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A look ahead: It’s all about the money

With the cheer of the holiday season, one can’t help but be optimistic for the new year ahead. However, it might be wise to temper expectations of what could be coming from Fiat Chrysler, not only for 2016, but perhaps for 2017 as well.

The 2014 product roadmap has become so flexible that it is beginning to look like Silly Putty as the timeline for new products and product refreshes gets stretched.

The Chrysler 100 is in limbo, apparently while a decision is made as to whether it will be a clone of the Fiat Aegea/Tipo or the Jeep Renegade/Fiat 500X. The Grand Wagoneer has been pushed out of the timeframe altogether.

Whether one blames supplier problems, challenges in the Chinese market or conformance issues, the Giulia, a key component in Alfa Romeo’s return to the U.S. market, and a new Alfa SUV are now delayed another six months or more.

While there are other factors in play, it seems that the key to at least some of the delays is an addiction: Sergio Marchionne’s appetite for cheap capital. After having impressed pundits and analysts with his “Confessions of a Capital Junkie” in April, he spent nearly all of his credibility in a quixotic pursuit of General Motors, dropping from a heroic figure to the butt of jokes.

Having been rebuffed by GM and executives from every other major automaker, and failing to attract interest in a hostile takeover from hedge fund managers, Mr. Marchionne has embarked on a do-it-yourself program, seeking to attract higher ratings from Standard & Poor’s and Moody’s. Currently, S&P rates Fiat Chrysler’s long-term debt “BB-” with a positive outlook, and has said the rating could be raised to “BB” in 2016. FCA needs to add another “B” to their rating to be considered investment grade.

This year, Fiat Chrysler Automobiles will be able to smash the contractual walls between it and cash held by FCA US LLC, while getting an estimated $1.7 billion from Ferrari’s exit. Combined with reductions in investments in product development and research, Mr. Marchionne plans to trim nearly $2.2 billion in costs and reduce industrial debt to between $7.2 billion and about $7.8 billon.

Ultimately, Mr. Marchionne wants to have a credit balance of nearly $2.2 billion by 2018. Fiat Chrysler is the only major automaker with a negative cash balance.

If Mr. Marchionne can succeed, it will mean that short-term disappointment over product delays will pay off in a much lower cost of capital. This will be a long-term benefit for Fiat Chrysler Automobiles — if it can outweigh delays in new cars and trucks.

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.

This post was last modified on December 31, 2015, 9:07 pm

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