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Profits to be an Issue in Earnings Report?

by Bill Cawthon on

North American profits are likely to be a prime focus when Fiat Chrysler Automobiles releases its first-quarter financials tomorrow morning.

According to a story in today’s Detroit Free Press, FCA CEO Sergio Marchionne will be talking about operational plans and his views on industry capitalization when he and CFO Richard Palmer present the numbers.

Marchionne-FCAU-Stock-Web

Fiat Chrysler is under increasing pressure to raise its profits. Last year, the company’s profit margin was about 4.2%, compared to 8% for GM and 12% for Ford.

While Fiat Chrysler has been able to justify slim margins during the resurrection and rebuilding of Chrysler, the company’s American operation is on firmer footing now. In fact, it is covering losses for the whole company.

But analysts and investors, who have driven Fiat Chrysler Automobiles stock up 85% since its initial public offering, reportedly want to see margins rise.

Earlier this month, FCA raised dealer invoice prices by 1%, though list prices remained the same. This cut dealer margins by about $300 on a $30,000 car.

Fiat Chrysler already has the lowest hourly labor cost of the Detroit automakers, according to the Center for Automotive Research; they reported that General Motors’ cost is $58/hour, Ford’s is $57/hour, while Fiat Chrysler’s is $48/hour, about the same as Toyota and a dollar per hour less than Honda. The gap is primarily due to the high percentage of Tier II employees, who are paid about half the rate of senior workers. About 42% of Fiat Chrysler’s hourly workers are Tier II compared to 29% at GM and 20% at Ford. (For more on Fiat Chrysler’s labor costs, see “September Showdown” at Acarplace.com.)

Fiat Chrysler is looking at ways to cut other costs. Industry analysts believe this is one of the drivers of Marchionne’s push for consolidation with another automaker.

Bill Cawthon grew up in the auto industry in the 1950s. His Dad worked for Chrysler and Bill spent a number of Saturdays down on the plant floor at Dodge Main in Hamtramck. Bill is also the U.S. market correspondent for just-auto.com, a British auto industry publication, and a member of the Texas Auto Writers Association, which has named the Jeep Grand Cherokee the “SUV of Texas” several times and named the Ram 1500 as the “Truck of Texas” two years running.

Bill has owned five Plymouths (including the only 1962 “Texan”), one Dodge and one Chrysler and is still trying to figure out how to justify a Wrangler. He also has owned at least one of every 1:87 scale model of a Chrysler product. You can reach him directly at (206) 888-7324 or by using the form.


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