Sergio Marchionne Defends Chrysler Profit Plans

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.