Market Mad House

In individuals, insanity is rare; but in groups, parties, nations and epochs, it is the rule. Friedrich Nietzsche


Will Fiat-Chrysler Make Money?

Fiat Chrysler Automobiles (NYSE: FCAU) CEO Sergio Marchionne is laying out a fascinating vision for the future of his company and the auto industry. That plan makes Fiat-Chrysler an intriguing potential value investment.

Marchionne’s strategy consists of two closely related and careful paradigm shifts. The first is a phased and strategically adoption and rollout of electric vehicle technology on a regional basis.

Unlike Volkswagen, FCAU is not planning a massive shift to electrics. Instead it plans to carefully add 30 electric models on a piecemeal basis, The Detroit News reported. The speed of electric adoption will be dictated by demand and regulation rather than a bold vision. Despite the caution, the plan is bold because Fiat will invest $10.5 billion (€9 billion) in electric models.

Chrysler has Big Plans for Pacifica

The second strategy is forming alliances with companies with expertise in other areas in order to adopt new technology. The best example of this is Fiat-Chrysler’s close alliance with Alphabet’s (NASDAQ: GOOG) self-driving vehicle subsidiary Waymo.

Waymo engineers are working at some Fiat-Chrysler facilities and Waymo is testing autonomous Chrysler Pacifica vans in Arizona. Waymo plans to add 62,000 Pacificas to its fleet this year. Chrysler is examining the possibility of selling vehicles equipped with Waymo technology directly to the public.

2018 Chrysler Pacifica S Appearance Package

The Pacifica is one of the models that Chrysler plans to electrify. Its hybrid model will be slowly upgraded to all electric. That model will serve as the basis for future electrics from Jeep, Ram, Maserati Fiat and presumably Alpha Romero and Dodge.

Electric Fiats, Jeeps and Maserati planned

Fiat plans to phase out diesels in Europe and replace them with electrics. That strategy will be slowly implemented and followed in China.

Maserati will concentrate on the building of battery electric models that will be positioned to compete with Tesla Motors (NASDAQ: TSLA). Maserati is planning exclusive deal with Ferrari NV (NYSE: RACE) to produce hybrid, plug-in hybrid, and full-battery drivetrains and eliminate diesel, the CBC reported.

An electric Jeep will be on the road within five years, Jeep brand Chief Mike Manley said. Around 14 electric Jeep models including four battery electrics are on the drawing board. If all goes as planned, every Jeep model should offer an electric or hybrid model by 2021.

No announcements about electric Ram, Alpha Romero, or Dodge models have been made. Marchionne wants to offer Alpha in 71% of the world’s auto markets and make a big push for the brand in China.

Can Fiat Chrysler Succeed in Europe and China?

That is a necessary move because Fiat-Chrysler’s sales were flat in Europe in May, The Market Realist noted. The company’s sales only grew by 0.2% between May 2017 and May 2018. By contrast FCAU’s sales grew by 11% in the United States in the same period.

That proves Marchionne’s strategy of concentrating on SUV, van, and truck sales in North America is paying off. Fiat-Chrysler’s next big challenge will be to develop a similar successful strategy for Europe and China.

A possible solution is concentrating on the sale of vans and high-end electric sedans in Europe and China. There will be a big market for such vehicles, especially in the taxi and rideshare industries in the years ahead.

Is Chrysler Making Money?

Fiat Chrysler’s electrification plans sound far more realistic than the bold visions coming out of Tesla and Volkswagen. The Italian-American automaker is hedging its bets by keeping gasoline and hybrid options on the table, which is very smart.

More importantly, the company is making money right now. It reported year-to-year revenues of $128.98 billion on 31 March 2018, ycharts revealed. Those revenues contemplated by a net income of $4.519 billion, a free cash flow of $1.219 billion, $12.97 billion and cash and short term investments of $14.93 billion.

The financial numbers show that Marchionne’s plans work. His gradual and realistic approach to the auto business is paying off.

Critically, Marchionne is paying off Fiat-Chrysler’s huge debts. The company’s industrial debt load fell by 45% to $1.6 billion (€1.31 billion) during 1st Quarter 2018, The Detroit News reported.

Fiat Chrysler is a Definite Value Investment

Despite Fiat-Chrysler was still carrying $20.02 billion in long-term debt and $91.14 billion on 31 March 2018, ycharts reported. Most of that debt comes from financing for auto leases and purchases which is a cost of doing business in the auto businesses.

Still the liabilities are easily manageable give Chrysler’s cash flow and revenues. Despite its low stock price, Fiat-Chrysler is a very healthy company and a definite value investment.

The $18.89 Fiat Chrysler was trading at on 29 June 2018 was a definite bargain. This automaker is a good deal given its present success and bright future. The alliance with Waymo owns a vast amount of potential value to Fiat Chrysler.

If you are looking for a value stock in the auto segment to buy and hold for a long time, Fiat-Chrysler would be a good choice. This growing auto company has a very bright future thanks to Sergio Marchionne, hopefully his replacement will keep up the good work.