Marchionne Keeps Dishing Fiery Rhetoric, But VW Calls Him On It

Volkswagen is by far the dominant automaker in Europe. And Sergio Marchionne, CEO of both Fiat and Chrysler, arguably is one of the most colorful and forceful personalities in the entire global industry. So it's not surprising that the two forces would create a dust-up when they disagree about a fundamental issue.

Throw in the fact of the spreading European auto recession, and the continent's overall economic troubles, and you've got the recipe for fireworks.

That's exactly what occurred this week after Marchionne used his soapbox as the president of ACEA, the European auto-trade group, to call VW's corporate behavior to task. In remarks published in the International Herald Tribune, the sweater-favoring, shoot-from-the-hip chieftain raked "the French and the Germans" for not reducing production capacity in a shrinking European automotive market.

"It's a bloodbath of pricing and it's a bloodbath on margins," said Marchionne, who has been much more outspoken than any other European auto chief about the industry's overall need to cut capacity in Europe as Fiat already is doing in Italy. He called on the European Commission to "coordinate a rationalization of the industry across the producing companies."

Sure, that's just what Europe needs more of: top-down control of its economies. And not letting that thought rest, VW executives — after initially dismissing Marchionne's remarks — called for the Italian sparkplug to step down as head of the trade group.

"Marchionne is unbearable" in that role, said Stephan Gruehsem, VW's head of communications, according to Automotive News Europe. "In our view, his comments are unqualified ... We're therefore calling on him to step down."

Christian Klingler, VW's head of sales, noted this week that, while competition is rising in Europe, his company isn't pursuing overly aggressive pricing. VW reported record first-half profits this week while Fiat and PSA Peugeot Citroen, of France, have compiled mounting losses in the region.

It's hard to argue with how Marchionne has fared in America as head of Chrysler, however. He has led an impressive sales resurgence against long odds, and this week reported a healthy quarter. As the New York Times notes, "Unencumbered by the poor European economy and helped by a competitive lineup, Chrysler on Monday reported net income of $436 million in the second quarter, compared with a $370 million loss for the same quarter last year."

But Marchionne will have to keep swimming uphill in the U.S. market in another regard: how Chrysler meets the stiff new fleetwide mileage standards for automakers in the American market over the next several years.

And in this arena, too, Marchionne is going his own way: Chrysler will rely in large part on improving the performance of its transmissions to meet the tougher standards. That means the broad introduction beginning later this year of eight-speed transmissions, the likes of which are usually reserved for luxury cars, and the industry's first nine-speed transmission, in 2013. It's necessitated in large part because Chrysler couldn't affford and didn't choose to invest heavily in the high-mileage alternatives that other automakers are favoring to meet the new federal standards, including hybrids, EVs and diesel power.

Relying on bailing wire, mostly skin-deep product improvements and press maneuvering, Marchionne has gotten the job done so far on two continents. The question is how much longer his act will prosper.