FCAU - Fiat Chrysler Automobiles

[skanjete]

I started by reverse engineering why some value investors bought GM.

The "clic" about FCA came by first reading "once upon a car" in which Sergio was depicted as being the smartest guy in the car world.

Following that, I got confirmation by reading "Mondo Agnelli".

 

So the main (and now only) reason for investing in FCA to me is Sergio. One can argue that GM was/is cheap, but it has been for years. Whereas the value of the Agnelli Fiat investment has been multiplied by something like 12x since Sergio started in 2004, and that through one of the worst environments possible. In a sence, FCA can be considered as a gigantic work-out situation, on and off since the tenure of Sergio. It's clear that Elkann wants to exit the car business, so I fully expect them to create a liquidity event in the coming 18 months. Knowing Sergio, it could be profitable for shareholders...

 

PS. Sergio plans to quit FCA in 2019, but he's already vice chairman at Exor. So it could be interesting to keep an eye on Exor as well.

[investmd]

The attached explanation is from Mohnish Pabrai from one year ago -given Sept 2016 at  his Annual Meeting - He bought Fiat in 2012 and waited.

 

There are several other publications/inteviews of his thesis. Here's one: https://www.benzinga.com/general/hedge-funds/17/03/9114261/why-this-buffett-disciple-put-more-than-half-his-portfolio-in-stoc

 

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.

 

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.

Sept2016-Pabrai_Fiat_Thesis.pdf

[flesh]

Wow, I really wasn't expecting much of a response, must have struck a nerve with

some. I appreciate all the suggestions. I'll be reading all the write ups provided. Also,

having read some of your responses regarding what held some back, 100% of them applied to me. It's so difficult not to take the blinders off sometimes and to come into every idea investing or not with an open yet critical mind.

 

Thanks.

[fareastwarriors]

Fiat Chrysler Is a Clunker No More

 

https://www.bloomberg.com/gadfly/articles/2017-08-28/fiat-chrysler-is-a-clunker-no-more

[TwoCitiesCapital]

http://www.zerohedge.com/news/2017-08-29/hurricane-harvey-likely-destroy-more-cars-katrina-bad-real-bad

 

It's zerohedge, so take it with a grain of salt, but...bullish for the auto-industry.

 

When purchasing insurance, most open-lot dealerships are required to insure 100% of the inventory by insurance companies. The 1-1.5M vehicles that we can expect to lose in this storm, many from dealerships, will likely be insured at the expense of the insurance companies and will require another 1-1.5M cars to removed from current inventory levels with relatively inelastic demand.

 

This tragedy is bullish for auto manufacturers.

[fareastwarriors]

Alfa Romeo Has Finally Arrived in America

 

With a swanky new sedan and SUV, the long dormant Italian brand is gunning for a record year in the states

 

 

https://www.bloomberg.com/news/articles/2017-09-05/alfa-romeo-has-finally-arrived-in-america

[fareastwarriors]

Fiat Chrysler Takes the Jeff Bezos Approach

 

https://www.bloomberg.com/gadfly/articles/2017-09-14/what-do-amazon-and-fiat-have-in-common-slow-payers-gadfly

[jrallen81]

I've owned GM since the bankruptcy reorg and have certainly far underperformed FCAU. What do you all think they are failing to do that Fiat has done?

[racemize]

I've owned GM since the bankruptcy reorg and have certainly far underperformed FCAU. What do you all think they are failing to do that Fiat has done?

 

Fiat traded way below fair value after execution. GM was already executing but also failed to do anything that unlocked value honestly. I think they listen to institutions too much, and never reaped any benefits from doing so, while Sergio just made the value come out.

[Shooter MacGavin]

 

 

 

 

on GM-

They are paying a dividend that increased every year until recently - why a cyclical company wanted to reinitiate a dividend is beyond me.  Hoard $20B of cash to be able to fund the dividend under all circumstances thereby hampering a buyback.  Paying into the legacy liabilities every year with FCF and barely making a dent thereby hampering a buyback.  Paying ignition switch liabilities.  Paying a settlement for making the stock go down due to the ignition switch liabilities (paying off one group of formers shareholders with current shareholders money?). Doing stupid acquisitions with cruise automation and Lyft.  Why GM needs to own the cash sinkhole of Lyft is beyond me.  Funding Opel for way longer than needed before finally selling it.  They shrank their stock 7% in 5 years when their shares were trading at 5-6x.  They could have bought the entire company by now if they repurchased shares.  GM's earnings quality is horrible.  When they say they are earning $6.50, you can bet that's not a clean $6.50, since $6.50 is not really available for capital allocation.  They don't even tell you the sharecount when they guide.  It's a joke.  When Mary Barra gets all these accolades from the press, I scratch my head. She may know cars, but she is terrible at finance. Tim Solso, who I was hoping would be the adult in the room, gave his chairmanship to Mary and then created a random title for himself.

 

FCAU on the other hand is a bit of a levered equity.  They didn't shrink the sharecount, but did some great financial engineering with their spin off of RACE.  Sergio feels pain when capital is sitting around doing nothing. FCAU's capex investments paid off handsomely by locally producing Jeep in South America and China and increasing capacity in North America.  They have shown you that they know how to grow the earnings and unlock the value of really good assets.  The stock responds to the sum-of-parts theses put forth by the sell side because the market has a reason to believe they will do what it takes to surface the value in the share price. 

 

And if the market still puts a 4x on earnings in 2018/19 on whatever stub is left, you can bet FCAU will spend every dollar to buyback stock.

[cubsfan]

I've owned GM since the bankruptcy reorg and have certainly far underperformed FCAU. What do you all think they are failing to do that Fiat has done?

 

One of my very smart friends offered this opinion: The Elkann Family has a goal to exit FCAU, has the right CEO driving the process that totally aligns with shareholders (of which the Elkann Family is the largest).  GM on the other hand, still has no such alignment, and little inside ownership, and the CEO is having difficulty changing the culture quickly and driving the process.

This makes sense to me. It comes down to incentives and shareholder alignment.

 

For what it's worth.

[JRM]

Shooter, you forgot to mention Maven.  Unless you feel differently about that acquisition.

 

Both GM and FCAU slipped and fell into the best truck/SUV buying frenzy maybe ever.  Combine cash for clunkers, low interest rates, and cheap gas; so much demand has been pulled forward for high margin trucks and SUVs.  I think GM is patting themselves on the back for great execution, but they just happened to be in the right spot at the right time.  Ford invested in the aluminum truck, which may have actually hurt them vs GM and FCAU due to the high cap ex and higher priced truck.

 

Its appalling to me that GMs share count hasn't been reduced further even with its stated buybacks.  Management stock options are rampant.

 

I passed on FCAU because their products are garbage quality when compared to GM or Ford, much less the foreign automakers.  I can't own a company whose products I don't believe in.  My loss.

[rohitc99]

Shooter, you forgot to mention Maven.  Unless you feel differently about that acquisition.

 

Both GM and FCAU slipped and fell into the best truck/SUV buying frenzy maybe ever.  Combine cash for clunkers, low interest rates, and cheap gas; so much demand has been pulled forward for high margin trucks and SUVs.  I think GM is patting themselves on the back for great execution, but they just happened to be in the right spot at the right time.  Ford invested in the aluminum truck, which may have actually hurt them vs GM and FCAU due to the high cap ex and higher priced truck.

 

Its appalling to me that GMs share count hasn't been reduced further even with its stated buybacks.  Management stock options are rampant.

 

I passed on FCAU because their products are garbage quality when compared to GM or Ford, much less the foreign automakers.  I can't own a company whose products I don't believe in.  My loss.

 

To be fair, its partly luck but FCAU also took what they got and ran well with it. In early 2016, when the trend towards trucks and SUV was clear, FCAU was one of the first companies to re-align their capacity towards these vehicles. they took some charges on it and the stock was punished for it. analysts continued to focus on volume drop in some of the sedan segments even as the company was re-adjusting its NA capacity to the high margin products.

 

i think marchionne was dealt a crappy hand and he has played the best a CEO can play under the circumstances. For all these years, the company has continued to hits targets and everyone has just refused to believe the numbers ..till ofcourse they cannot ignore it.

 

at various points the company was priced as if bankruptcy was round the corner and EV/ self driving cars would take over the world in 1-2 years. I guess it will take a little bit longer than that for the company to dissapear

 

[Sergio8]

I've owned GM since the bankruptcy reorg and have certainly far underperformed FCAU. What do you all think they are failing to do that Fiat has done?

 

Maybe GM should capitalize their R&D costs and inflate earnings (as done by FCAU)? That would lower their PE ratio even more and make it more comparable to FCAU.

[JRM]

I know this is a thread about FCAU, but I guess this is still loosely related.

 

I feel like GM should spin off its Maven, Cruise, and Lyft "businesses".  The market is loving these pie-in-the sky startup-like companies and awarding ridiculous multiples. Meanwhile these "growth" parts of GM are punished with the same low multiple as the rest of GM.  In the spirit of Fiat, maybe GM should spin these off so that they can be better capitalized and have a fighting chance against over-capitalized competitors.  To me this is much more simplistic and easy for the market to digest than what Einhorn proposed or any type of preferred shares.

[Shooter MacGavin]

Shooter, you forgot to mention Maven.  Unless you feel differently about that acquisition.

 

Both GM and FCAU slipped and fell into the best truck/SUV buying frenzy maybe ever.  Combine cash for clunkers, low interest rates, and cheap gas; so much demand has been pulled forward for high margin trucks and SUVs.  I think GM is patting themselves on the back for great execution, but they just happened to be in the right spot at the right time.  Ford invested in the aluminum truck, which may have actually hurt them vs GM and FCAU due to the high cap ex and higher priced truck.

 

Its appalling to me that GMs share count hasn't been reduced further even with its stated buybacks.  Management stock options are rampant.

 

I passed on FCAU because their products are garbage quality when compared to GM or Ford, much less the foreign automakers.  I can't own a company whose products I don't believe in.  My loss.

 

To be fair, its partly luck but FCAU also took what they got and ran well with it. In early 2016, when the trend towards trucks and SUV was clear, FCAU was one of the first companies to re-align their capacity towards these vehicles. they took some charges on it and the stock was punished for it. analysts continued to focus on volume drop in some of the sedan segments even as the company was re-adjusting its NA capacity to the high margin products.

 

i think marchionne was dealt a crappy hand and he has played the best a CEO can play under the circumstances. For all these years, the company has continued to hits targets and everyone has just refused to believe the numbers ..till ofcourse they cannot ignore it.

 

at various points the company was priced as if bankruptcy was round the corner and EV/ self driving cars would take over the world in 1-2 years. I guess it will take a little bit longer than that for the company to dissapear

 

I think the SUV trend was good luck, but also rapid adaptation.  Trucks on the other hand were actually part of my thesis for owning GM/GM.WTB from as early as 2013.  In fact, I posted that a few times on the GM board.  Trucks are correlated with housing starts.  And housing starts have been slowly normalizing driving the growth in trucks.  I think the detroit three benefitted immensely from this.  Mark Reuss at GM had the foresight to introduce a mid sized truck that seems to be doing a good job not cannabalizing their larger trucks. 

 

I think GM executed well because of Mark Reuss and Dan Akerson, not Mary Barra.  I want to cheer on Mary, but the truth is she's not great.

[fareastwarriors]

Jaguar Land Rover Is Looking to Buy a Luxury Brand

https://www.bloomberg.com/news/articles/2017-09-25/jaguar-land-rover-is-said-to-scout-for-luxury-brand-acquisitions

[nikhil25]

Fiat Family Value Overtakes Tesla, GM on Marchionne Overhaul

https://www.bloomberg.com/news/articles/2017-09-28/fiat-family-value-surges-past-tesla-gm-on-marchionne-s-overhaul

 

I know a number of us on here have been invested in FCAU for a while now. I think I bought my first shares back in August 2014. And, since I bought them at such depressed prices back then, I feel I have an anchor bias. In the run up since, there have been quite a few times that I've thought about adding to my position but, have not been able to pull the trigger.

 

I'd love to get some perspective on this - Do you guys feel similarly? How have you been able to cope with this bias?

 

Much appreciated!

[TwoCitiesCapital]

Fiat Family Value Overtakes Tesla, GM on Marchionne Overhaul

https://www.bloomberg.com/news/articles/2017-09-28/fiat-family-value-surges-past-tesla-gm-on-marchionne-s-overhaul

 

I know a number of us on here have been invested in FCAU for a while now. I think I bought my first shares back in August 2014. And, since I bought them at such depressed prices back then, I feel I have an anchor bias. In the run up since, there have been quite a few times that I've thought about adding to my position but, have not been able to pull the trigger.

 

I'd love to get some perspective on this - Do you guys feel similarly? How have you been able to cope with this bias?

 

Much appreciated!

 

I understand your feelings. It's also difficult for me to add significantly to positions that have gone up as well.

 

Fiat made it a little easier for me to increase because there were often pull backs that made it psychologically easier to pick up - like right after the Ferrari spin-off. Having the upward anchor price and knowing it was 20-25% below that price made it more palatable to add to the position.

 

Also, I was able to convince myself to add bit more when I swapped from a stock position to an options position because my $ downside was reduced in the event of a large correction. I probably never added as much as I should have for how ridicululously cheap it was.

 

I don't think its worth beating yourself up for though. You got in and you've done well with it. Had it gone down 90%, you'd probably be asking yourself what you did wrong and tips on risk management instead of if you had purchased enough. You pulled the trigger when it mattered and made good money. Can you improve on that? Maybe, but the incremental gains are the hardest fought for.

 

 

 

 

[winjitsu]

Fiat Family Value Overtakes Tesla, GM on Marchionne Overhaul

https://www.bloomberg.com/news/articles/2017-09-28/fiat-family-value-surges-past-tesla-gm-on-marchionne-s-overhaul

 

I know a number of us on here have been invested in FCAU for a while now. I think I bought my first shares back in August 2014. And, since I bought them at such depressed prices back then, I feel I have an anchor bias. In the run up since, there have been quite a few times that I've thought about adding to my position but, have not been able to pull the trigger.

 

I'd love to get some perspective on this - Do you guys feel similarly? How have you been able to cope with this bias?

 

Much appreciated!

 

Process!

 

Hopefully you are writing down your thesis + some type of price target / IV estimate.

 

Take into account new info when its comes in [eg. new earnings, spinoff], and keep updating your IV. That way rather than anchor on your original purchase price, you just consider current price vs current IV. Price may move up, but hopefully IV does as well.

 

Guard against thesis creep by look @ your old write-ups.

[nikhil25]

Thank you both - really appreciate the perspective!

[Pondside47]

FCAU is trading at $17, upside to a $32/$17/$12 share price is 88%/0%/-30%. If you have a tax deferred account, I believe Exor has a similar upside with better downside protection. Assuming their share buyback will drive the discount to NAV from 30% to 15%, a $32/$17/$12 FCAU price with Ferrari and CNH trading at where they are today translates into a 61%/22%/9% upside from current EUR 52/share. Am I missing anything other than the tax they will have to pay if they end up selling FCAU?

 

 

[TwoCitiesCapital]

FCAU is trading at $17, upside to a $32/$17/$12 share price is 88%/0%/-30%. If you have a tax deferred account, I believe Exor has a similar upside with lower downside protection. Assuming their share buyback will drive the discount to NAV from 30% to 15%, a $32/$17/$12 FCAU price with Ferrari and CNH trading at where they are today translates into a 61%/22%/9% upside from current EUR 52/share. Am I missing anything other than the tax they will have to pay if they end up selling FCAU?

 

I haven't done the exact analysis to compare potential upsides, but it strikes me as being about right. If FCAU does well, I'd expect that FCAU will do better than Exor if only for the fact that Exor's returns will be diluted by its other holdings and any potential tax bills owed on a sale.

 

It's the reduced downside that has attracted me to Exor. If you bet on FCAU and FCAU craters, you'll do poorly. If you bet on EXOR and FCAU craters, you can still hope for the closing of the NAV gap to help get you closer to being whole and you don't lose too much.

 

There are more ways to win with EXOR, you'll just win less. The higher FCAU goes, the more attractive EXOR gets to me.

 

Disclosure: Roughly 65/35 FCAU and EXOR respectively.

 

 

[plato1976]

Very nice run

Anyone wants to put a fair value on this one?

Thinking about price target now...

 

Thank you both - really appreciate the perspective!

[flesh]

A quick thanks to those of you who responded earlier in the thread regarding my question about how I could have missed this one after staring and not concentrating on it for years. This led me to reconsider NC which I had previously held and then took a large position in and really made my year.

 

Thanks!