FCAU - Fiat Chrysler Automobiles

[bizaro86]

How is GM China compared to FCA China? Night and day difference.

 

Isnt GM China factored into EV/EBIT multiples?  So if anything that’s a negative on relative multiples because it means GM has nowhere to go but down and FCAU nowhere to go but up in the worlds largest market.

 

It doesn't seem like a guarantee that the business that is doing well will start to decline, and that the one that is doing poorly will improve.

 

I would suggest history demonstrates mostly the opposite is true.

 

I don't have any insight into Chinese car sales particularly, but that seems like a dangerous idea to me...

[RadMan24]

How is GM China compared to FCA China? Night and day difference.

 

Isnt GM China factored into EV/EBIT multiples?  So if anything that’s a negative on relative multiples because it means GM has nowhere to go but down and FCAU nowhere to go but up in the worlds largest market.

 

It doesn't seem like a guarantee that the business that is doing well will start to decline, and that the one that is doing poorly will improve.

 

I would suggest history demonstrates mostly the opposite is true.

 

I don't have any insight into Chinese car sales particularly, but that seems like a dangerous idea to me...

 

When you have the scale GM and VW have in China, it's very tough to break that down whether its lowest cost, best suppliers and payment terms, biggest dealership networks, etc. The risk to all in China is overcapacity. You can look at multiplies, but GM gets $2 billion a year from China. That's a fairly steady stream of cash. Nothing is taken for granted in this industry, but Ford and FCA have yet to capitalize on China, unlike GM. At this point, it's a pretty defensible moat.

 

FCA also thought the Jeep brand was stronger than what it is, so they are dealing with a perception issue there. I'm not saying it isn't possible for FCA to be successful in China, but its becoming clear its their #1 issue to address. #2 would be adoption of electrification technologies. The stock is selling off on these worries, in addition to the new CEO uncertainty on execution and capital plans, but therein lies your opportunity if you believe these issues will be resolved on the upside.

[whatdadil9]

Lets put this china thing to rest OK.

 

What is the total size of the three row market in the US?

 

Do you think between the wagoneer and grand wagoneer we can sell 250k?

 

What about the jeep scramber pickup? 100k of those? We are already selling 25k stelvios here and Alfa has a broken dealer network aligned with FiAT US that needs to be repositioned. So, ok.

 

Scrambler at 40k * 100k = 4bn and 20 pct margins incremntally -- maybe more. 800mm of EBIT. Wagoneer / Grand wagoneer 250k * 60k? = 15bn? Prob is more considering Manley said Grand Wagoneer wil be competing with RANGE ROVER and will have many vehicles over 100k....  30 pct incremental? 4.5bn of EBIT?

 

These 3 cars are worth 5.3bn of EBIT potential.. Plans ambitious? I dunno.

 

Larry Tisch used to say,  "Numbers dont lie, people do". Focus on the numbers and the cash flow. If china works, great. If it doesnt who the f cares. Its all incremental.

 

There are enough levers domestically to get to the plan. In fact, if you model out the unit objectives the company gives you for Alfa,Mas, Jeep, Ram .. we get to numbers closer to 30bn USD EBIT... lot of room to screw up. Sergio missed on tons of things in the 2018 plan and he still had to increase it twice and he spun out Race!

 

FCAU is by far the cheapest and best positioned OEM going forward.

 

GM/F are run by communist's who have been sleeping at the switch. I dont personally care what Cruze is worth. The rest is worthless to me. They both have a strong pickup biz and thats it. Brands will mean everything going forward. What is the blue oval stand for?

 

Who cares if Fiat or Chrylser or worth anything? Priceline made no money forever until the company decided to change its name to booking.com. Focus on the numbers and the alignment of owners and you should find yourself right at home here.

[cmlber]

How is GM China compared to FCA China? Night and day difference.

 

Isnt GM China factored into EV/EBIT multiples?  So if anything that’s a negative on relative multiples because it means GM has nowhere to go but down and FCAU nowhere to go but up in the worlds largest market.

 

It doesn't seem like a guarantee that the business that is doing well will start to decline, and that the one that is doing poorly will improve.

 

I would suggest history demonstrates mostly the opposite is true.

 

I don't have any insight into Chinese car sales particularly, but that seems like a dangerous idea to me...

 

I didn't suggest it was a guaranty. 

 

I suggested that FCAUs China business is worth $0 and can’t be worth less than $0.  FCAU can’t lose market share in a market where it has none.  But it’s reasonable to think they MAY gain market share (no guaranty, but significant upside potential)

 

On the other hand, GMs China business is probably worth $20Bn and they have #1 market share with a number of attackers surrounding the moat, in an environment where the Chinese govt is looking for ways to penalize American businesses for being American businesses. 

 

Put another way, what’s more likely, that FCAU goes from making $0 in China to making $1Bn, or that GM goes from making $2Bn to $4Bn?  I’d put 0.5% odds on the latter, much higher on the former.

 

And what’s more likely, that FCAU goes from making $0 in China to losing $0.5 billion, or that GM goes from making $2Bn to making only $1Bn? 

 

Yes they have a great China business, but that’s in the earnings, you’re double counting if you give it a higher multiple.

[John Hjorth]

... I think their view is that buying back shares in a low ROIC biz (even if its improving) is not as good as dividends or investing in mergers which improve the economics of the biz. ...

 

If you study the controlling FCAU shareholder EXOR, again controlled by the Agnelli family holding company since its formation by the merger of IFI and IFIL some years ago, there is to me no doubt, that the long term plan for EXOR is to expand in other areas than FCAU, and EXOR therefore needs the dividends to do that, and to pay down EXOR debt at holding company level.

 

Interesting point. Do you think this means that Exor/Agnelli family would agree to sell the entire company or the core company with MM spun-off?

 

Almost guaranteed that FCAU is sold at some point by the Agnelli family...especially with Marchionne passing, instead of sitting as Chairman.  But they will not give it away...no need, FCAU financially is one of the most solid auto companies in the world now.  Strategically, there should be at least 3-4 major parties interested in a deal to continue consolidation of the industry.  Cheers!

 

Sanjeev & NBL0303,

 

I branched a reply to your posts in the EXOR topic here.

[merkhet]

Almost guaranteed that FCAU is sold at some point by the Agnelli family...especially with Marchionne passing, instead of sitting as Chairman.  But they will not give it away...no need, FCAU financially is one of the most solid auto companies in the world now.  Strategically, there should be at least 3-4 major parties interested in a deal to continue consolidation of the industry. Cheers!

 

I don't disagree with the general sentiment, but I wonder whether some of those companies will be deterred/blocked from making an offer. For instance, I can't imagine a Chinese auto company making a bid or, even if they did, passing CFIUS with the current nationalist zeitgeist.

[cubsfan]

Almost guaranteed that FCAU is sold at some point by the Agnelli family...especially with Marchionne passing, instead of sitting as Chairman.  But they will not give it away...no need, FCAU financially is one of the most solid auto companies in the world now.  Strategically, there should be at least 3-4 major parties interested in a deal to continue consolidation of the industry. Cheers!

 

I don't disagree with the general sentiment, but I wonder whether some of those companies will be deterred/blocked from making an offer. For instance, I can't imagine a Chinese auto company making a bid or, even if they did, passing CFIUS with the current nationalist zeitgeist.

 

Merkhet - for this of us that don't understand the CFIUS issue and your comment - can you elaborate? I myself know nothing regarding this impediments.

 

BTW - are you attending Latticework NYC in September?  I'll be there with a few others...

[merkhet]

Almost guaranteed that FCAU is sold at some point by the Agnelli family...especially with Marchionne passing, instead of sitting as Chairman.  But they will not give it away...no need, FCAU financially is one of the most solid auto companies in the world now.  Strategically, there should be at least 3-4 major parties interested in a deal to continue consolidation of the industry. Cheers!

 

I don't disagree with the general sentiment, but I wonder whether some of those companies will be deterred/blocked from making an offer. For instance, I can't imagine a Chinese auto company making a bid or, even if they did, passing CFIUS with the current nationalist zeitgeist.

 

Merkhet - for this of us that don't understand the CFIUS issue and your comment - can you elaborate? I myself know nothing regarding this impediments.

 

BTW - are you attending Latticework NYC in September?  I'll be there with a few others...

 

Yup, I'll be there. Let's get everyone up to the rooftop for a post-conference drink again. That was fun last year.

 

CFIUS reviews foreign investments in U.S. businesses to see whether there are national security implications. When it's working right, it absolutely makes sense -- we probably wouldn't let a foreign company buy, say, Raytheon or Huntington Ingalls -- and we shouldn't!

 

However, given this administration's... let's call it "broad"... interpretation of the things that impinge on national security, it's possible that if, say, Great Wall Motors (rumored to have sniffed around FCA Group) makes a bid, it's eventually blocked from doing a transaction through CFIUS.

 

Moreover, if you're Great Wall Motors, do you even bother making a bid right now given that China & the U.S. are at each other's throats about trade?

[cubsfan]

Merkhet - thanks for great explanation  - I knew I asked the right guy - see you in NYC!

[Parsad]

Almost guaranteed that FCAU is sold at some point by the Agnelli family...especially with Marchionne passing, instead of sitting as Chairman.  But they will not give it away...no need, FCAU financially is one of the most solid auto companies in the world now.  Strategically, there should be at least 3-4 major parties interested in a deal to continue consolidation of the industry. Cheers!

 

I don't disagree with the general sentiment, but I wonder whether some of those companies will be deterred/blocked from making an offer. For instance, I can't imagine a Chinese auto company making a bid or, even if they did, passing CFIUS with the current nationalist zeitgeist.

 

I think Toyota and Volkswagen would have a difficult time passing anti-competition guidelines, but I find it hard to believe that FCAU would fall under any CFIUS restrictions with any other buyer, including Chinese buyers.  Someone like Hyundai, with the current friendly attitude towards North and South Korea, might even be encouraged to pursue a transaction.  You have Renault, Peugeot, the Chinese manufacturers, Tata and a handful of others that would become global players with an FCAU acquisition.  The smaller it gets, the more likely some of the smaller players will make a bid for the remaining assets.  Cheers!

[EricSchleien]

Almost guaranteed that FCAU is sold at some point by the Agnelli family...especially with Marchionne passing, instead of sitting as Chairman.  But they will not give it away...no need, FCAU financially is one of the most solid auto companies in the world now.  Strategically, there should be at least 3-4 major parties interested in a deal to continue consolidation of the industry. Cheers!

 

I don't disagree with the general sentiment, but I wonder whether some of those companies will be deterred/blocked from making an offer. For instance, I can't imagine a Chinese auto company making a bid or, even if they did, passing CFIUS with the current nationalist zeitgeist.

 

I think Toyota and Volkswagen would have a difficult time passing anti-competition guidelines, but I find it hard to believe that FCAU would fall under any CFIUS restrictions with any other buyer, including Chinese buyers.  Someone like Hyundai, with the current friendly attitude towards North and South Korea, might even be encouraged to pursue a transaction.  You have Renault, Peugeot, the Chinese manufacturers, Tata and a handful of others that would become global players with an FCAU acquisition.  The smaller it gets, the more likely some of the smaller players will make a bid for the remaining assets.  Cheers!

 

"The smaller it gets, the more likely some of the smaller players will make a bid for the remaining assets."

 

Exactly my thinking.

 

Does anybody have any good resources on ways car industry will improve in the future (higher returns on capital) or anybody on this board who thinks it won't?

[ValueMaven]

Love this point...

 

'The smaller it gets, the more likely some of the smaller players will make a bid for the remaining assets'

[Ahab]

Thanks for the passionate discussion everyone! I too have considered adding at these levels, possibly through 2020 LEAPS.

A new Fiat VIC writeup was just made available..

https://www.valueinvestorsclub.com/idea/Fiat_/142390#description

[plato1976]

Did anyone have a pessimistic value estimation of this one under the assumption:

1) trade war goes to extreme. FCAU's china business marked at 0. Maserati materially impacted

2) US and other places peaked, but not falling into a cliff. Just sort of flat to slight decline for years ahead

 

 

Thanks for the passionate discussion everyone! I too have considered adding at these levels, possibly through 2020 LEAPS.

A new Fiat VIC writeup was just made available..

https://www.valueinvestorsclub.com/idea/Fiat_/142390#description

[ValueMaven]

https://www.wsj.com/articles/why-the-future-belongs-to-challenge-driven-leaders-1533960001

[Pondside47]

https://realmoney.thestreet.com/articles/08/10/2018/turkish-meltdown-bad-news-fiat-chrysler-and-emerging-market-etfs

 

???

[Parsad]

https://realmoney.thestreet.com/articles/08/10/2018/turkish-meltdown-bad-news-fiat-chrysler-and-emerging-market-etfs

 

???

 

In the short-term, the market is a voting machine.  In the long-term, it is a weighing machine.  Quote by you know who. 

 

Cheers!

[Ballinvarosig Investors]

GM. Pension is real liability and they dont expense on income statement like FCA does.

Not quite sure what you mean on this, the level of disclosure with regards to the pension expenses seems fine with me.

Also no premium product/brands really.

Other than Maserati, I wouldn't consider anything in FCAU's line-up too premium.

CEO sells stock as quickly as she can get her hands on it. Communism / agency issue at its best.

Stock sales seem to be to cover the tax from what I can see.

Should be gutted and rd /procurment expenses should be leveraged.

Not sure what you mean by this.

No inside owner or dual class. Needs real activist with deep pockets.

Not sure how a dual class shareholding would help.

Also trades at 3+X the valuation of FCA on ebit and not growing...similar margins.

I would question whether margins at FCAU expand beyond what they are currently at.

 

When I look at GM and FCAU, from an operational standpoint at least, I don't see to much different, both seem to have an operating margin in the mid single digit figures. I think where they do differ is on capex, r&d, and the balance sheet.

 

It's interesting that you talked about the agency problem. If I was to look at FCAU and without knowing who was in charge, I would probably have said that it was the one with the agency CEO in charge. When you look at capex and R&D at FCAU, it is vastly lower than what is being spent at GM. I have no dog in the race, so I simply don't know whether FCAU is being correct in restraining spending, or whether it's GM who are right opening the floodgates. One thing I would guess however, is that when you have two competitors diametrically opposed in strategy as these two are, then only one can be right. Unless GM are pissing their money against a wall (a possibility), then FCAU are going to run into serious problems trying to compete in the future should demand for auto's remain robust. On the other hand, if we were to hit a recession, then quite frankly I would be pretty fearful for GM. When you look at the huge debt and the pension deficit, also the financing business, if things got sufficiently bad in the economy, I think this would be a zero. Can't say I would sleep too easily at night knowing a CEO had bet the farm in this way, let's see how things go...

[Parsad]

GM. Pension is real liability and they dont expense on income statement like FCA does.

Not quite sure what you mean on this, the level of disclosure with regards to the pension expenses seems fine with me.

Also no premium product/brands really.

Other than Maserati, I wouldn't consider anything in FCAU's line-up too premium.

CEO sells stock as quickly as she can get her hands on it. Communism / agency issue at its best.

Stock sales seem to be to cover the tax from what I can see.

Should be gutted and rd /procurment expenses should be leveraged.

Not sure what you mean by this.

No inside owner or dual class. Needs real activist with deep pockets.

Not sure how a dual class shareholding would help.

Also trades at 3+X the valuation of FCA on ebit and not growing...similar margins.

I would question whether margins at FCAU expand beyond what they are currently at.

 

When I look at GM and FCAU, from an operational standpoint at least, I don't see to much different, both seem to have an operating margin in the mid single digit figures. I think where they do differ is on capex, r&d, and the balance sheet.

 

It's interesting that you talked about the agency problem. If I was to look at FCAU and without knowing who was in charge, I would probably have said that it was the one with the agency CEO in charge. When you look at capex and R&D at FCAU, it is vastly lower than what is being spent at GM. I have no dog in the race, so I simply don't know whether FCAU is being correct in restraining spending, or whether it's GM who are right opening the floodgates. One thing I would guess however, is that when you have two competitors diametrically opposed in strategy as these two are, then only one can be right. Unless GM are pissing their money against a wall (a possibility), then FCAU are going to run into serious problems trying to compete in the future should demand for auto's remain robust. On the other hand, if we were to hit a recession, then quite frankly I would be pretty fearful for GM. When you look at the huge debt and the pension deficit, also the financing business, if things got sufficiently bad in the economy, I think this would be a zero. Can't say I would sleep too easily at night knowing a CEO had bet the farm in this way, let's see how things go...

 

Hi Ballin,

 

I think you have two companies that are going to have two very different outcomes.  No one is going to go and acquire GM...it is the acquirer in any deal.  Marchionne's goal has always been to restore operational efficiency and release shareholder value while maintaining a sound balance sheet. 

 

At some point, as the size of Fiat diminishes by selling or distributing much of the assets, the remaining core brands will be acquired by someone.  I would be really surprised if FCAU isn't acquired before year-end by someone.  Cheers!

[ValueMaven]

year-end?  Thats an aggressive timeframe no? 

 

Sincerely,

VM

[Parsad]

year-end?  Thats an aggressive timeframe no? 

 

Sincerely,

VM

 

The Magneti spin-off has been announced.  The stock is down over 35% from its peak.  The legendary leader has passed away.  The company has ample cash and debt is being paid off rapidly.  It's trading at 6 times earnings and less than 2.5 times cash flow.  Markets and most assets are priced irrationally relative to FCAU.  Someone offering a 40% premium could walk away with a good deal with a bit of negotiation.  Cheers!

[steph]

What is the risk of 'dieselgate'?  Somebody has a calculated guess of probability and eventual fines?

[Guest ajc]

 

 

What is the risk of 'dieselgate'?  Somebody has a calculated guess of probability and eventual fines?

 

 

 

Merkhet had some great insight about it in a recent Twitter conversation.

He noted how Marchionne (R.I.P) had already been having settlement discussions with various enforcement bodies over the past year or so.

At the same time, he had been reaffirming guidance throughout.

 

Merkhet's take was it would've been out of character for Marchionne to reaffirm guidance if the settlement numbers the two sides were talking about had been unaffordable for Fiat Chrysler.

Way more likely the figures on the table were within a reasonable range for FCAU and that Marchionne's quarterly commentary reflected this.

 

Made a lot of sense to me.

 

 

 

[ValueMaven]

I've been buying a lot of this recently - does anyone have any thoughts on 1) Valuation 2) Upcming spinoff of MM, and 3) overall how the company is doing?  Also, what are the chances of other spinoffs?  I must admit, I didnt follow this story at all until marchionne's death - but WOW.  I cannot wait for the spinoff of MM...there also seems to be other businesses that do not make sense inside the broader Fiat complex

[no_free_lunch]

I am with you VM.  Sentiment seems extreme and valuation is attractive. I have taken a position this past week and would like to expand it.  Biggest risk from my perspective is cap allocation skills of new ceo manley. This is a tough industry and was always a bet on marchionne.