FCAU - Fiat Chrysler Automobiles

[Shooter MacGavin]

oh yeah sorry. I meant at end of 2017 -  should be at at around $25 to $30 by then and higher by end of 2018, even without a multiple expansion. (or sale or spinoffs).

[whatdadil9]

Alas, no one will have the NTM numbers right end of this year. our best hope is they take them up 1.00 and we get 5-6.00 that thru year end... nice thing is even with the sellside slow to take up numbers the laws of gravity from valuation drive us higher even when we are anchored to the silly sellside.

[mjs111]

Hello, this is my first post here!  I hope to contribute what I can to the shared knowledge pool here going forward.

 

 

I was curious what the board's thoughts were on Fiat Chrysler's capex.  Looking at the five year period 2012-2016, net capex (capex + acquisitions - divestitures) looks to have been roughly 8.4% of revenues but has been trending slightly down, from a high of 9% in 2012 to a little under 8% in 2016. 

 

This is relatively high to what GM and Ford spend on capex, which is around 5.5% of revenues.  Both GM and Ford (the only other two auto manufacturers I've looked at in depth) also have capex about equal to their depreciation and amortization charges, which is to be expected in their steady state, 2%-ish a year growth.  FCAU on the other hand is growing revenues in the mid-high single digits, at least for now, and while net capex is around 8% of revenues, d&a charges are a little over 5% of revenues. At the moment FCAU's d&a charges haven't caught up with the capex.

 

Fiat Chrysler's capex is expected to be EUR 9 billion in 2017 and EUR 10 billion in 2018, so capex is not looking to ramp down too much in the near term.  I've read that a fair amount of expense over the last few years was due to modernizing Chrysler's US plants as part of the five year plan.  Has Marchionne talked about his plans here past the 2014-2018 five year plan period?

 

At some point I would expect capex to come down as a percentage of revenue and roughly equal depreciation and amortization charges, especially when/if FCAU gets to the size of a GM or Ford, selling around 7 million vehicles a year.

 

 

Mike

[racemize]

They had a lot of catching up to do after the previous management of Chrystler and to ramp up their various high-margin aspirations. My take is that the capex should drop down to more normal levels post 2018. Marchionne hadn't said much about this as that will be the next CEOs problem. I imagine many of us will exit with Marchionne honestly.

[fareastwarriors]

https://www.bloomberg.com/news/articles/2017-07-17/new-u-s-subprime-boom-same-old-sins-auto-defaults-are-soaring

 

New U.S. Subprime Boom, Same Old Sins: Auto Defaults Are Soaring

[Shooter MacGavin]

is FCAU down 2% on this news of California's ZERO emissions standards?

 

https://seekingalpha.com/news/3280360-california-advancing-controversial-rebate-program-electric-cars-tesla-potential-winner

[TwoCitiesCapital]

https://www.fcagroup.com/en-US/media_center/fca_press_release/FiatDocuments/2017/july/FCA_2017_SECOND_QUARTER_RESULTS.pdf

[fareastwarriors]

Fiat Chrysler CEO Learning to Love Electric Vehicles

 

Sergio Marchionne says Maserati sports cars will start having electric-engine powered models after 2019

 

https://www.wsj.com/articles/fiat-chrysler-ceo-learning-to-love-electric-vehicles-1501180035

[fareastwarriors]

Fiat in play?

 

 

https://www.thestreet.com/story/14269769/1/fiat-chrysler-said-to-have-turned-down-buyout-offer-from-chinese-automaker.html

[HJ]

Marchionne has been trying to do some kind of M&A for years now.  Looks like neither GM nor Ford cares.

[fareastwarriors]

Fiat Chrysler joins BMW-Intel self-driving car alliance

 

https://www.reuters.com/article/us-fiat-chrysler-autonomous-idUSKCN1AW0MB

[fareastwarriors]

more deal talk/noise...

 

https://www.bloomberg.com/news/articles/2017-08-21/china-s-great-wall-keen-on-buying-jeep-automotive-news-says

[fareastwarriors]

more deal talk/noise...

 

https://www.bloomberg.com/news/articles/2017-08-21/china-s-great-wall-keen-on-buying-jeep-automotive-news-says

 

 

 

 

Chinese Rival’s Success With Volvo Sets Path for Great Wall’s Pursuit of Jeep

Swedish car maker, which was moribund when Geely bought it in 2010, is now an inspiration to others

https://www.wsj.com/articles/chinese-rivals-success-with-volvo-sets-path-for-great-walls-pursuit-of-jeep-1503412947

[Guest MikeTheCannon]

Got pushed to my phone this morning: https://www.nytimes.com/2017/08/22/business/fiat-chrysler-china.html?_r=0

[TwoCitiesCapital]

Quick technical question -

 

I have a few options positions in FCAU. Some long-deep in the money calls that were purchased at varying points over the past year - some as recently as a 2-3 months ago.

 

I tried rolling these option positions into long-dated LEAPS today with a series of buys/sell on IB. All the trades executed, but the positions didn't pair off against the legacy options as expected. On futher inspection, the legacy position carries a ticker of FCAU6 while the new options carry a ticker of FCAU.

 

Pricing of the two is close - but the FCAU6 has a wider bid/ask with mid-market approaching that of the FCAU options. Was there a special dividend/spin-off or something over the past few months where the options chain would have split that I'm unaware of? Just trying to understand why these positions didn't pair off as expected and why they differ from the options purchased a few months back.

 

Can always call IB, but figured it'd be easier to discuss on the board first before approaching their customer service.

[gokou3]

Quick technical question -

 

I have a few options positions in FCAU. Some long-deep in the money calls that were purchased at varying points over the past year - some as recently as a 2-3 months ago.

 

I tried rolling these option positions into long-dated LEAPS today with a series of buys/sell on IB. All the trades executed, but the positions didn't pair off against the legacy options as expected. On futher inspection, the legacy position carries a ticker of FCAU6 while the new options carry a ticker of FCAU.

 

Pricing of the two is close - but the FCAU6 has a wider bid/ask with mid-market approaching that of the FCAU options. Was there a special dividend/spin-off or something over the past few months where the options chain would have split that I'm unaware of? Just trying to understand why these positions didn't pair off as expected and why they differ from the options purchased a few months back.

 

Can always call IB, but figured it'd be easier to discuss on the board first before approaching their customer service.

 

You can try this:

https://www.theocc.com/webapps/infomemos?query=fcau

 

Attached is what I had for FCAU1 as an example.

160828_OCC_FCAU_option_a.pdf

[TwoCitiesCapital]

Quick technical question -

 

I have a few options positions in FCAU. Some long-deep in the money calls that were purchased at varying points over the past year - some as recently as a 2-3 months ago.

 

I tried rolling these option positions into long-dated LEAPS today with a series of buys/sell on IB. All the trades executed, but the positions didn't pair off against the legacy options as expected. On futher inspection, the legacy position carries a ticker of FCAU6 while the new options carry a ticker of FCAU.

 

Pricing of the two is close - but the FCAU6 has a wider bid/ask with mid-market approaching that of the FCAU options. Was there a special dividend/spin-off or something over the past few months where the options chain would have split that I'm unaware of? Just trying to understand why these positions didn't pair off as expected and why they differ from the options purchased a few months back.

 

Can always call IB, but figured it'd be easier to discuss on the board first before approaching their customer service.

 

You can try this:

https://www.theocc.com/webapps/infomemos?query=fcau

 

Attached is what I had for FCAU1 as an example.

 

Thanks! Can't find FCAU6 on that site, but looks like all alterations were due to cash distributions expected from the sale of GEDI that went effective on 7/2/17. Hadn't realized that the proceeds of that sale were going to be transmitted directly to shareholders on a pro-rata basis which would impact the options chain...

 

Now I've got to figure out what to do with varying offsetting, but not really, options positions. Thanks!

[flesh]

For those who know FCAU well,

 

It occurred to me today, that there were a number of times over the last three years to buy FCAU at absurd prices, I understand the thesis hasn't totally played out yet. I've never owned a share, evidently, many successful value investors missed this one afaik. I'm aware there's various biases working here.

 

I'm looking to learn from this mistake. I'm curious and intrigued that myself as well as many successful value funds missed this one. I'd like to know why I could be so silly to miss this, considering I read half this thread over the last few years combined with other write ups, and at absurd prices as recently as last winter at 6/share. To my recollection, this had most of the hallmarks of what I look for.

 

How do I go back in time and reconcile this mistake?

 

Anyone interested in taking a stab at this? What exactly was it that shut down so

many from something that at certain prices had nearly asymmetric risk with potentially

massive upside?

 

On a slightly different note, is anyone aware of any great write ups on fcau from 2 plus years ago that laid out the thesis best? Maybe that will shed some light.

 

 

 

 

 

 

 

 

 

 

[Parsad]

For those who know FCAU well,

 

It occurred to me today, that there were a number of times over the last three years to buy FCAU at absurd prices, I understand the thesis hasn't totally played out yet. I've never owned a share, evidently, many successful value investors missed this one afaik. I'm aware there's various biases working here.

 

I'm looking to learn from this mistake. I'm curious and intrigued that myself as well as many successful value funds missed this one. I'd like to know why I could be so silly to miss this, considering I read half this thread over the last few years combined with other write ups, and at absurd prices as recently as last winter at 6/share. To my recollection, this had most of the hallmarks of what I look for.

 

How do I go back in time and reconcile this mistake?

 

Anyone interested in taking a stab at this? What exactly was it that shut down so

many from something that at certain prices had nearly asymmetric risk with potentially

massive upside?

 

On a slightly different note, is anyone aware of any great write ups on fcau from 2 plus years ago that laid out the thesis best? Maybe that will shed some light.

 

For me, I didn't get it early on simply because I believe I had a natural bias against commodity businesses with strong union lobbies and pension plans...automobiles, airlines, pseudo-government entities, etc.  So the auto industry was a very poor business for 50 years, and would remain so...not true!  Everything at the right valuation starts to become intriguing.  So because of my bias, I missed the early days of the Ferrari spin-off, etc.

 

By the time I understood, which was mid-2016, it was still cheap and we bought a fair amount.  Up 115% since!  Surprisingly, it's still not expensive...not close to fair value yet.  So to those that understood the business before the Ferrari spin-off, kudos!  You guys must be up 300%+ since then.  Cheers!

[mhdousa]

For those who know FCAU well,

 

It occurred to me today, that there were a number of times over the last three years to buy FCAU at absurd prices, I understand the thesis hasn't totally played out yet. I've never owned a share, evidently, many successful value investors missed this one afaik. I'm aware there's various biases working here.

 

I'm looking to learn from this mistake. I'm curious and intrigued that myself as well as many successful value funds missed this one. I'd like to know why I could be so silly to miss this, considering I read half this thread over the last few years combined with other write ups, and at absurd prices as recently as last winter at 6/share. To my recollection, this had most of the hallmarks of what I look for.

 

How do I go back in time and reconcile this mistake?

 

Anyone interested in taking a stab at this? What exactly was it that shut down so

many from something that at certain prices had nearly asymmetric risk with potentially

massive upside?

 

On a slightly different note, is anyone aware of any great write ups on fcau from 2 plus years ago that laid out the thesis best? Maybe that will shed some light.

https://dl.dropboxusercontent.com/u/65789707/ADW%20Capital%20Management%20Fiat_Ferrari%20Investment.pdf

 

 

[LongTermView]

I'm looking to learn from this mistake. I'm curious and intrigued that myself as well as many successful value funds missed this one. I'd like to know why I could be so silly to miss this, considering I read half this thread over the last few years combined with other write ups, and at absurd prices as recently as last winter at 6/share. To my recollection, this had most of the hallmarks of what I look for.

 

How do I go back in time and reconcile this mistake?

 

I have mixed feelings on this. Like many things in life and investing, it is a balancing act where we want to stay within our circle of competence but at the same time be aware of special situations and changes in industries that can widen our circle.

 

I missed this one as well and it's not the end of the world. Charlie Munger has noted several times that the automobile business is tough.

 

If we nail every single home run investment idea then we might be swinging at too many pitches. It kind of reminds me of the inverse situation with no limit poker. Great players accept the fact that they will be bluffed from time to time. The saying goes that if you're never bluffed then you're calling too often.

 

[LC]

Good brands in a shitty business, very cheap relative value. In that FCAU perceived value (car brand -wise) was equal to other automakers, but the price was 1/2 to 1/3 cheaper. Jeep alone was evidence of that. Bought at 5? 6? Sold at 13. Happy to be out but will miss Sergio.

 

My real mistake was selling RACE.

[TwoCitiesCapital]

For those who know FCAU well,

 

It occurred to me today, that there were a number of times over the last three years to buy FCAU at absurd prices, I understand the thesis hasn't totally played out yet. I've never owned a share, evidently, many successful value investors missed this one afaik. I'm aware there's various biases working here.

 

I'm looking to learn from this mistake. I'm curious and intrigued that myself as well as many successful value funds missed this one. I'd like to know why I could be so silly to miss this, considering I read half this thread over the last few years combined with other write ups, and at absurd prices as recently as last winter at 6/share. To my recollection, this had most of the hallmarks of what I look for.

 

How do I go back in time and reconcile this mistake?

 

Anyone interested in taking a stab at this? What exactly was it that shut down so

many from something that at certain prices had nearly asymmetric risk with potentially

massive upside?

 

On a slightly different note, is anyone aware of any great write ups on fcau from 2 plus years ago that laid out the thesis best? Maybe that will shed some light.

 

I think a lot of people thought about it too much and let their negative views of the auto industry and "peak-auto" color the perspective. At the right price, anything can be a good investment even if you believe it has a bleak outlook in a bad industry.

 

Really, the two thesis that have kept me going over the past 3-4 years that I have owned this were:

 

1) Ferrari is worth more than the entire market cap of the company (2012 - 2014) and

2) Margins and balance sheet are improving but the price isn't reflecting the improvements (2014 - present)

 

Realistcally, this could probably double again before the trade has worked its way through.

 

Good brands in a shitty business, very cheap relative value. In that FCAU perceived value (car brand -wise) was equal to other automakers, but the price was 1/2 to 1/3 cheaper. Jeep alone was evidence of that. Bought at 5? 6? Sold at 13. Happy to be out but will miss Sergio.

 

My real mistake was selling RACE.

 

Right? I sold RACE post spin-off to buy more Fiat - that has been a mistake so far even with Fiat's stellar performance.

[gurpaul88]

Same mistake of selling RACE

[racemize]

I think it is worth noting a couple of things:

 

1) This thing was heavily levered almost all the time. While I'm a huge fan of Sergio and the SotP analysis, the market/economy/car cycle did cooperate very nicely and didn't have to.

 

2) I think Race came out close to the big downturn last year, so yes selling it out didn't work great, but a lot of us were buying a lot cheaper stuff (JPM warrants and other distress) with the proceeds.