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Sergio Marchionne, chief executive of Fiat, discusses the future of the global manufacturing sector at the annual Spruce Meadows Roundtable in Calgary, Friday, Sept. 9, 2011.THE CANADIAN PRESS/Jeff McIntosh

The number of vehicle companies in the world will shrink to a handful of players as smaller, inefficient companies fail to compete, according to the top boss at the world's fifth-largest car maker.

However, Sergio Marchionne, who leads Fiat SpA and Chrysler Group LLC, said companies in China and specialty players like Mercedes and Ferrari will be immune to this consolidation.

"The future of this industry is bound to lead to the elimination of marginal players," he said at a conference in Calgary on Friday. "We're going to end up with five players globally," save for those in China and high-end companies.

Italy's Fiat and America's Chrysler, Mr. Marchionne said, would not have survived in the long-term had they not joined hands in 2009. In addition to consolidation, vehicle companies will also have to share technology, he said.

While China is now ballooning with people wealthy enough to purchase vehicles, western companies are "totally ill-equipped" to operate there because they do not understand the market or have the capability to deal with policy changes, he said.

China's growing market will give companies there an advantage because of its enormous scale, Mr. Marchionne said.

"The sheer size of the market is going to give them incredible benefits" such as capital costs and operating leverage, he said. "Unless [western companies]resize ourselves to try to deal with scale ambitions of our own business which are capable of competing with the Chinese, we will not have a great future."

Currency also plays a role in determining which countries will retain their factories, he noted. With respect to manufacturing, the United States has become "phenomenally more competitive" than it was a few months ago when the U.S. dollar was stronger. The greenback's weakness, he said, is that country's greatest strength.

In Canada, however, the rising loonie may harm Chrysler's manufacturing plants. The company has two plants in Canada, and while they are "absolutely safe" now, Mr. Marchionne issued a warning.

"I think you've got to be careful with the strength of the dollar here. I think there's a point in which it starts crossing into uncomfortable territory," he said. "We're not there yet."

He declined to say what would be his breaking point.

While Mr. Marchionne is confident in his two plants in Canada – located in Brampton and Windsor, Ont., – he said he does want to change the way factory employees north of the border are paid. He wants to connect compensation to performance, something the Canadian Auto Workers oppose.

"Anything that we do that effectively connects compensation across the board, whether it be blue collar or white collar, to performance is outstanding," he said. "I despise the notion of entitlement. It is bad news…Give entitlement to people and you're done. Look at Europe. Just look at it."

Meanwhile, Douglas Oberhelman, chief executive of Caterpillar Inc., does not believe factories in China and India will kill the North American manufacturing industry. "I flat out don't believe it," he said at the same conference.

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