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Marchionne/FCA shows the way for FORD (and others) in europe, usa etc

Discussion in 'Fiat Global News' started by prabhjot, Feb 4, 2016.

  1. prabhjot

    prabhjot Esperto

    delhi ncr

    FORD, which narrowly avoided bankruptcy in 2008, and has only this last quarter turned a profit in Europe after decades of financial blues there, is ONLY now implementing the Marchionne lesson, that he's been implementing not just in Italy but in the US market too, and especially relative to his brand-identity/pull-first, product-second strategy, one that insists on NOT ever doing anything that leads to negative or too-low-to-cover-cost-of-capital margins, or that sprawls often-uselessly across segments and across the world (like GM, Ford, Nissan, VW) or that is afraid to take seemingly pessimistic but in fact careful-betting calls to (a) not make certain models (b) not cover certain countries and segments (c) to export-import from low-cost centres (d) to stay ultra ultra flexible on product plans, feeling free to delay or cancel (as he did with the Jeep launch in India or the delay in all-new Fiat models to replace the Punto and Linea etc SO that long-term STRUCTURAL costs don't embed themselves in the company, all the while maintaining a razor-sharp focus on brand identity-building and strengthening (for which FCA is justly famous as the auto industry's very best and biggest, in the usa).

    The new lessons from Marchionne will taken a while to sink in i.e., when the global economy is in fuller-crisis than today, i.e., soon.

    i.e., Merge/consolidate and/or share platforms and powertrains even with competitors.

    Feel free to even 'outsource' the manufacture of certain models (as he has said he is about to do for the dodge dart and the chrysler 200). Build yourself only what you have a comparative advantage in.

    Do NOT waste resources on duplication of electrification, hybridization and autonomous-driving etc technology: share, or buy from suppliers.

    PS: It is NO coincidence that in Jan 2016, FCA is still growing sales and marketshare and profit margins fast in the usa, as well as europe, while most/all other firms are already in slowdown/discounting, dipping-profit-margins etc mode: from Ford to Toyota to Hyundai-Kia to Honda to Renault-Nissan to, of course, even VW.

    FCA is only the 6/7th biggest autofirm by global sales, but its record since the merger suggests that it is THE best lead and managed car company around, precisely because that status has been achieved despite all odds (american bankruptcy in 2008, deep deep european esp italian recession till 2014, current deep deep recession in Brazil+Argentina, massive financial and regulatory-legal and technological-disruption+cost pressures.)
    bharath, Amit Rox and gpunto75 like this.
  2. prabhjot

    prabhjot Esperto

    delhi ncr
    Marchionne shows the way again in the USA too, esp for Ford (and others). Ford just announced a big drop in their USA margins and much higher incentive-spending (discounting), and a pessimistic outlook going forward.

    Why? Because they have high-cost capacity in the USA tied up in car manufacturing, while the market is moving fast and wholesale towards CUV/SUV-s. FCA has already stopped all manufacture of any cars in the USA market, in favour of deploying that capacity for the new 2017-18 Wrangler family, new Ram pickup (2018), new Jeep Grand Wagoneer (above an all-new in 2018 Grand Cherokee). FCA margins in the USA are still rising (now 7.9%, net), and M just promised to hit net-margins of 12 odd% by early-2018, just 1 1/2 years from now.

    FCA's net profitability is up, and FCA has raised its guidance for the year (globally): net profits of more than 2 billion$, net debt of less than 5 billion$ (now at 5.4 billion$ or so) by the end of 2017.

    Meanwhile Brexit means a big financial hit for Ford (and GM-Opel-Vauxhall) and the Germans too: its that big a market for them. Ford and GM lose money in Brazil+Latam too, while FCA's profitable there despite the recession prevalent in esp Brazil. Ford has huge but barely profitable sales in china, and they're saying their margins are crimping there further due to stiff competition, while FCA is only just beginning its boom-phase of sales, given the localized manufacture of the Jeep Cherokee, the renegade and the coming-soon c-SUV/new Compass+large sales of high-margin Maserati-s.

    FCA Europe now has positive net-margins in Europe of 2.5% and M said at the Q2 2016 analyst conference call that FCA's European net-margins will see good expansion given that the high-margin/high-priced new Alfa Giulia and Maserati Levante+new Quattroporte are not at full roll-out yet but are seeing very strong demand/orders.

    The problem for FCA, though, is that the Italian and euro market as a whole seems to be losing its post-recession rebound steam, due to brexit, and all the other recent European political-economic woes. But here too, unless there is a full-scale collapse of the euro currency-zone, FCA has in the Tipo triplets: great-value, slowdown warriors, AND are only in phase 1, the beginning of their premium+luxury model/segments offerings-attack (Maseratis, Alfa-s, to accompany the already good-selling Jeeps). The latter are all conquest sales from the Germans and JLR, and will assuredly see good buoyancy regardless of recession (as seen in the great recession of 2008-13.)

    Neither Ford nor Peugeot-Citroen, nor Nissan-Renault nor GM-Opel have any premium/sports/luxury segments sales-capability in Europe or elsewhere and the VW group is in margins/profitability crisis there, too, due to diesel gate--->severe unabated loss of market share+pricing-power.

    NET-NET: FCA under Marchionne is counter-cyclically growing both sales (#4 in the USA, #4 in Europe, all brands) and profitability across world-market-regions, while most others have peaked/maxed-out and/or have severe imbalances financially (big losses or financial slumps in some regions and/or segments: gm, ford, Renault-Nissan, Mazda, Honda, Hyundai-KIA in China+USA, VW in USA+Europe)

    Marchionne is using the current period of ultra low cost debt financing, and FCA's fast improving corporate bond-ratings, to fund a slew of new models (Europe, china, N America, Latam) and retooled plants in varied segments with a special focus on high-margin premium/luxury/sports segments (Jeep, Alfa, Maserati, the 500X, the 124 spider), even as net debt is reduced to (he reiterated just a few days ago to investors) zero or better by early 2018.

    IMO, he will then seek another BIG merger for a financially strong and healthy-enough FCA with?? Who knows, but there is an increasing number of auto firms big and small in the financial wars right now and in this very period of improving FCA financial-health through 2018-2020.

    Marchionne says he will retire in 2019.

    The threat is from IMO politics and its myriad dysfunctions in the USA, the UK and Italy+the EU (brexit, 'Quititaly'?, a Donald trump victory) and in a potential sudden or gradual crisis in china too. BUT that will only make it easier for M and John Elkann to achieve the last BIG merger with all-too willing partner(s) they feel is necessary for the long-term well-being of FCA and the rest of the car industry too ('consolidation')??

    Mod Note: Poor punctuation makes reading difficult and do not type like this ...... Any more such posts will not be edited. It will be deleted. Thanks
    Last edited by a moderator: Aug 2, 2016
    jackharrisw and Anup like this.
  3. prabhjot

    prabhjot Esperto

    delhi ncr

    This article is based on the analysis of Adam Jonas of Morgan Stanley, a veteran and star analyst, who is a big 'bull' and supporter of Marchionne and fca, including of his fundamental idea enunciated in the famous 2015 'Confessions of a Capital Junkie' that auto companies like GM and most others have dismal r-on-capital/investment relative to almost ANY industry, manufacturing or services.

    It is also inspired by the awesome financial engineering achieved by spinning off Ferrari: creamy ipo valuations, offloading fca debt onto ferrari, then backing it up with large profitability and share price increases in BOTH fca-minus-ferrari AND in Ferrari itself, which incredibly has a stock price higher than at its creamy listing.

    This is the first of many very-likely-to-increase pressures on the likes of GM and Ford to do stuff along the lines of Marchionne's reccomendations in order to improve their abysmal returns on invested capital, since profitability pressures will assuredly mount as the usa, china and european car markets slow, and as their large losses in India+latam continue.

    It is of course strongly rumoured with lots of hints from Marchionne himself that he will spinoff Magneti Marelli similarly in order to achieve a de-conglomerization net-valuation improvement for fca. Into either a JV with say an LG or a private equity firm, OR a seperate stock market listing OR both.

    It is also possible that M will seek to seperate out the premium BRANDS from the technology, design and manufacturing of the cars themselves, and thereby list at Ferrari-like high valuations just-the-premium brands (Jeep, AlfaRomeo, Maserati) leaving the high cost and low margin part of the business, namely the actual engineering, design and manufacture of the vehicles as fca. i.e., fca will become like its own contract manufacturer/engineer/designer/R&d, possibly also sharing or selling its say engines etc to other firms, EVEN as much higher than otherwise capital in garnered for just-the-brands and their history/legacy/heritage+large growth+large-further-growth-potential.
    asimpleson likes this.
  4. asimpleson

    asimpleson Esperto

    Linea 1.3
    Missed it earlier. The same posted elsewhere. The pdf attached.

    Sent from my Lenovo K50a40 using Tapatalk
  5. prabhjot

    prabhjot Esperto

    delhi ncr

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