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SM on 7 million cars, Jeep, and debt

by David Zatz on


Sergio Marchionne’s closing remarks at the end of May 6, FCA Investors Day, covered five basic themes (not presented here in the same order as in the speech):

  1. Jeep: “It is a brand with the qualities and potential to be number one and, in fact, has always been a benchmark in its segment. Today it is clearly seen by the market as a quality brand with reliable products.” The target is 1.9 million vehicles sold worldwide in 2018, around three times the record sales of 2013.
  2. sergio marchionneThe premium brand strategy: With demand for “mainstream” cars falling and competition increasing, profitability has become difficult to achieve. Fiat’s and Chrysler’s premium products (where “premum” is defined as “being able to charge more than competitors in the same segment”) — Fiat 500 and Jeep Grand Cherokee, for example — are selling well and earning good profits. The former mainstream products for both companies are not doing as well. At a brand level, Maserati and Ferrari are making high profits as Fiat is bleeding cash. As a result, the company is putting time, effort, and money into premium cars, trucks, and brands, including the $7 billion revival of Alfa Romeo and the re-establishment of Jeep across the world.
  3. European mass-market: “We have no intention to engage in a suicide strategy that has – as the only really reliable outcome – the destruction of capital.” Investments in this market will therefore be limited, and re-focused to the premium end and to new segments, such as CUVs, that are expected to grow. “We are going to pull back from chasing unprofitable business and look for opportunities that are real and within our reach.”
  4. Hitting 7 million sales in 2018. Mr. Marchionne reiterated his belief that an automaker must sell 6 million vehicles per year “to be a credible long-term competitor capable of generating adequate returns on investment.” He now plans to exceed that number — “Fiat Chrysler Automobiles has the resources and potential to achieve that target without acquiring or merging with any of our competitors. … By 2018, we expect to exceed the minimum threshold of 1 million vehicles on each of the 3 principal platforms where we have already completed convergence.”
  5. Finances and going debt-free: All brands are expected to grow, and positive cash generation is to take place from 2016 onwards.  “By 2018, the Group will be nearly debt free, with EBIT more than three times last year’s level and margins doubling to a level equivalent to our best competitors.”

Mr. Marchionne also talked about what made FCA different. “The FCA we have just presented is a group that is significantly more than the sum of its two predecessors. It is a new organization with a new vision.” The company can achieve the ambitious plan partly because both Fiat and Chrysler have already been condemned as failures, only to rise again and succeed beyond expectations; and because “…we have achieved cultural integration and adopted an openness to different ways of thinking that, in addition to bringing human and professional enrichment, are also the greatest source of ideas and innovation.”

He talked about commitment to social responsibility, “spreadsheet capitalism has failed and does not work,” with examples of people coming together and lives being transformed, from both the U.S. and Europe.

Finally, Mr. Marchionne concluded, “I told you this morning that our FCA culture responds better when given purpose and challenge. And our plan has purpose. Because when all is said and done, mediocrity is not worth the trip.”

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