This is Fiat Chrysler's biggest problem

(Thomson Reuters)  
FCA CEO Sergio Marchionne. 

Outwardly, Fiat Chrysler Automobiles looks as if it's doing great.

The carmaker, long the most vulnerable of the Detroit "Big Three" (GM and Ford are the other two), spent the 2000s in limbo, owned first by Daimler, then by the private-equity firm Cerberus, and finally by Fiat in a bailout-and-bankruptcy deal engineered by the federal government.

FCA's recovery has been impressive: It posts month after month of positive sales in the US and has benefited fantastically well from the SUV boom, thanks to the Jeep brand.

So naturally, CEO Sergio Marchionne has made it his quixotic mission in life to get FCA merged with another major automaker. He took a shot at GM last year and was rebuffed. Now he's again making the rounds. The reason is simple: He doesn't think FCA can ride out the next downturn in the industry.

At Bloomberg Gadfly, Chris Bryant zeroes in on FCA's biggest problem — and it has nothing to do with cars:

Unlike many rivals, FCA lacks a captive finance arm. That puts it a competitive disadvantage. When sales slow, automakers with stronger balance sheets can borrow cheaply and use to proceeds to, in effect, subsidize price cuts. The company has tried to address that with a partnership with Santander to provide financing for customers.

If anything, Bryant is understating how bad this is for FCA. A lot of folks erroneously believe that automakers are in the car business. They are, but the real meat on that bone is the lending side. Car companies with their own banks, in effect, don't sell cars; they sell car loans.

FCA does this in some regions, but not in the US.

For FCA to be missing out on this is a big reason why it's overall debt position, at about $5.5 billion, is worrisome relative to its Detroit and global competition. Debt tends to be what gets carmakers in the end — the business is extremely capital-intensive, and it can be challenging for the companies to avoid spending their way into a hole to keep from losing out on market share, especially when tastes shift away from rainmaking products, as they did when SUVs fell out of favor, when gas prices spiked, or when credit constricts and consumers are reluctant to borrow to buy new cars.

So Marchionne knows he can't win a price war, and he knows that FCA debt could catch up with it. The only recourse he has is to line up, well in advance, a rescue package in the form of a merger. That's why he's been so dogged on this front.

But it's hard to see what would be gained from taking on FCA and its debt, even if Jeep is part of the package.