Sergio Marchionne Defends Chrysler Profit Plans

Edward Niedermeyer
by Edward Niedermeyer

In a lengthy, wide-ranging interview with Automotive News [sub], Fiat/Chrysler CEO Sergio Marchionne got an awkward question from AN’s Luca Ciferri.

Your five-year plan forecasts that Chrysler’s operating margin will peak at 7 to 7.7 percent of revenues in 2014. In November 2006, you predicted that Fiat Group Automobiles’ operating margin would peak at 4.5 to 5.3 percent in 2010. How could Chrysler’s post-global recession peak profitability be 50 percent higher than Fiat Group’s pre-global recession assumptions?

Well, Sergio?

Marchionne answers:

For one very simple reason: The Obama administration has done what Europe has been unwilling to do. In November 2006, when I announced Fiat targets for 2010, those margins would have reflected a competitive state of the European car industry which today continues to be unrectified.

In Europe, structural overcapacity has not been addressed, and nationalistic interests continue to prevail over the overall health of the industry. The Obama administration, like it or not, has forced a restructuring on this industry where the emerging companies, post-bankruptcy, are going to be much better suited to drive returns on capital which are adequate with the risks that are being taken.

So I do think that a decent business on the car side which is run efficiently can produce 7 to 7.7 percent in the United States. Is that number possible in the European marketplace given what exists as an industrial landscape? The answer is no.

Too bad then, that Chrysler’s sales have shown no signs of recovery since bankruptcy. After all, Marchionne’s own projections show volume driving profit, and if the volume doesn’t show up, the profit certainly won’t. This lack of volume momentum definitely caught Ciferri’s attention, as he asks

You recently said Fiat and Chrysler together would reach the 5.5-million-unit-a-year level you consider critical for survival. You say Chrysler will be a 2.8 million animal in 2014. When could the 5.5 million target be reached?

To which Marchionne answers:

Certainly before 2014. I mean, the writing is on the wall, right? Half of it is coming out of Chrysler. More [information] on the Fiat side will come on an investors’ day we are planning for the first quarter of 2010.

The only thing the writing is on is Marchionne’s overly-optimistic sales projection, which shows Chrysler adding four percent market share in the US between now and 2014. If you think that’s going to happen, you might be interested in buying a certain bridge in New York. But if the European market is in as bad of shape as Marchionne seems to think, Chrysler might even see stronger growth than Fiat, let alone its troubled Alfa and Lancia brands. Either way, the Fiatsler experiment is in big trouble.

Edward Niedermeyer
Edward Niedermeyer

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  • Nick Nick on Dec 07, 2009

    Wait, there is hope! I sat in a Camaro and didn't fit, and Ford pissed me off (not the dealer, the company), and I fit in a Challenger. One sale in the offing. Woot! Woot!

  • Mjz Mjz on Dec 08, 2009

    porschespeed: Chrysler will have all-new versions of some of its highest volume and most profitable products in about 6 months time: new 300/Charger/Grand Cherokee. A year from now heavily revised Minivans/Sebring/Avenger. Plus Fiat 500 intro. How can you say they will have nothing new to sustain them for the next two years? That is just completely inaccurate. And you claim to know that 4 years from now, the market will not be significantly better. Really? And just how have you devined this information? I don't think anyone can predict out 4 months from now, let alone 4 years. I am really sick of all the Fiat/Chrysler bashing when they haven't had a chance to execute any of their plans yet. This biz requires months/years to make revisions and create new products. Fiat has just recently taken the helm, and everyone expects a miraculous turnaround in a few months. That's just completely unrealistic. If their new products, when they hit the market, are absolute crap, I'll be the first in line to call them on it, but let's at least give them a chance.

  • Ajla Both Biden and Trump are on record caring ~0% what the WTO says and the US government isn't bound by WTO rulings.
  • Honda1 The FJB Inflation Reduction Act will end up causing more inflation down the road, fact! Go ahead and flame me libbies, get back to me in a few years!
  • Cprescott Fisker is another brand that Heir Yutz has killed.
  • Dwford Every country is allowed to have trade restrictions except the US.
  • 1995 SC Are there any mitigation systems that would have prevented this though? We had a ship hit a bridge in Jacksonville a few years back and it was basically dumb luck it didn't collapse. This looked like a direct hit.
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