GM's board sees a merger with FCA as a distraction from the company's own efforts to build vehicles more efficiently and fix problems such as its money-losing Opel unit in Europe. Adding FCA's troubled European operations and market-lagging U.S. car brands would set back the company's progress by several years, said one of the people.
Mr. Marchionne said in an April 29 presentation to investors that the entire auto industry needs to consolidate to spread the massive costs of developing new models, efficient engines and clean-emissions technologies over a larger base of sales. If it doesn't, the industry will continue to post returns on capital that trail other industries.
His first choice is GM, according to the sources. The world's third-largest auto maker behind Toyota Motor Corp. and Volkswagen A.G. has a lot of scale and there's a lot of overlap that could be consolidated. GM and Ford Motor Co. have publicly said they aren't interested.
Toyota's North American CEO, Jim Lentz, speaking at an event in Michigan June 11, told reporters he had not received an email from Mr. Marchionne and doubted anyone in Japan has, either.
“It's something we would not be interested in,” he said.
Other possibilities
Mr. Marchionne's advisers are sizing up others. Volkswagen remains a possibility, but only after options with GM have been exhausted, said the people familiar with the plan. The problem FCA has with Volkswagen is that the German car maker is used to getting full control of the companies it buys, whereas the Agnelli family that controls FCA doesn't plan to sell its stake, said one of the people.
They want to keep a diluted position in a new, merged company, the person said. In any case, VW reiterated last month that it isn't pursuing any deals.
FCA could also approach auto makers smaller than GM, such as Mazda Motor Corp., Honda Motor Co., Suzuki Motor Corp. and Hyundai Motor Co. If all else fails, Mr. Marchionne would approach Peugeot, whose CEO Carlos Tavares is in the midst of a fix-it plan.
Mr. Tavares, who joined the French auto maker last year, would want at least six more months to continue with his plan before entertaining any talk of a merger or alliance, two of the people said. He hasn't said that he would be interested in a tie-up with FCA, they said. Peugeot has been showing progress, narrowing its adjusted loss in 2014 to $259.4 million from $3.08 billion in 2013.
Jean-Baptiste Thomas, a Peugeot spokesman, declined to comment by phone.
That gives Mr. Marchionne time to look for a larger or healthier partner.
Peugeot isn't his preferred choice because its 2.9 million vehicles sold last year — about 60 percent of which were delivered in Europe — don't give him the massive scale he wants, the people said. Peugeot also has joint ventures in China including one with Dongfeng Motor Corp., which owns 14 percent of the French car maker. But it's not as big a player there as GM or VW.
Asian complications
Mr. Marchionne could end up having to approach Peugeot, though, because all of the Asian players are, at best, tough to persuade to do a deal, said Maryann Keller, an independent auto-industry consultant in Stamford, Conn. Honda and Hyundai have never had an interest in deals and prefer to go it alone, aside from Hyundai's alliance with Kia Motors Corp., she said.
Mazda is tied in with Toyota. The two companies signed a deal in May to explore ways to share fuel-saving technologies.
Suzuki is 19.9 percent-owned by Volkswagen and the two companies are locked in a legal dispute at a London arbitration court as the Japanese small-car specialist wants Europe's largest auto maker to return the shares it holds. VW has refused to do so.
GM once owned a stake in Suzuki and the partnership didn't bear much fruit, so the Japanese company may be unlikely to get involved in another such deal, Ms. Keller said.
The alliance of Renault SA and Nissan Motor Co. hasn't been approached by Mr. Marchionne, Carlos Ghosn, the CEO of the French-Japanese giant, said in a June 3 interview. Mr. Ghosn said he prefers an alliance over Mr. Marchionne's call for a full-blown merger.
GM investors
One possibility being pondered is to get an activist investor who would be interested in buying a stake in GM and using its position to pressure Ms. Barra and the board. Mr. Marchionne has been contacting some large institutional investment funds to gauge interest, said the people.
His advisers haven't contacted many hedge funds or the investment firms that pressured GM to buy back shares earlier this year, nor have they contacted Warren Buffett's Berkshire Hathaway Inc., people said. Berkshire is GM's ninth-largest shareholder with 2.6 percent of the stock.
Instead, Mr. Marchionne's camp has been talking to large institutional investment funds that are often found among the top 10 shareholders of large companies, one of the people said.
An activist investor like Dan Loeb's Third Point L.L.C. or Bill Ackman's Pershing Square Capital could certainly exert real pressure on Ms. Barra, but they would be unlikely to take up the cause if they didn't see a short battle and a fast return, said Erik Gordon, a professor at the University of Michigan's Ross School of Business.
“An activist would have to buy a chunk of GM stock and risk it plummeting on the announcement of a merger with FCA because, at the very least, a large number of GM stockholders will be alarmed by the idea,” Mr. Gordon said. “Activists want to force an event that catalyzes a quick increase in the stock price.”
In its pursuit of GM, Mr. Marchionne could make a hostile all-equity offer, Max Warburton, a Singapore-based analyst with Sanford C. Bernstein, suggested June 11 in a note evaluating the prospects of a hostile takeover.
“The mechanics of a bid look beyond ambitious. But stranger things have happened, especially in bubbly equity markets,” Mr. Warburton said.
For her part, Ms. Barra said GM has no plans to merge and doesn't need a takeover defense.
“When I look at it, my focus is on the GM shareholder,” she said June 9. “That's going to generate the most value.”
Automotive News reporter Nora Naughton contributed to this Bloomberg News report, which appeared on the website of Automotive News, a Detroit-based sister publication of Tire Business.
