Marchionne's Grand Vision For FCA Faces Hard Financial Road To Success

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.