Tuesday, March 10, 2020

FCA'S 'REAL' VALUE by John Crawford

Okay, so the Groupe PSA-FCA merger is happening, which must be a huge relief to FIAT CHRYSLER AUTOMOBILES, because the company is in deep trouble on both sides of the Atlantic.

Recently, whilst writing about the Jeep Wrangler I mentioned the fact that FCA is struggling with a cash problem, and that it’s only ‘value’ to the French company is FCA’s HQ building and its dealers’ forecourts – which could facilitate an easy option for Groupe PSA to once again attempt to sell its vehicles in the USA.

However, this rather broad statement needs some greater definition and a little history lesson. First of all, I omitted to mention FCA’s only cash producer – its RAM truck division.

Like all of the American carmakers, FCA’s trucks are making money, and these are also valuable to PSA, which produces commercial vehicles (vans), but not trucks.

And, here’s where the history lesson comes in. About a year before FCA Chairman Sergio Marchionne passed away, he and his successor, Mike Manley, were struggling with solutions for the survival of FCA. Marchionne had invested USD$5 billion in Alfa Romeo; greenlighted the Maserati Alfieri, and pumped more money into trying to keep FIAT alive.

None of this was helping the FCA balance sheet, and if FCA could not find a partner to help it move into EVs and autonomous vehicles, then serious decisions had to be made, like offloading the only vehicles making any money – Jeep and RAM trucks. This decision also presumed someone would come along and scoop up Alfa Romeo and Maserati.

Around about this point in time, FCA was struggling with net debt of around USD$6 billion, and servicing that debt was fast becoming a serious issue. Thankfully, Jeep and RAM were still bringing in the dollars, and thanks to a ‘fast start’ provided by the new Alfa Romeo Giulia and Stelvio, the Italian marque was generating more cash than previously. Maserati has always been cash positive, but barely. Certainly not sufficient to pay down the massive debt.

By the time Marchionne passed away, his successor, Mike Manley, announced that FCA had climbed out from under its debt load, so the need to sell Jeep and RAM to raise money was off the table.

When Marchionne literally harassed GM to ‘partner’ with it, his efforts were publicly and vocally rebuffed by GM Chair, Mary Barra.

It became embarrassing to continue to report Marchionne’s desperate appeals for ‘someone – anyone’ to partner with FCA. Which is why the Groupe PSA ‘takeover’ solves FCA’s biggest issues, and that is the massive cost of getting into EVs and autonomous vehicles. FCA has NO plans, concepts or ideas in the pipeline.

However, despite FCA's profit improvement for 2019 (generated almost entirely by the RAM truck division), as I have predicted on a number of occasions, don’t expect FIAT CHRYSLER to be around for long in its current form.

Carlos Tavares, Groupe PSA’s Chairman, is a very smart operator. He will strip whatever value he can out of FCA, which probably means a lifeline for Jeep, and an ongoing commitment to RAM, but I forecast that you will see most of FCA’s other US-produced vehicles bite the dust.

Chrysler's ONLY passenger car in North America, the 300C, is going downhill fast. Remember, it was launched in 2004 and is now a very old vehicle, built on a version of the 2002 W211 Mercedes-Benz E-class platform.

New FIATS will follow the same route as new Vauxhalls and Opels – meaning, they will be built on PSA platforms, and badged appropriately.

FIAT is an Italian icon, and PSA would not be so foolish as to mess with the bad PR it would catch by dumping the 220-year-old symbol of the Italian automobile industry.

Plus, FIATs that are produced more cost-effectively on PSA platforms would find a ready market among Italians with a romantic attachment to the iconic Italian brand.

This asset-stripping by PSA won’t get any pushback from FCA’s current boss, Mike Manley, because, as I reported over the weekend, he looks like taking over as Chairman of Jaguar Land Rover, when Dr. Sir Ralph Speth steps down mid-year.

Which brings me to a point I have been making for a number of years, but is becoming more obvious as the years roll on. The future of carmakers will be wrapped up in more mega mergers, takeovers and shutdowns as the industry consolidates into just a few mega-makers, running collections of brands – much as Volkswagen has been doing for decades.

I believe the COVID19-inspired shutdown of Chinese industries may slow its stealthy commandeering of the world’s car market, and also, I think, many companies which have invested vast sums of money to make their cars more cheaply thanks to Chinese JVs, will get their fingers burned, but China will recover and with it its auto industry.

Also keep in mind the Chinese concept of a ‘Joint Venture’ is that the Chinese partner owns 51% of the JV.

See, life is what happens, when you're making plans.

1 comment:

  1. John, I'm interested on your take on the news that Honda is considering exiting Australia, or appointing an importer and/or reducing dealerships. No great surprise, I suspect, and likely being considered by many other brands . . .