FCAU - Fiat Chrysler Automobiles

[compounding]

A Devils advocate post: I largely agree with the questions and statements made in the Ferrari article. Montezemolo did a fantastic job running Ferrari, I don't think that performance should be taken for granted. As another article pointed out; when he took over the reigns of Ferrari they were bleeding cash.

 

I agree it seems as though adding another 3k cars wouldn't hurt the brand. What I would object to is saying with certainty that it wouldn't dilute the brand when an incredibly successful guy like Montezemolo was adamant about not doing it. I also realise that this appeal to authority isn't a very convincing argument, but the point is to think about the reasons for the differing opinions of Marchionne and Montezemolo. No small issue if he was ready to fight for it enough to sacrifice a job for a company he clearly loved. Remember also that Ferrari was doing very well with his strategy to limit sales.

 

I understand and agree with the notion that more people are getting rich, in new geographic locations, and that they don't want to wait in line to show off their newfound wealth, but I guess my conviction isn't as high as about this as you other guys.

 

Btw, has anyone found a way to read old financials/annual reports of Ferrari?

 

I think the issue is that it’s possible to optimize the number more.  What you want to maintain, is that even at that upper sphere, not everyone that wants a Ferrari can just go in with enough money and buy one.  As long as you do that, I think you’ll be free to increase sales for a while.  You just have to maintain that hunger and buzz.

 

Sure. Problem is, how do you reach the right number? And if it's so obvious as most in this thread seem to think, why didn't Montezemolo do it?

 

I imagine most are fine with 10k only because Sergio has said it is (and I don't recall him talking about possible brand dilution in realtion to this). Question for all of you who are sure and are talking about optimising cash flows etc: why stop at 10k? Why not make it 12-15k?

 

To be clear, I'm absolutely in awe of what Sergio has done at FCA, just trying to take the discussion further than "Sergio said it's ok." And I think it's probably the right move to increase sales a bit, the article I posted a week or two ago about people buying Ferraris and selling them more expensive in second hand market kind of makes it hard to believe that would be a mistake. But again, Ferrari did very well with old strategy.

 

Also re F1, I don't have any particular insight on that, but wasn't Montezemolo in charge when Schumi won his titles as well?

[Palantir]

^Yep, while I agree with the man-love for Sergio, we must not forget that LCDM has done wonders for Ferrari himself, and his opinion probably shouldn't be dismissed too quickly.

[cemadh]

I do not know if 10,000 is the right number. However, the number of Ferraris produced appears to have lagged behind the growth in wealth and population (especially in India and China). So I think Sergio is on the right track.

 

[fareastwarriors]

Chrysler recalls 230,760 SUVs globally for fuel pump issue

 

 

 

http://www.cnbc.com/id/102021343?trknav=homestack:topnews:10

[Grenville]

Not sure if this has been posted in the past, but I just finished listening to the Fiat Investor day recorded CC. Sergio's remarks at the very end of the recording left me with one word: Wow!

 

Sergio is one of those leaders that don't come along very often.

[fareastwarriors]

Fiat Hopes to Boost Retro 500 Sales With Small SUV

 

Auto Maker Hopes to Get a Boost for 500 Minicar Line With Larger Offering

 

 

http://online.wsj.com/articles/fiats-retro-500-spawns-a-small-suv-1412180680

[merkhet]

http://online.wsj.com/articles/jeep-and-ram-power-strong-monthly-sales-for-chrysler-1412166358

 

Chrysler continues to benefit from SUV and truck demand with Jeep sales up 47% and its Ram brand truck sales up 30%. Overall, it sold 169,890 vehicles last month, up 19% over last year, for its best September in nine years.

 

You know what's fascinating? Sales are consistently up for Chrysler y-o-y and, yet, had you bought Fiat at the beginning of this year, you'd be down a little under 2% for the year.

 

January 2, 2014, FIATY = $9.55

October 1, 2014, FIATY = $9.38

 

http://online.wsj.com/articles/gm-outlines-financial-plans-1412173772

 

Ms. Barra, speaking on Wednesday to investors and analysts in suburban Detroit, said the nation's largest auto maker expects to approach 10% operating margins early next decade and return its slumping European unit to profitability in 2016.

 

I suspect that if GM Europe can return to profitability by 2016, Fiat's divisions can probably get there as well with Marchionne at the helm.

[gokou3]

EU Believes Apple, Fiat Tax Deals Broke Rules

http://online.wsj.com/articles/apples-irish-tax-deal-breached-rules-says-eu-1412064337

(google article title to read full article)

 

What are the implications for Fiat?

[compounding]

http://online.wsj.com/articles/jeep-and-ram-power-strong-monthly-sales-for-chrysler-1412166358

 

Chrysler continues to benefit from SUV and truck demand with Jeep sales up 47% and its Ram brand truck sales up 30%. Overall, it sold 169,890 vehicles last month, up 19% over last year, for its best September in nine years.

 

You know what's fascinating? Sales are consistently up for Chrysler y-o-y and, yet, had you bought Fiat at the beginning of this year, you'd be down a little under 2% for the year.

 

January 2, 2014, FIATY = $9.55

October 1, 2014, FIATY = $9.38

 

http://online.wsj.com/articles/gm-outlines-financial-plans-1412173772

 

Ms. Barra, speaking on Wednesday to investors and analysts in suburban Detroit, said the nation's largest auto maker expects to approach 10% operating margins early next decade and return its slumping European unit to profitability in 2016.

 

I suspect that if GM Europe can return to profitability by 2016, Fiat's divisions can probably get there as well with Marchionne at the helm.

 

Yup. For what it's worth, Chrysler even outsold Toyota in September in the US.

[wbr]

http://online.wsj.com/articles/jeep-and-ram-power-strong-monthly-sales-for-chrysler-1412166358

 

Chrysler continues to benefit from SUV and truck demand with Jeep sales up 47% and its Ram brand truck sales up 30%. Overall, it sold 169,890 vehicles last month, up 19% over last year, for its best September in nine years.

 

You know what's fascinating? Sales are consistently up for Chrysler y-o-y and, yet, had you bought Fiat at the beginning of this year, you'd be down a little under 2% for the year.

 

January 2, 2014, FIATY = $9.55

October 1, 2014, FIATY = $9.38

 

 

 

Some of that is the strong USD. In Milan the stock was 5.95 Euros before the Chrysler news on the first trading day of the year. Now it's 7.45

 

But still, I agree. Those things sometimes make me wonder...when you see a company make so much progress and the market just dismisses it you might start to doubt yourself. Especially since this is not some unknown smallcap story. This is an Italian icon and you would think enough people are looking at it.

[compounding]

EU Believes Apple, Fiat Tax Deals Broke Rules

http://online.wsj.com/articles/apples-irish-tax-deal-breached-rules-says-eu-1412064337

(google article title to read full article)

 

What are the implications for Fiat?

 

http://www.fiatspa.com/en-US/media_center/FiatDocuments/2014/Ottobre/Fiat_remains_confident_of_the_legitimacy_of_the_tax_ruling_process_regarding_Fiat_Finance_and_Trade.pdf

[investor-man]

http://online.wsj.com/articles/jeep-and-ram-power-strong-monthly-sales-for-chrysler-1412166358

 

Chrysler continues to benefit from SUV and truck demand with Jeep sales up 47% and its Ram brand truck sales up 30%. Overall, it sold 169,890 vehicles last month, up 19% over last year, for its best September in nine years.

 

You know what's fascinating? Sales are consistently up for Chrysler y-o-y and, yet, had you bought Fiat at the beginning of this year, you'd be down a little under 2% for the year.

 

January 2, 2014, FIATY = $9.55

October 1, 2014, FIATY = $9.38

 

 

 

Some of that is the strong USD. In Milan the stock was 5.95 Euros before the Chrysler news on the first trading day of the year. Now it's 7.45

 

But still, I agree. Those things sometimes make me wonder...when you see a company make so much progress and the market just dismisses it you might start to doubt yourself. Especially since this is not some unknown smallcap story. This is an Italian icon and you would think enough people are looking at it.

 

However puzzling the price movement has been, at least this news comes right before the listing on the 13h. I hope Fiat is planning a major PR push with some razzle-dazzle on CNBC, WSJ, NYTimes, etc.

[goldfinger]

Awesome article in Business Insider: "Here's How Sergio Marchionne Will Know If The Fiat Chrysler IPO Is A Success"

 

Read more: http://www.businessinsider.com/r-marchionne-upbeat-on-landmark-fiat-chrysler-listing-2014-10#ixzz3F8FEls6J

 

Especially that:

"After heavy investment in 2014-15, Marchionne added, "in 2016 the machine turns and starts spitting out cash." The company projects net income between 1.9 billion and 2.5 billion euros by then, about triple the projected earnings for this year."

 

""I've taken the view that a rational economic agent would not raise capital," he said, while declining to discuss his likely recommendation to an Oct. 29 board meeting.

 

"Doing nothing is an option - we're sitting on 20 billion euros of cash," Marchionne said. Fiat Chrysler has total debt of 32 billion euros."

 

And Finally the best one:

 

"Ferrari is "one of the biggest repositories of value inside Fiat which is yet unexpressed," he said on Friday. "Optionality in all things is worth tons ... whether it be a listing, a trade sale or the continuation of the asset inside FCA."

 

Marchionne said Ferrari should be valued by investors at 7-10 billion euros, roughly the same as the entire group's current 9.2 billion market capitalization. Analysts have put the value closer to half that amount."

 

 

[Picasso]

Does Fiat remind anyone else of SHLD?  Lots of assets with large imbedded debts in a low margin, low ROIC business that typically does not earn its cost of capital, a lot of value investors looking at the break up value, tons of revenue, and a somewhat decent capital allocator?

 

I have this weird spidey sense going on that this is like SHLD 2.0 where you have a long drawn out period where people throw out the value of the pieces but the value is never quite realized by the shareholders.  I have a hard time figuring out why the stock price is that inefficient since there are over 30 analysts plus tons of value investors covering it.

 

 

[LC]

It's a fair point. The main difference I see is in the revenue line. Automakers have a bit of a tailwind behind them (fiat is no exception if we look at Chrysler sales) whereas Sears has no such tailwind. I also think marchionne's plan to increase revenue (more Ferrari, Maserati, jeep in china) is more feasible than shop your way.

[Picasso]

While getting a haircut today, I notice my stylist had a clipper box with the description "Ferrari designed engine." 

 

Here is a link to the product: http://www.babylissus.com/volare/

 

Really, a clipper with a Ferrari engine?  I have to wonder a bit about any potential hit to the brand value of Ferrari to chase down incremental licensing revenue.  Only one data point but it made me think a bit more about the brand value.

 

The stock is cheap on SOTP so I hope no one thinks I believe this means the stock is suddenly expensive.  More of a long-term strategy issue with their most valuable asset.

[investor-man]

Does Fiat remind anyone else of SHLD?  Lots of assets with large imbedded debts in a low margin, low ROIC business that typically does not earn its cost of capital, a lot of value investors looking at the break up value, tons of revenue, and a somewhat decent capital allocator?

 

I have this weird spidey sense going on that this is like SHLD 2.0 where you have a long drawn out period where people throw out the value of the pieces but the value is never quite realized by the shareholders.  I have a hard time figuring out why the stock price is that inefficient since there are over 30 analysts plus tons of value investors covering it.

 

I don't follow SHLD too closely, but my understanding is that there is a ton of hidden value in its real estate and many people think it's more valuable in liquidation than it is in its business activities. I think I read Eddie Lampert is sucking $10 of value out of the shares every year he keeps it running... I don't see the parallel with Fiat. Marchionne has done an amazing job running this company, and every quarter it gets more valuable and it's visible every month when auto sales are released. I don't know if marchionne's five year plan is realistic, but a conservative valuation makes this an easy double.

[goldfinger]

I can't believe SHLD discussions made their way onto here... :o

[phil_Buffett]

http://www1.skysports.com/f1/news/24182/9502110/red-bull-announce-that-sebastian-vettel-is-leaving-at-the-end-of-the-season

 

Christian Horner says World Champion heading to Ferrari in 2015.

 

 

great! Vettel will win big with ferrari

[gurpaul88]

I can't believe SHLD discussions made their way onto here... :o

 

SHLD is everywhere..

[muscleman]

Does Fiat remind anyone else of SHLD?  Lots of assets with large imbedded debts in a low margin, low ROIC business that typically does not earn its cost of capital, a lot of value investors looking at the break up value, tons of revenue, and a somewhat decent capital allocator?

 

I have this weird spidey sense going on that this is like SHLD 2.0 where you have a long drawn out period where people throw out the value of the pieces but the value is never quite realized by the shareholders.  I have a hard time figuring out why the stock price is that inefficient since there are over 30 analysts plus tons of value investors covering it.

 

Are you a SHLD long? I used to be and I felt lucky that I sold out for a profit and escaped.  :)

I've been reading the outsiders book, and I noticed that all of the sharp CEOs made big and effective changes to their company in the first two years when they arrive. What has Eddie done? People are still waiting for his secret plan to unveil after many years. The SOTP value of SHLD keeps dropping year after year, and the same store sales keep dropping every year.

 

FCA is a day and night difference. Jeep sales is 50% more than last year. Maserati sales is 300% of last year.

[compounding]

It's a fair point. The main difference I see is in the revenue line. Automakers have a bit of a tailwind behind them (fiat is no exception if we look at Chrysler sales) whereas Sears has no such tailwind. I also think marchionne's plan to increase revenue (more Ferrari, Maserati, jeep in china) is more feasible than shop your way.

 

I could be wrong, since I don't know the SHLD-case that well, but isn't the main difference that the value creation in FCA isn't based on selling extremely illiquid assets? But instead, as you point out: on normalised earning power aided by a positive macro outlook, good management and price?

[karthikpm]

Any predictions on how FIATY will do once listed this Oct 13th?  Hopefully better than CNHI

[muscleman]

Any predictions on how FIATY will do once listed this Oct 13th?  Hopefully better than CNHI

 

Hard to say. Sergio said he will NOT do a roadshow like other companies.

This reminds me of the outsiders. :)

[merkhet]

Honestly, despite what my post above may have indicated, it's in our interest for the price to remain low enough that he can begin buying back shares in in volume (hopefully in 2016).