Marchionne leaves Fiat Chrysler debt free as prepares to sever ties

[June 01, 2018]   By Agnieszka Flak and Valentina Za

BALOCCO, Italy (Reuters) - Fiat Chrysler's <FCHA.MI> Sergio Marchionne laid out his final strategy as chief executive on Friday with a focus on sport utility vehicles and electric and hybrid cars as his era at the wheel nears its end.

The 65-year-old, who is due to hand over the reins in early 2019, also reiterated the need for consolidation to produce cleaner and more intelligent cars as FCA <FCAU.N> set out a roadmap for its Jeep, RAM, Alfa and Maserati brands.

"These brands comprise the most significant portion of our revenues and our earnings," Marchionne said, adding that FCA will be cash flow positive by the end of June.

Marchionne, wearing a tie rather than his trademark sweater to mark the debt milestone, said this opened up opportunities to invest in and to reward shareholders in FCA, which he rescued from the brink of bankruptcy.

FCA also announced aggressive targets for expanding Jeep, whose roots date back to World War Two and which has become FCA's ticket to create a high-margin brand with a global appeal.

It said it expects one in each 12 utility vehicle sold industry-wide by 2022 to be a Jeep, but stopped short of giving a precise sales goal.

Jeep will launch nine new products, enter three new segments including large sports utility vehicles, and offer four battery electric versions by 2022, FCA said. Jeep will also stop selling diesel vehicles in Europe.

The RAM truck unit aims to grow global sales by up to 30 percent and in doing so become the No. 2 commercial vehicle brand in North America.

Meanwhile Maserati will launch hybrid and fully electric vehicles and source engines from Ferrari, seeking to take on both Tesla and Porsche, while Alfa Romeo will include hybrid and electric components by 2022.

FCA said it is targeting annual sales of 400,000 for the sporty Alfa brand in 2022, up from the 170,000 expected this year. The initial aim was to hit that target this year, but the revamp was impacted by design and technological hiccups and the brand has yet to turn a profit.

Marchionne said FCA was serious about pushing hybrid and electric cars to ensure the world's seventh-largest carmaker remains compliant with emissions rules.

To view a graphic of Total Fiat Chrysler shareholder return under CEO Marchionne, click: https://reut.rs/2JjkAKj

Sergio Marchionne, CEO, Fiat Chrysler Automobiles, speaks with journalists at the North American International Auto Show in Detroit, Michigan, U.S., January 15, 2018. REUTERS/Rebecca Cook/File Photo

FCA retooled some U.S. plants to boost output of lucrative SUVs and trucks, while ending production of unprofitable sedans and is on track to meet or exceed nearly all the financial goals it set in the last strategy plan in 2014.

The move got FCA close to erasing the margin gap with its larger U.S. rivals GM <GM.N> and Ford <F.N>, with Europe now the focus for investors.

"A similarly credible exercise for EMEA (Europe, Middle East and Africa) will give investors confidence in targets for the region," said George Galliers, an analyst at Evercore ISI.

Its operating margin in Europe recovered to 3.2 percent last year, which compares to Europe-centric PSA Group's <PEUP.PA> global automotive margin of 7.3 percent.

FCA is set to keep converting Italian plants to churn out Alfas, Jeeps and Maseratis, while mass market models will be limited to certain markets, discontinued or moved elsewhere.

Marchionne is not expected to announce any big deals during Friday's strategy day other than providing details on the planned spin-off of parts maker Magneti Marelli and FCA's strengthened partnership with Alphabet Inc's <GOOGL.O> self-driving unit Waymo.

But many investors bet the man who has multiplied Fiat's value 11 times, notably by spinning off tractor maker CNH Industrial and Ferrari <RACE.MI>, is not done yet.

Marchionne has poured cold water on a Maserati or Alfa spin-off, but investors believe it is just a matter of time.

"Premium brand spin-offs are one of the hottest topics in the sector right now," Michele Pedroni, a fund manager at Decalia Asset Management, said.

($1 = 0.8568 euros)

(Reporting by Agnieszka Flak; Editing by Adrian Croft and Alexander Smith)
 

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