Fiat Chrysler hope rides on Jeep, Alfa

May 08, 2014 - 12:45:32 am
Fiat Chairman John Elkann (left) and Fiat Chrysler CEO Sergio Marchionne during the FCA Investors Day at the Chrysler World Headquarters in Auburn Hills, Michigan. 

DETROIT: Fiat Chrysler is launching a breakneck global growth effort built around its upmarket Alfa Romeo, Jeep and Maserati brands, and CEO Sergio Marchionne pledged to stay five years — two more than previously disclosed — to see the plan through.

In a 10-hour, marathon presentation to financial analysts, Marchionne outlined a long-awaited business plan aimed at reviving the company’s historic carmaking names and persuading investors it can overcome high debt, an uncertain market and past missteps to close in on industry leaders such as Volkswagen AG and Toyota Motor Corp.

“Today is much more than a new chapter. We are writing an entire new book,” Marchionne said in his opening remarks. 

Amid sometimes skeptical questioning about the goal of boosting sales by 60 percent and increasing net profit five-fold by 2018, Marchionne shifted between quoting philosopher Friedrich Nietzsche and spouting financial ratios at the company’s US regional headquarters.

Besides an aggressive, belated push into Asia, Marchionne promised to increase North American sales by half as Chrysler broadens its lineup and the embattled Dodge brand digs in. The carmaker kept its options open to finance the plan, but ruled out a share issue or divestments. One of the options was a mandatory convertible bond, but no decision has been made. Fiat Chrysler said it would invest billions of dollars to build new models and ramp up output, predicting sales would surge to almost 7 million vehicles by 2018 from 4.4 million last year — a target some analysts thought highly ambitious. 

“It’s definitely a tall order, but I don’t think we ever expected anything less from Marchionne in terms of the ambition,” said Exane-BNP Paribas analyst Stuart Pearson. “Even getting half or two-thirds of the way to those business plan targets would be a positive achievement industrially — it’s then a question of what investors are expecting and what’s already priced into the shares.”

Fiat shares have risen 44 percent, outpacing a 5.4 percent gain for the broader sector, since the Italian company announced a January 1 deal to take full control of Chrysler and create the world’s seventh-biggest carmaker. 

The group, preparing to move its main listing from Milan, Italy, to New York as soon as October 1, hopes its combined clout and profitable US business can overcome European losses and propel it into the major league.

At stake are thousands of jobs, particularly in Italy where Fiat Chrysler plans to make all of the new Alfa Romeo models.

Marchionne said the five key planks of the plan are: Expanding in the premium-car market.

Refocusing the Fiat brand outside of Europe, specifically in Latin America and China.

Nearly a three-fold expansion of Jeep sales.

Economies of scale via three key vehicle architectures.

Virtually eliminating its €9.7bn net debt.

Marchionne is seeking to emulate rivals such as Volkswagen by building global brands and a strong position in the rapidly expanding and high-margin market for premium cars, particularly in Asia, where the group lags behind its main rivals.

The automaker expects its net profit to surge fivefold by 2018 to about €5bn ($7bn), while net industrial debt is projected to fall to €1bn or less after peaking at about €11bn next year. The company forecast Alfa Romeo would multiply sales more than fivefold to 400,000 vehicles in 2018 as it invested €5bn to add eight new models and ramp up production.

Maserati sales would rise at a similar rate to 75,000 on the back of more than €2bn of capital spending, while Jeep would double output to 1.9 million vehicles in 2018, almost half assembled at six new sites outside the United States. With sales of the mass-market Fiat brand expected to remain flat in a struggling European market over the coming years, analysts said the strategy made sense, though some were skeptical of the sales targets. “The opportunity is clearly there, but 1.9 million Jeep units is a stretch,” ISI Group analyst George Galliers said. The brokerage has forecast Jeep sales of 1.2 million in 2018. 

Jeep, whose globally recognised products trace their roots to the iconic World War Two vehicle, is seen as Fiat Chrysler’s biggest opportunity to tap fast-growing demand for SUVs in Asia.

While Marchionne has a track record of dealmaking in 10 years at Fiat’s helm, he has been less successful at delivering a string of ambitious turnaround plans, with Fiat losing market share in its main European market amid delayed investments and some bad design choices. Reuters

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