of the debacle in “The Tipping Point.”

And although this episode will wind itself through the courts - and the obligatory political theater - for months and years to come, I will reiterate that it will fundamentally alter this industry as we know it, and accelerate the development of the mass electrification of the automobile.

But lost in the ever more relentless 24/7 media haze that we’re subjected to these days, the informational cloudburst from the VW disaster managed to distract the industry’s focus – conveniently for some, I might add – from the rapidly burgeoning disaster that’s taking place just up the road out in Auburn Hills.

Despite the tedious prognostications and the constant bleating by CEO Sergio Marchionne, the ugly fact remains that even the VW crisis couldn’t hog the spotlight from the developing quagmire at FCA for long. And just as the late summer breezes are giving way to the crispness of a Michigan fall, the air surrounding the FCA headquarters has a distinct whiff of desperation about it, as Marchionne’s grand plan for industry domination and his preordained sainthood as the “G.O.A.T.” comes apart at the seams.

How bad is it for Marchionne and his espresso-swilling minions? Let me count the ways.

First of all, Marchionne attempted to shove a new labor contract down the throats of the UAW rank and file expecting that they would acquiesce to his whims, because well, that’s what everybody does, right? Wrong.

His public lovefest with UAW president Dennis Williams before the negotiations was a terrible miscalculation that had industry watchers shaking their heads in disbelief and of course it backfired, and in the worst possible way too. The deal as presented wasn’t that bad, but true to form Marchionne just expected to come down from the mountaintop, pronounce to his indentured subjects that everything was good and that they would be taken care of, oh, and don’t worry about this Tier 1/Tier 2 business because everyone would be just fine, and by the way here’s a check for $3,000 to shut up and sign the deal.

And lo and behold they said “no” to the all-powerful Sergio. It didn’t help matters that Williams and his cronies did a piss-poor job of communicating and selling the new deal to the membership, but be that as it may Marchionne is stuck in neutral wondering what the hell happened.

This is extraordinarily bad news for Marchionne. Why? Because FCA is a house of cards built on predominantly Tier 2 labor, cranking out its Jeeps, pickups, hot rods and police cars with the cheapest labor bill in the industry. And if Marchionne can’t convince the workers to take his deal, FCA’s already razor-thin operating margins would be left dangling by a thread. But that’s just one part of the looming disaster out in Auburn Hills. (Editor's Note: A new, tentative FCA-UAW deal was agreed upon early Thursday morning, 10/8 -WG)

Right from the very first day Marchionne was gifted the assets of Chrysler by the current administration in Washington, he has operated like the carpetbagging mercenary he truly is. He brought his posse with him to Auburn Hills and he was going to show everyone how it was done, except that it didn’t quite work out that way.

The True Believers toiling away at Chrysler were stunned that the Italians, though smug and arrogant in their certainty that they knew what was best, were actually years behind in everything. Their systems were antiquated, their fundamental processes were obsolete, and the general consensus permeating the building was that it was like this guy was used to running a small time operation in a foreign country that was constantly teetering toward chaos. And, come to think of it, that’s exactly what they got.

But there was another virulent strain of Not Good that came with Marchionne and his henchmen, too, and that was the borderline insanity when it came to controlling costs, which, in Marchionne speak means cut, cut and cut some more. I have mentioned before that the Italians would tell suppliers bringing in a bid/proposal back in the early days to “cut it in half and we’ll talk,” making doing business with FCA a chore at best and too often a flat-out joke. Needless to say, because of the Marchionne-led bumblers, FCA was often sentenced to a miserable life of dealing with third-rate suppliers, because they were the only ones that would put up with the endless stream of bullshit.

But now, that cost-cutting mentality has an air of panic about it. People are getting cut, budgets are being slashed beyond the bone, and most ominously, future product programs are being delayed, if not outright killed. The margins are so thin that Marchionne’s reached the point of trying to extract blood from a stone. And those gaudy sales numbers? They count for exactly nothing at this point because the whole charade is simply not sustainable.

And why? Because Marchionne is operating FCA on a wing and a prayer. A consummate if not brilliant deal maker, Marchionne convinced his Fiat family overlords that he could grab Chrysler, polish it up, and not only turn it around and make huge profits, but maybe even use it as a stepping stone to take over a bigger automaker. At the very least he could merge it with another automaker, wrap it all in his “vision for the industry’s future” and come out smelling like the industry savior he so wants to be.

And how’s that working out so far?

Marchionne, like most CEOs of his ilk, has a real hard time with the “R” word, as in reality. He not only refuses to accept it, he thinks he can shape it to his whims and wishes with impunity. Thus his ham-fistedly naïve dealings with Williams and the UAW, thus his belligerent overtures to Mary Barra and GM, thus his tedious harangues about what’s best for the industry, thus his constant churning through people, thus his endless lecturing of analysts, the media and other industry executives until we all want to scream. 

Marchionne’s ugly reality is that he doesn’t have a labor deal, he’s running out of programs to cut and people to jettison, and he doesn’t have a willing suitor who wants to buy into his line of bullshit. But it actually gets worse. The reason Marchionne is so desperate for a partner is that FCA has no technological platform in the works in terms of advanced propulsion and electrification, and no way to access one. In other words, Marchionne has been operating FCA under old rules in a new automotive world that, thanks to the VW crisis, is rushing headlong toward a New Frontier of advanced propulsion and mobility.

Add to that the fact that if there’s another industry downturn – and make no mistake, there will be – FCA could be on the ropes, yet again, subject to industry vultures coming in, picking off the desirable assets (as in Jeep) and leaving the rest of the carcass festering by the side of the road.

Fortunately or unfortunately, depending on which side of the ball you’re on, reality has a way of blowing up the best laid plans and crushing souls in one fell swoop.

And right now, reality for Marchionne is growing more ominous by the hour.

And that’s the High-Octane Truth for this week.