By on May 8, 2014

Sergio Marchionne - FCA

Though Fiat Chrysler Automobiles CEO Sergio Marchionne’s five-year plan announced this week may be ambitious, analysts are raising questions about how the plan will be funded — and how much will be needed — if it is to be successful, let alone live up to Marchionne’s vision.

Automotive News Europe reports a large part of the problem for the plan, according to Bernstein Research analyst Max Warburton, is debt:

Much as we admire the ambition and think elements are achievable… it is hard to find conviction on the financing of the plan. Fiat is weighed down with huge debt, burdened by financing costs and is only thinly profitable. It’s (sic) cost of capital is huge.

Warburton adds FCA’s grand plan and its potential capital expenditure and R&D appear to be unaffordable and not prudent for investors, stating the company would need “a capital raise” for any part of the plan to pan out.

Aside from its debt, FCA also faces sales challenges from markets that are peaking or slowing down, with the European market being the biggest drag upon the automaker. However, independent analyst Marianne Keller said that with the recovery now taking place in Europe, paired with North American profits and a strong Jeep brand, Marchionne could “pull it off”; Marchionne himself announced during the five-year plan’s unveiling that he was considering a mandatory convertible bond to bring the needed financing for the plan.

Finally, FCA’s Q1 2014 results — a net loss of 319 million euros compared to a net profit of 31 million euros the year before — serve as a sign for both the company and its investors that FCA has more hard road ahead, a view best summed up by Macquarie Group analyst Jens Schattner:

If it was so easy just to launch new products to be successful in this industry, why wouldn’t everybody do exactly the same.

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48 Comments on “Marchionne’s Grand Vision For FCA Faces Hard Financial Road To Success...”


  • avatar
    Rod Panhard

    I didn’t think he’d be able to bring back Chrysler. He did. I’m pretty sure he’s got this…

    • 0 avatar
      highdesertcat

      I agree. I’m truly impressed with Sergio, the man, and Sergio, the CEO.

      • 0 avatar
        VoGo

        Did anyone read Ed Neidermeyer’s editorial on Bloomberg today?

        It’s brilliant.

        • 0 avatar
          Wheeljack

          Sounds more like a vitriolic rant from someone who was wrong in his prediction of Chrysler’s imminent demise 5 years ago.

        • 0 avatar
          highdesertcat

          VoGo, I read it. I have no feelings either way about the article because of my view on handouts, bailouts and nationalization.

          However, what Sergio has done with Chrysler’s carcass was to take it off the US Government’s life-support and nurture it back to life. Sergio had a lot of help, to be sure, in the form of the taxpayer bailout bucks, the $1.3B in bribe money, the UAW’s gratefulness for getting to keep their jobs if they shut up, etc.

          But, five years in, the Chrysler portion of Fiatsler is still around, and Sergio is making plans in small steps.

          Will it work? It’s hard telling at this point because most financial and economic analysts see some potential pitfalls ahead that may affect the global auto industry.

          This is one reason why we, the business owned by my wife and her family, is making an all-out push to sell as many company-owned homes as we can before the end of 2014, and cash out what was invested in the years leading up to now. Just in case things turn sour again with the economy, and booms turn to busts.

          If I were a betting man, I’d put my money on Sergio. In fact, I already have. I bought a 2012 Grand Cherokee, a winner in anyone’s book.

          Chances are if things hit a snag or take a plunge in the economy, Fiatsler will not be the only carmaker affected.

          But a CEO cannot be complacent and hope for the best to develop. A CEO has to plan ahead and make changes along the way. That’s what Sergio is doing, based on the best evidence of where the global economy will be five years out.

        • 0 avatar

          Read it too. Seems that there are almost as many ifs there as there are in FCA’s plan. The truth is that we’ll just have to wait and see.

  • avatar
    Dimwit

    For all the nay sayers his track record is pretty damn good. Chryco has been executing well lately. Not all homeruns but enough to surprise and delight and there’s no reason to think that he can’t continue that trend. It’s FIAT that’s the problem and there needs to be a turnaround there. I’m very surprised that there hasn’t been more movement on the cheap side a la the Dacia type of product in both Europe and South America.

    I think that, overall he just needs time. I like his chances far more than GM’s.

  • avatar
    VoGo

    I still think the Alfa Romeo turnaround plan is a bridge too far. The FCA recovery remains fragile – they just reported another loss for the quarter, and investors have little appetite for pie-in-the-sky ambitions.

    I respect what Marchionne has accomplished to date, but we need to face the facts:
    – FCA is unprofitable. Typically, companies in mature industries that cannot consistently turn a profit have trouble attracting additional capital.
    – Chrysler and Dodge have poor market traction in the US, and minimal appeal outside of NAFTA
    – Fiat is in an unsustainable situation. They compete with VW in nearly every market, but lack the scale, engineering talent, brand, etc. required to win
    – Maserati’s product is an also-ran. Jaguar looks, but without the quality
    – the plan for Alfa requires capital that does not exist, targeting buyers whom BMW will not readily cede

    • 0 avatar
      CoreyDL

      Agree.

    • 0 avatar
      heavy handle

      It depends. Did they lose money because sales were below expectations, or did they lose money because of R&D and tooling? There’s a big difference between the two. Will they lose money next quarter when Cherokee sales are accounted for?

      I think most of your points are over-stated. Chrysler may have lacked “traction” (which I read as “product”), but the very same dealerships have had great traction with RAM/Jeep. It’s not as if those shops have been dead, tumbleweeds rolling through.

      Fiat has a few hits worldwide. The 500 sells for thousands more than other makers’ minis. The Panda is doing very well in Europe. They are huge in South America.

      Maserati is wait and see. As for quality, it’s not the 1980s anymore. You may recall that Jaguar also had a bit of a quality issue at the time. Everyone uses the same OEM suppliers, the quality spread is smaller than it used to be.

      Alfa will target BMW’s future buyers, but those buyers are currently driving Mazdas and Hondas and similar brands. It’s the middle of the market that has the most to lose. The whole world is moving to premium brands because they only cost a few dollars a month extra (if that). FCA has to get a piece of that pie.

      • 0 avatar
        danio3834

        The sales growth at Maserati speaks for itself. With the Ghibli on the market and a high end SUV and other products on the way, they probably stand the best chance of making their sales tarkets. Definitely moreso than Alfa.

        The Ghibli and Quattroporte are hardly also-rans. Comments by reviewers who have tested and compared them almost universally remark how distinctive and unique they are compared to the competition.

      • 0 avatar
        sportyaccordy

        Dodge and Chrysler are DOA. The new Fiat FWD platform is heavy and inflexible. Too big for the C segment, too small for the D. The Panda is a brilliant, brilliant, brilliant car, but nowhere near as profitable as a Punto. RAM/Jeep have volume but the RAM… Ram is still outsold 2:1 by the F150 and Silverado. Alfa is perpetually stillborn… where are they going to get the money? If C&D’s recent review of the Ghibli is any indication Maserati is knocking on death’s door too. There is nothing in FCA’s portfolio that inspires any confidence in me… and now that they are international I don’t think they will get a 3rd bailout.

    • 0 avatar
      28-Cars-Later

      “Jaguar looks, but without the quality”

      Was this an unintentional oxymoron? I realize these things aren’t in 70s/80s direct to junkyard status anymore but I’m also pretty sure they a near dead last in every reliability or quality survey.

      • 0 avatar
        VoGo

        It was intentional. Jaguar has certainly cleaned up their act over the past couple of decades, largely through Ford’s stewardship, but continuing now under new ownership. But they still aren’t Lexus by any means. My intent is to highlight that Maserati has a long way to go to make it to Jaguar standards for quality.

        • 0 avatar
          CoreyDL

          I agree they’ve come a long way since British Leyland, and they were pretty good around 05-06 (XJ only). But they’re still plagued with problems across the board, and, I’d argue, only slightly more reliable than Land Rover and less so than Mitsubishi.

          • 0 avatar
            Mandalorian

            Dodge/Chrysler are strong in the classic American core markets, muscle cars (Charger, Challanger, SRT, etc), Cruiser (300), Off-road SUV (Jeep, Durango), and all things truck/van. They have good dealer networks and are fairly well regarded in the US.

            The problem is anything with a 4-cyl in it. Chrysler proved it could make a world class powertrain with the Hemi and Pentastar and 6/8 speeds, now they need to step up and do it again with a 4-cyl.

            They should either quit half-assing it and focus on larger engined vehicles or step it up.

    • 0 avatar
      Viquitor

      Well…
      1) FCA is unprofitable based on what, the 1st quarter alone? Who’s been really profitable these days?

      2) Yes, undeniable, but FCA does have a strong US presence, something most companies can only dream of. VW and PSA come to mind. And lack of cachet overseas is largely unimportant when considering emerging markets. Lamborghini x Ferrari in China is a nice example of that. Is not because stupid, stupid GM can’t stop screwing up overseas that others will do the same. Specially FCA, who has Fiat, Alfa Romeo, Maserati and simply the most valuable auto brand ever.

      3) Fiat is besting VW in Brazil, a market in which the Germans held around 75% throughout the 1970s and led for more than 30 years. And in Argentina. Now let’s talk about VW missed goals and the failure of its world dominance plan.

      Yesterday’s post about Dacia and the premium brands eating middle market brand’s marketshare shows how the next decade will be though on the VW brand specifically. Having driven Skoda upmarket, they’re still trying to figure out a Dacia-like brand, whereas Fiat will fight Dacia itself.

      Oh, and as for the Panda’s profitability, they have just the car for the job. It’s the brazilian Uno. Everything the Panda is but a lot cheaper to make.

      4) Mr. danio there said everything I’d say about Maserati. Let’s see what happens 10 years from now.

      5) It was Fiat who pulled Chrysler out of bankruptcy. If then can pull that off, Alfa will happen. Give it time.

      • 0 avatar

        viquitor, you are just só right you know. In the analyses here they always forget our little corner of the world and the succor we provide their companies when they need moneys.

        Anyways the los is one off and very affected by the devaluation of the real. It has affected all companies here. The net quarter this will be consolidasted. There were no real money lodo.

        Check back tomorrow. My viés for us.

        • 0 avatar

          EDIT: “no real money lost”

          BTW, it’s also funny how they refuse to see all that Fiat has done backstage. Paintshops for one. I know very well a guy who started the whole process off at a Chrysler plant. He made a presentation of the paint process at Betim and one of the Chrysler people there stood up and started leaving in the middle of the presentation. My friend interrupted and asked why he was leaving. The burly Chrysler guy snarled that the Brazilian was bullsh+tting them all. (Yep, that guy lost his job, as did many other dumb bad weeds, one of the processes Fiat has done over there).

          This is just one example and many, many go on. Like I said here before. Better engineering, better processes, knowing how to stretch a buck.

          Sigh. Ram yes! 300, yes! Bad ass mean mach Charger!

          Not bad, but in need of much overhaul. Glad it was Fiat who took them over. Masters of twitching it along.

          I think they’ll make it. When they do, you can rest assured many will believe because it was due to “superior” Chrysler engineering.

          Whatever. Those who can see and know anything will see that it was a collaboration.

          Fiat has much to teach Chrysler. But it also has to learn

          That was the downfall of daimlerChrysler. Marchionne, being that he (and Elkman too) come from both sides of the ocean, know how to bridge these things.

          • 0 avatar
            Viquitor

            Yes, right you are. The thing is, sometimes it is a bit annoying to have to point the obvious.

            But Chryco’s greatness led to bankruptcy. The only real difference between new Chrysler and new GM is Fiat. And we all know what is happening to GM. Some guys here say Fiat got Chrysler for free and that is why Fiat is still around; Fiat would be around either way, but Chrysler wouldn’t.

            Fiat got it mainly because no one else wanted it. Feels like whatching Michael Scott bitching about Sabre all over again. I like the occasional rerun, but c’mon…

          • 0 avatar

            Ai, ai, amigo. Fazer o quê? Falar o quê, né?

    • 0 avatar
      ect

      VoGo, FCA is profitable. The Q1 net loss is due to the cost of acquiring/integrating Chrysler. Absent 2 1-time items, there was a profit of €71 million, more than double the level of Q1 2013. Revenue was up 12% YOY, and unit sales up 9%. That’s not bad.

      And to your point, I believe that the combined FCA is and has been consistently profitable. In the US, Chrysler has gained market share every year since 2009, while Ford has been static and GM has dropped. Those are facts.

      Like many others, I thought Chrysler was dead and buried in 2008. Events since have proved me wrong, and all those who played a part in Chrysler’s turnaround deserve applause.

  • avatar
    CoreyDL

    When 1/4 of the brands in your portfolio have the same logo but a different name – YOU’RE GONNA HAVE A BAD TIME.

  • avatar
    mike1dog

    It seems to me that a lot of the elements of Chrysler’s turnaround were already in place before Fiat took it over. The bankruptcy which got rid of all their debt didn’t hurt. The only two parts of the company which have any mass appeal are Jeep and Ram trucks. Without basically being given Chrysler, Fiat would be in even more trouble.

    • 0 avatar
      highdesertcat

      You are right! They were. But the way Sergio handled the transition during the specific time he handled it, 2009 when all the chips were down, was truly noteworthy.

      This guy deserves credit for bringing the dog and pony together and then putting on a great show!

      Truth be told, I bought into Sergio and put MY money where my mouth is by buying a brand new 2012 Grand Cherokee Overland Summit for the wife.

      My oldest son bought into Sergio as well when he bought his 2012 Grand Cherokee SRT8.

      And my youngest son recently bought a 2014 RAM Laramie 5.7.

      We have not been disappointed. Not in the vehicles we bought and not in the man. That’s a big deal!

      • 0 avatar
        CoreyDL

        You bought her a GC with a double trim level? How did you manage that?

        • 0 avatar
          highdesertcat

          CoreyDL, in Nov 2011 the trim levels for the 2012 GC were SRT8, Overland Summit, Overland, Limited, Laredo.

          The Overland Summit had all the features of the Overland, but included the two-tone leather interior and a few extras things, like adjustable suspension, NAV and BU Camera, Elec Rear Door. I can’t remember all of the stuff.

          All trims could be had in either 2WD, AWD or 4X4 with Selectrac, except the SRT8 which only came in AWD because of the immense power.

          We didn’t have a choice in the matter. My wife saw the GC on a trailer being delivered or hauled off outside Phoenix, AZ, while we were traveling East on I-10.

          It grabbed her. We went back to look at it, and the rest is history.

          • 0 avatar
            CoreyDL

            Gotcha, thanks I learned something.

            When I went to the liquor store last Sat night for some Disaronno, I saw a circa 04 GC Overland, which actually had factory navigation. I was very surprised, as I didn’t think Jeep had those sorts of options at that point in time. It was a nice charcoal grey metallic color.

  • avatar
    danio3834

    “Finally, FCA’s Q1 2014 results — a net loss of 319 million euros compared to a net profit of 31 million euros the year before — serve as a sign for both the company and its investors that FCA has more hard road ahead,”

    This shouldn’t be too concerning since the loss basically amounts to the one time payment made to settle the purchase of Chrysler. That amount removed from the total would indicate that Fiat is stabilizing.

    I think the important thing to note is that at the rollout of the first 5 year plan, everyone thought those targets of 80% growth were unattainable, but the targets were beaten. This time, a growth of about half that is targeted. Sergio’s ambitions may seem unrealistic, but the track record is there to prove that lofty goals can be met. While I have my resevations, I believe it can be done.

    • 0 avatar
      VoGo

      The difference is that FCA’s recent US revenue improvement was accomplished during a rising overall market, after competitors had taken production capacity out of the market. But US sales are stabilizing at 16M annually, meaning that any sales gains in the future will have to come at someone’s expense.

      So who do you FCA taking share from in the US? Hyundai/Kia? doubt it. Honda? Toyota? Ford? They all have strong product lines and consumer loyalty.

      Where FCA has unique and superior product – Wrangler, JGC, 300, maybe Ram – they can win sales. But their plans are focused on the 200, 100, Dart, Journey, etc. where FCA has traditionally been an also-ran. And they lack the technology capabilities – aluminum, hybrid, turbos for US market – that would give them a leg up.

      I wish our Italian overlords success, but I wouldn’t invest in it.

      • 0 avatar
        bobman

        @VoGo
        I’m curious. If you wouldn’t invest in a company like FCA, in the top three in terms of sales growth for the past 4.5 years then what company would you invest in?

        My money would be with FCA. They’ve proven to be good at being able to deliver top performance…. and doing it consistently. In the very same market its competitors are lagging in comparison.

      • 0 avatar
        danio3834

        Their growth has outpaced the market by several fold in many cases. They’ve been taking share most notably from GM in the truck arena, but other major players like Ford and Toyota have given some up as well. By filling the holes in the product lineup and continuing to promote competitive products in their core areas, continued growth appears likely barring a major shift in the market.

        Aluminum, hybrids and turbos haven’t really been drivers of sales and profit. They help with regulatory compliance costs, and FCA does have development in these areas, but they’re right to be cautious.

  • avatar
    seth1065

    I admire what Fiat has done with Chrysler but I think the time will catch up to Sergio, by the time he gets Fiat running properly and Europe picks up the US market will go down, less face it gas will go up and pickup trucks will go out of fashion, I live in NJ and lots of folks bought pickups the last few years who have no need for a pickup. Most of their profits come from there and minivans I assume, their cars are a after thought on the coast ( sorry BTR) , I do not see Alfa hitting anywhere close to the target they have on their back. The main problem for FCA is they are bringing a knife to a gunfight in the world auto market.

    • 0 avatar
      highdesertcat

      Of course the time will eventually catch up with Sergio. No company can sustain a successful streak all the time.

      But he can enjoy it while it lasts. Just compare and contrast where Chrysler was in 2009 and where it is today.

      I can’t help but wonder if we, the people, had done the same for GM as we did for Chrysler, would GM be in a better place now?

  • avatar
    bobman

    Sergio stated in his presentation that the plan would be self funded, Upon completion in 2018 the company’s debt would be less than a one billion dollars. These critics are the same people that were predicting the company would not make it to its second year. With his banking background, if Sergio knows anything, certainly banking and the money markets would be at the top of the list.

    The other thing is that Daimler paid 36 billion for just Chrysler in 1998 and currently FCA is valued at a fraction of that. Considering the excellent recent performance of FCA, there’s no reason to think that the value of the company won’t return and exceed what Daimler paid.

  • avatar
    nutbags

    Where is Lancia’s logo behind Marchionne? That is one brand I would like to see revived here, not that I could ever afford one.

    • 0 avatar
      CoreyDL

      That’s a good point – it should be included. But maybe that’s because no Lancia in the US.

      Also, for your enjoyment – Kayak.

      http://www.italiaspeed.com/proto_kayak_01.jpg

  • avatar
    schmitt trigger

    Like an old acquaintance of mine used to say (Yogi Berra style):

    Money is never the problem, unless you don’t have it.

  • avatar
    Tom Szechy

    Lancia will be offered only in Italy, and with a very constrained model portfolio.
    In other words, they are preparing for closure.

  • avatar
    TW5

    The article says FCA will require financing because the Jeep strategy will fail. It won’t. The Maserati strategy will also succeed, since the Italians are actually bold enough to offer unique vehicles in the luxury segment.

    FCA will have Jeep, Maserati, and RAM as its ATM machines.

  • avatar
    GeneralMalaise

    As a proud and quite happy owner of a 2012 Abarth, I say the man is on a roll. GM, on the other hand, can’t disappear fast enough.

  • avatar
    bomberpete

    Is it nasty for me to say that I hope FCA succeeds if only because it will cause “Sweet Pete” DeLorenzo to choke on his own bile?

    • 0 avatar
      Lorenzo

      Nah, he’s an ad man, he won’t choke on anything. He’ll just lay low about Sergio for awhile, and go back to criticizing Harvard MBA Mark Fields and maybe complain about Mary Barra if she doesn’t take his advice. He’s still smarting after losing prime target Akerson, so he’ll go easy on her for awhile.

      He’ll return to Sergio eventually because he realizes, if others have forgotten, that this is Sergio’s fourth five-year plan in the last six years. He also realizes that when Chrysler merges with Fiat S.p.A., it’ll add Chrysler’s negligible $1 billion in debt to Fiat’s accumulated $28 Billion. People don’t seem to realize how much debt the Fiat holding company has, and it’s the holding company that’s merging with Chrysler, not the Fiat auto group owned by Fiat S.p.A.

  • avatar
    snakebit

    I’m onboard with Sergio. If you want a small insight into what his thought processes are, and his dedication and work ethic is, watch a 60 Minutes segment about him from about two years ago. I think I work hard, but Sergio would wear me out, even though I can’t think of a boss who would be more exciting to help build a company with.

    • 0 avatar
      Lorenzo

      Well, okay, but guard against becoming a groupie. That’s how cults get started, and if you’re not careful, you’ll be sipping the Koolaid. The last business cult leader was Steve Jobs, who turned out to have been an arrogant SOB.

      I gave up viewing anybody in business as a hero of any sort, or even a nice guy. I remember the comment of John F. Kennedy, whose father Joe knew business and finance inside and out. JFK’s comment was, “My father told me they were all sons of bitches, but I never believed him until now.”


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