Risk Analysis and Risk Management between Plan General Motors Company (GM) and Fiat Chrysler Automobiles (FCA)

Table of Contents

Letter to Board of Directors……………………………………………….……………………1 Introduction………………………………………………………………………………………2 Identification and Assessment of Risk Items 3-4 Industry Risks Company Risks Analysis and prioritization of risk………………………………………………………………5 Recommendation of risk mitigation and management measures………………………….…6 Conclusion 7 References 8

Introduction

Mergers and acquisitions can bring some unique due diligence considerations for the acquiring company however, it is necessary to work on how to minimize the risk of implementation, people, cultures, different legacy systems, business disruption, etc. are taken as the complex matters which need to be considered. During acquisition, any business takes the assets, contracts, and liabilities of the acquired company.

In contents of the acquisition of Fiat Chrysler Automotive (FCA), it’s considerable for General Motors (GM) to reckon with the risks they are acquiring. Fiat Chrysler Automotive is an international automotive company, so General Motors needs to be prepared to take on all risks associated with foreign complexity that include risks such as international tax law risk, regulatory risk, labor law risk. Also, FCA has 189 thousand employees, which means the risk factor is associated with culture. Differences in culture between acquirer and target create complexity that is often not considered because it is not seen as a financial risk. Most important is a financial obligation that needs to be considered. Although Fiat Chrysler Automotive is much smaller than General Motors, which has an annual revenue of $123 billion, FCA the world’s seventh-largest carmaker with a market capitalization of $30.9 billion, reported revenue of € 108 billion in 2019, net debt had fallen to 1.3 billion euros ($1.6 billion) by the end of March. ( Flak A., 2018 )

Identification and Assessment of Risk Items

Industry Risks

Risk Factors	Description
Technology advancement	The automotive industry is facing an unprecedented transformation with changes in technologies. Trends in connectivity, mobility-as-a-service, autonomous driving, and e-mobility are rapidly changing vehicle technologies from the body to the drivetrain.
Market risk	Automotive OEMs are challenged by peak demand and increasing competition. Auto sales are flattening in many mature markets such as Japan and Europe, while North America faces the prospect of slowing demand conditions in the market. From 2014 to 2019, the global light-vehicle sales are estimated to increase at a compound annual growth rate of only 3.1%.
Cultural integration risk	The integration is a large risk of M&A process. It involves many areas including involving in internal management audits, the integration of sales forces, the threat of employee enhancement, loss of value, etc. The most important issue is the cultural of the target company.

Company Risks

Risk Factors	Description
Competition
Financial risk
Strategic risk
Liability risk

Analysis and Prioritization of Risk

Recommendation of Risk Mitigation and Management Measures

Risk Factors	Mitigation
Technology advancement	· Invest in R&D in e-drive and other technologies such as Advanced Driver Assist Systems (ADAS).
Market risk	· Become a comprehensive solutions provider with complementing capabilities in one segment, such as interior, electronics, or connected cars.  · Keep the customers loyal to the company’s brand and attract new customers with new designs and technologies. · Develop a new product line such as a connected car.
Cultural and integration risk	· Allow members of the due diligence team to become part of the integration team. An experienced and skillful integration team will help with integration planning during diligence to gain a better understanding of the target company.  · The integration planning should begin early, GM should collect information on the target’s culture as soon as possible. Be open and consistent in communication. · Quick implementation of restructuring initiatives.

Conclusion

References

Flak A., 2018 “Fiat Chrysler cuts debt by more than expected “

https://www.reuters.com/article/us-fiatchrysler-results-idUSKBN1HX1OG