Fiat Chrysler Automobiles (NYSE: FCAU) has long had a reputation as the sick man of the auto business with good reason. Yet the company has shown serious sights of recovery recently particularly at its Jeep division.
The growth of Jeep sales has been impressive, the four-wheel drive builder sold 929,446 vehicles in the United States in 2016, Car Sales Base reported. That was a 5.3% increase over 2015 when Jeep sold 865,028 vehicles on its home turf.
Although there is some evidence that Jeep’s 2017 sales will be lower. The company sold 66,001 units in the USA in November 2017 compared to 67,285 in 2016.
Fiat Chrysler is having some problems in North America. In November 2017, sales of Jeep were down 2% from November 2016, The Detroit Free Press reported. Sales of Dodge fell by 15%, Ram fell by 5% and Fiat sales fell by 5%.
Jeep’s sales have also been growing in Europe; where they rose from 86,803 in 2015 to 103,897 in 2016, Car Sales Base reported. There is also good reason to think, Jeep’s European sales will grow again in 2017. Jeep sold 9,669 vehicles in Europe in October 2017, a 1,660 unit increase over October 2016 when it sold 8,006 vehicles across the pond.
There is some good news for the company in North America, Chrysler’s sales in the United States were 14% higher in November 2017 than November 2016, The Free Press reported. That increase was driven by the popularity of the Chrysler Pacifica Minivan, sales of that vehicle increased by 51% between 2016 and 2017.
Can Fiat Chrysler Make Money
Jeep and Chrysler’s success demonstrates that Fiat Chrysler has a strong future in the auto business but can it make money or survive as an independent company? The latest financial numbers show that the answers to those questions are yes and yes.
Fiat Chrysler reported an income of $3.454 billion on September 30, 2017. That was nearly double the $1.815 billion reported in September 2016. Chrysler’s net income is growing dramatically which indicates all those Jeep sales are paying off.
Value investors will wonder if that income is translating into cash. The answer is sort of, Fiat Chrysler reported a free cash flow of just $13.16 million on 30 September 2017. That was a vast improvement over the -$1.3 billion free cash flow reported a year earlier. Fiat Chrysler has greatly improved its financial numbers in the last year.
Fiat Chrysler also reported cash and short-term investments of $14.54 billion on September 30, 2017. That was good, but down significantly from the $19.75 billion reported a year earlier in September 2016.
More importantly, Fiat Chrysler is generating far more cash. It reported a cash from operations number of $13.28 billion on September 30, 2017. That was up from $10.90 billion in September 2016. There were also some worrying cash numbers at Fiat including a -$7.42 billion cash from financing figure, which indicates the company is borrowing heavily and unable to monetize car loans.
Is Fiat Chrysler a Value Investment?
Fiat Chrysler has improved its cash and income but is it a value investment? I would say the answer is yes because of its low price.
Fiat Chrysler had an $18.44 share price on December 21, 2017, yet it reported revenues of $123.37 billion on September 30, 2017. Those revenues were also growing they were up from $122.96 billion in September 2016.
There are also a lot of assets at Fiat Chrysler, $114.07 billion on September 30, 2017. That gave the company an enterprise value of $43.31 billion on December 21, 2017, yet it had a market cap of $35.88 billion on the same day.
Finally, shareholders did receive a 16.07% return on equity on September 30, 2017. Not bad for a company that a lot of people have written off. Even with no dividend, the last one was 1.1¢ paid on January 4, 2016, Fiat Chrysler is a value buy.
Fiat Chrysler’s Bright Future
What I like most about Fiat Chrysler are its prospects for growth which are good. FCAU has some very strong auto brands including Jeep, Ram Trucks, Dodge, Maserati, Alpha Romero, and Fiat.
Alpha Romero’s sales increased by 28% in the United States in November 2017, The Free Press reported. That’s impressive for a brand that was just reintroduced to the United States.
There are also some popular models including the Ram Promaster, Pacifica, and Grand Caravan vans, the various Jeep SUVs, and the Ram trucks. The vans, in particular, have a bright future; because Alphabet’s Waymo has tapped them for use as self-driving vehicles. Self-driving Pacificas might be in demand for ridesharing or rental vehicles.
The Alphabet (NASDAQ: GOOG) alliance is vital to Chrysler’s future, because it provides access to autonomous vehicle technology, data, and expertise, without a lot of risks. Another alliance that Fiat Chrysler should seriously consider is one with Tesla Motors (NASDAQ: TSLA) which has vast amounts of expertise in electric and autonomous vehicle technology.
Since Tesla will need production facilities, and FCAU may have them to spare it might be a natural fit. Another resource Fiat Chrysler can provide Tesla is access to its dealership network in North America. Tesla is hampered in expansion by a lack of dealers.
Chrysler is Poised for Growth with Electric Jeep
A long-term potential moneymaker is an electric powered Maserati which would give Fiat Chrysler the technical expertise to create an electric Jeep SUV. Such an SUV is vital to Fiat’s future because the People’s Republic of China; the world’s largest car market, is planning to scrap gas and diesel powered vehicles this century.
Jeep is planning to bring out a plug-in hybrid version of its iconic Wrangler in 2020, The Free Press reported. The Wrangler is the basic four-wheel-drive Jeep modeled on the iconic off-road vehicle that served America’s military in three wars.
One purpose for an electric Wrangler might be sales to the military and government agencies such as the U.S. Forest Service. A potentially huge customer for the Wrangler would be China’s People’s Liberation Army (PLA) which is expanding its global reach.
Fiat Chrysler is definitely a value investment in automobiles and it is poised for growth. Those with a high tolerance for risk should consider adding FCAU to their portfolios.