Bloomberg News

Fiat Looks to Chrysler’s Jeep, 200 Sedan for Boost This Year

January 29, 2014

Fiat SpA (F), which announced plans today for a primary listing on the New York Stock Exchange, forecast a 9.4 percent increase in Chrysler Group shipments as it leans on the U.S. unit for profit.

Fiat said it expects to ship 2.8 million Chrysler vehicles this year, compared with 2.56 million in 2013. A full year of the new Jeep Cherokee, replacing the lackluster Liberty, and the redesigned 200 sedan should help strengthen Chrysler in segments where it has had weaker products, Richard Hilgert, an analyst at Morningstar Inc. in Chicago, said in an interview.

“Chrysler has some fairly substantial launches,” he said. “This year will have the full run rate of the Cherokee and the new 200 is going to need to sell around 200,000 just to keep pace with what it’s replacing. It sets the bar pretty high.”

Chrysler remains a source of profit for Fiat. The Turin, Italy-based company, which bought full control of the U.S. automaker last week, today reported 2013 earnings of 943 million euros ($1.29 billion) excluding one-time items. Without Chrysler, the company would have had a loss on that basis of 911 million euros, according to its statement.

Fiat also said 2014 trading profit, or earnings before interest, taxes and one-time items, will be 3.6 billion euros to 4 billion euros. That lowered a goal set in 2012 of 4.7 billion euros to 5.2 billion euros. Fiat shares fell 4.1 percent.

The disappointing earnings prospects underscore the rationale behind Chief Executive Officer Sergio Marchionne’s purchase of Chrysler to create a more global carmaker. Fiat said today that the combined company will be renamed Fiat Chrysler Automobiles NV and based in the Netherlands.

‘Easiest Step’

Setting terms for the merger will be “the easiest step,” Erik Gordon, a professor at the University of Michigan’s business and law schools, said in an e-mail. “Actually selling cars globally is what Fiat must do, and that will take more than lawyers and their piles of paper.”

Fiat posted fourth-quarter trading profit of 931 million euros, missing the 1.12 billion-euro average of six estimates compiled by Bloomberg, on plunging earnings in Latin America. The revised 2014 profit target is also lower than the 4.16 billion-euro estimate of 11 analysts.

Fiat dropped 31 cents, the most since July 30, to 7.24 euros at the close in Milan. The stock has gained 55 percent in the past 12 months, valuing the automaker at 9.05 billion euros.

The combined automaker will have a fiscal domicile in the U.K. for tax purposes, Fiat said. The manufacturer aims to complete the New York listing by Oct. 1 and will also continue to have shares traded on the Milan exchange.

‘Solid Foundations’

“Today we can say that we have succeeded in creating solid foundations for a global automaker,” Marchionne said in a statement. “An international governance structure and listings will complete this vision.”

Fiat won’t pay a dividend, to maintain liquidity after the acquisition of Auburn Hills, Michigan-based Chrysler, Marchionne told analysts on a conference call. The company will look at options to strengthen funding without resorting to a capital increase, he said.

The CEO said the group has several alternatives, including issuing mandatory convertible bonds and disposing of assets. Selling a stake in the Ferrari supercar brand is “highly unlikely but possible,” he said.

Fourth-quarter trading profit in Latin America plunged 82 percent to 44 million euros as Fiat faces stiffer competition from the likes of Volkswagen AG and Hyundai Motor Co. The Latin American drop swamped a profit gain in North America, where Chrysler’s performance was lifted by the new Jeep Cherokee, which began deliveries in October.

Chrysler Outlook

Chrysler’s fourth-quarter operating profit was $1.1 billion, an increase of 51 percent. Chrysler forecast operating profit this year of $3.7 billion to $4 billion, up from $3.18 billion in 2013.

Marchionne said earlier this month that he expects Chrysler’s Jeep brand to top 1 million sales worldwide this year. The global total last year was a record 731,565.

Marchionne, 61, wants to transform Fiat into a manufacturer with the scale to challenge the likes of General Motors Co. (GM:US) and Volkswagen in global auto sales. Fiat, which owned 58.5 percent of Chrysler before to the full takeover this month, relies on the U.S. business for profit because of losses in Europe amid a six-year car-market contraction in the region.

Upscale Push

Fiat bought the 41.5 percent Chrysler stake held by a United Auto Workers retiree health-care trust to gain full control of the U.S. business. The combination creates the world’s seventh-largest auto manufacturer.

A three-year business plan will be presented in May outlining spending of as much as 9 billion euros to end losses in Europe with the introduction of upscale models, as well as to fund an expansion in Asia. Fiat’s Europe losses narrowed to 50 million euros in the final three months of 2013 from a deficit of 120 million euros a year earlier, aided by cost cuts as deliveries fell 5 percent.

“A journey that started over a decade ago, as Fiat sought to ensure its place in an increasingly complex marketplace, has brought together two organizations each with a great history in the automotive industry and different but complementary geographic strengths,” Chairman John Elkann said in the statement.

To contact the reporters on this story: Mark Clothier in Southfield, Michigan at mclothier@bloomberg.net; Tommaso Ebhardt in Milan at tebhardt@bloomberg.net

To contact the editors responsible for this story: Jamie Butters at jbutters@bloomberg.net; Chad Thomas at cthomas16@bloomberg.net


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