Collection: Mohnish Pabrai - #161 'Fiat Chrysler's Sergio Marchionne'



[Transcript]

AUDIENCE MEMBER 00:01

So you’ve talked on your previous video that about Fiat Chrysler being one of the candidate of the multi-bagger. That’s a company run – looks like a good business ran by a good CEO, but the CEO passed away like not too long ago. Should you cross it off the list?


MOHNISH PABRAI 00:24

Yeah so it was very sad that Sergio Marchionne passed away. Great guy.


In fact, I just went to his memorial service in Detroit last week. And I – you know, I would say this that Sergio was probably in my opinion amongst the top 20 business leaders to come along in the last hundred years amongst public companies globally. And he was a – and I think we will see some books and such come out about him in the next few years, but he was an extremely unusual leader.


And I mean I think Fiat Chrysler in 2000s – Chrysler in 2009 was going to be liquidated, it was very close to being liquidated. In fact, the decision by the U.S. government not to liquidate was like one by a three to two vote by the auto task force. So it barely avoided liquidation because they pretty much had given up on the business, they didn’t think the business could be resurrected.


And Sergio – I think without Sergio on the scene, I’m not sure it would make it – I’m not sure Fiat Chrysler would have make it. But the thing is that what has happened with Fiat Chrysler since then is not only have they proven that they should not have been liquidated, they are now outperforming the other 2 rivals. So Fiat Chrysler has now got best in class margins higher than GM (General Motors) and higher than Ford. Coming from, you know, a distant third, getting to basically number 1.


So I think that if you look at a leader like Sergio. So, you know, I knew Sergio was a very good leader in 2012 before we invested, but I went through about 4 different recalibration of Sergio, each time when I recalibrated him, it was at a much higher level than the last time. You know, I thought he was great and then he was even greater and just kept going, and the last recalibration that happened with him for me happened after his death.


So Sergio knew a year ago in July 2017 that he was in serious problems with his health and possibly terminal. He knew that, a year before he died. Never told anyone, just his family – immediate family knew.


And this is the guy worth a net worth of 700 million, you know, 15 Ferraris or something. And he decided he’s gonna spend the last year of his life running Fiat Chrysler full out to hit the 2018 plan. And that’s what he did, he basically ran a million miles an hour in his last 12 months to push the company to where it needed to be.


And one of the things he did before he passed away was that he set the plan for 2022, so that Fiat has published a guidance and numbers for 2022 on June 1st of 2018. So about 4 weeks before he left the scene at Fiat and about 7 weeks before he passed away, he published the blueprint.


And I – even I found it strange when he published that because he was publishing it a year before he was actually going to leave the company and a year before the next guy was gonna be named. So if he was anyway going to leave the company in 2019.


If he had just left the company in 2019 and retired and so on, I think Fiat Chrysler would still execute and make the 2022 numbers. But he didn’t leave the scene and he didn’t just pass away, he actually martyred himself.


And the management team, you know, he had about 35 direct reports and they used to spend weekends together, you know, because they didn’t want to spend weekday time on meetings, architecting the future of the company.


I met some of these people in Detroit, I mean I think Mike Manley – who’s now the CEO – Mike Manley is not running the company for financial benefit personally or whatever. He is on a crusade and he’s on a crusade to keep Sergio’s legacy alive. He cannot screw it up, and he can’t screw it up and the 20-30 other people around him can’t screw it up because what I saw – what I knew before I went to Detroit and what I saw there is, GM and Ford just don’t, they don’t have anything like these. These are people on an intense mission and they are going to execute on that mission, nothing’s gonna stop them.


So they published a 2022 numbers, it’s sitting at a P/E of 2 on 2022 numbers. I think we’re gonna just let it ride. In fact, I think the P/E is understated it’s probably closer to P/E of 1.5 or 1.3 or something because it’s heavily sandbagged.


So anyways, I think that company is in a very different shape than it was in 2009 when Sergio came in. And it’s not a commodity company, they have got ridden of almost every commodity product. Jeep is about 2 million units a year, a very unique positioning. They pretty much killed every single car or product they made that was a me-too product, they have no me-too products in their lineup.


(Source: https://youtu.be/9tGjXPhnp-s)

 

[YAPSS Takeaway]

  • Study about Fiat Chrysler's Sergio Marchionne.

  • Automotive company is not a company that can be run by your idiot nephew.