FCAU - Fiat Chrysler Automobiles

[Sportgamma]

That is a good way, but not a great way, to look at the downside. The real downside is that the company is burning cash through expenses like R&D and not get rewarded for it.

Not that i think it will happen, I’m long on the stock, but the liquidation scenario is obv not likely and not the worst case scenario.

But well calculated and interesting thought.

 

Snorky

 

I'm not sure that is the downside really. A scenario where they would ramp up CapEx at low or negative returns would be much more destructive. Or a significant drop in Jeep sales.

 

Edit: I meant to reply to the comment that Snorky was replying to, saying basically the same thing that Snorky is saying...

[Homestead31]

what happens if they start filing 10Ks in the US instead of 20Fs?

 

this may have gotten lost in the sauce, so i am re-posting it.

 

i think this is one of the most important things that no one is talking about.

 

has anyone thought of what would happen if they simply decided to file 10Ks rather than 20Fs?

[Shooter MacGavin]

what happens if they start filing 10Ks in the US instead of 20Fs?

 

this may have gotten lost in the sauce, so i am re-posting it.

 

i think this is one of the most important things that no one is talking about.

 

has anyone thought of what would happen if they simply decided to file 10Ks rather than 20Fs?

 

why is this the most important thing? why would  they decide to file 10ks? They're a NV based company right? Have they talked about this?  Is there an economic impact you are alluding to or just some kind of IFRS /GAAP thing?

[Spekulatius]

what happens if they start filing 10Ks in the US instead of 20Fs?

 

this may have gotten lost in the sauce, so i am re-posting it.

 

i think this is one of the most important things that no one is talking about.

 

has anyone thought of what would happen if they simply decided to file 10Ks rather than 20Fs?

 

why is this the most important thing? why would  they decide to file 10ks? They're a NV based company right? Have they talked about this?  Is there an economic impact you are alluding to or just some kind of IFRS /GAAP thing?

 

I don’t see how it matters whether it’s they publish a 10-K or 20F. The bigger question is what are they going to do with the cash from the Magneti sale? I am guessing they have to pay some taxes on this and also the EBIT will be lower by $500 M € going forward.

[DTEJD1997]

 

Hypothetically, if they decided to never spend another dollar on R&D or capex, how long do you think they could keep selling the existing lineup before sales dry up?  Let's call it 3yrs.  That would produce ~€45B in cash flow.  Add back the €4B year-end 2018 net cash, deduct €10B for negative working capital unwind and €9B for underfunded pension, that leaves us with €30B in cash to distribute to shareholders on a Mkt Cap of €22-23B after MM sale.  Obviously I don't expect them to liquidate the company, but that seems like a pretty decent margin of safety to me.

 

If the company suddenly decided to cut back on R&D & any non-essential capital spending, kind of like what happened with British car manufacturers in the 70's & early 80's. I would imagine it would look something like that.

 

Year 1, full sales & profitability....Year 2 a bit less, Year 3 even less, and every year thereafter it would decline further.  I think the Jaguar XJS was produced with very minor changes for 21 years. 

 

FCAU might be able to do that with the Jeep brand?

 

I think they would get a TREMENDOUS amount of cash flow...with most of it coming in years 1-5, almost certainly more than the current EV of the company.

 

As for the WORST CASE situation for FCAU....maybe a HUGE economic downturn in USA and the world...sales collapse and the company becomes unprofitable.

 

Management then thinks they need to "bet the company" on new models, or possibly "new technology" of electric and/or self driving cars.  They spend all their cash AND they borrow a TON of money.  The new efforts & models don't pan out and they go bankrupt again.  This time, they get liquidated.

 

I don't think the worst case will happen.

 

Hopefully the company largely keeps on the path they have been going on.  Disciplined & intelligent capital allocation!

[whatdadil9]

Based in netherlands. no taxes on sale.

 

Filing US GAAP will allow FCA to be owned by indices. Why cant us based funds onw this instead of F and GM.. US GAAP and index ownership.

 

ALSO gets us away from all the italian index selling.

[Spekulatius]

The self liquidation exercise is just enough exercise in math, the reality is different. If a management team would do this, all the stakeholders (employee, suppliers, customers, dealers etc) would start to bail and the cash flows would crater much quicker than you would think. Plus politicians would step on and management would be on the hot seat very quickly.

[Homestead31]

 

 

I don’t see how it matters whether it’s they publish a 10-K or 20F.

 

economically it does not matter.  but, structurally it does.  if tomorrow they decided to file 10Ks, then they would be eligible for US index inclusion, and there would be a wave of forced buying that would push the price up.  It is impossible to know what the long term plan is here, but if John Elkann is considering an eventual sale - which is certainly possible - it seems likely that they would choose to file 10Ks first in order to drive the price up so a buyer would have to anchor higher.  Additionally, as Jeep and Ram continue to be emphasized, and the Fiat brand continues to be de-emphasized, it makes more and more sense to consider filing 10Ks. 

 

Impossible to put a value on what this dynamic is worth, but I am happy to have this free option in management's tool kit.

[Guest ajc]

 

Looks as if a deal has been done. Worth as much as 6.2B euros, according to sources. Announcement reportedly happening as early as tomorrow.

 

https://www.bloomberg.com/news/articles/2018-10-21/fiat-is-said-to-agree-to-magneti-marelli-sale-to-kkr-s-calsonic

 

 

 

[DTEJD1997]

 

Looks as if a deal has been done. Worth as much as 6.2B euros, according to sources. Announcement reportedly happening as early as tomorrow.

 

https://www.bloomberg.com/news/articles/2018-10-21/fiat-is-said-to-agree-to-magneti-marelli-sale-to-kkr-s-calsonic

 

WOW, that is about 30% of the current market cap.  Once that transaction goes through, FCAU should be in a solid net cash positive position.

 

Makes me regret that I have such a small position...I would wager that the stock opens high Monday AM.

[Guest ajc]

 

 

WOW, that is about 30% of the current market cap.  Once that transaction goes through, FCAU should be in a solid net cash positive position.

 

Makes me regret that I have such a small position...I would wager that the stock opens high Monday AM.

 

 

 

Should be a good earnings report too, though there are 1 or 2 real warning signs across the auto industry for future quarters.

 

https://twitter.com/DRuizG80/status/1050785846662754305 (if you scroll further up the feed, you'll see his latest research)

 

 

 

[nkp007]

Stock should be up substantially tomorrow...but who knows these days  :-X

[mwtorock]

Good news. Even if it go down tomorrow, more reasons to add more here.

[DTEJD1997]

 

 

WOW, that is about 30% of the current market cap.  Once that transaction goes through, FCAU should be in a solid net cash positive position.

 

Makes me regret that I have such a small position...I would wager that the stock opens high Monday AM.

 

 

 

Should be a good earnings report too, though there are 1 or 2 real warning signs across the auto industry for future quarters.

 

https://twitter.com/DRuizG80/status/1050785846662754305 (if you scroll further up the feed, you'll see his latest research)

 

AJC:

 

Yes, you are right about the storm clouds & warning signs.  On Friday, Daimler warned that it's margins & earnings will be lower in the upcoming 12 months than what is expected.

 

There are other "storm clouds" in the USA, plus we've got elections coming up in a couple of weeks.

 

HOWEVER, FCAU seems to have wind at it's back.  Their newly introduced RAM trucks seem to be getting a good reception and are selling well.  Jeep is also doing extremely well.

 

Assuming the Magnetti sale goes off as planned, FCAU is making so much money, that every good quarter is kind of a big deal.

 

I also have been doing a lot of thinking about the next economic downturn.  It does not have to be 2008/2009.  What if it is somewhat mild?  What happens if FCAU gets a couple of better quarters than their competitors going into the downturn?  FCAU might also come out of the downturn a quarter or two earlier.  The next downturn DOES NOT have to be the end of the world?

 

Some amount of risk here, but I think the market is mis-pricing it.  If the stock goes down or stays the same tomorrow, I'll probably triple up my position...

[Parsad]

Announcement on the deal:

 

https://finance.yahoo.com/news/calsonic-kansei-magneti-marelli-press-050117413.html

 

Cheers!

[Guest ajc]

 

Disappointing market reaction. Less than a 1B euro bump.

Would be great if they used the upcoming conference call to announce a share repurchase program over the next 3 years for up to 20% of the outstanding shares.

Or something along those lines.

 

 

 

[EricSchleien]

Why would you want them to do that? Wouldn't you rather the market not react and then they can buyback cheaper?

 

 

Disappointing market reaction. Less than a 1B euro bump.

Would be great if they used the upcoming conference call to announce a share repurchase program over the next 3 years for up to 20% of the outstanding shares.

Or something along those lines.

[nkp007]

Stock should be up substantially tomorrow...but who knows these days  :-X

 

LOL. This market really hates automakers.

[nikhil25]

Stock should be up substantially tomorrow...but who knows these days  :-X

 

LOL. This market really hates automakers.

 

If a move like this didn’t serve as a catalyst, wonder what will!

[DTEJD1997]

Hey all:

 

The credit rating services are not upgrading FCAU debt on this development.

 

They anticipate that some of the money will go back to shareholders.  They also anticipate that FCAU will need tremendous amounts of capital to deal with electric vehicles and self driving cars.

 

They do admit that FCAU's financial position will be improving though...

 

The trading day still has a few hours to go.  Maybe FCAU can get down to break even or maybe even a small loss?

 

As I have said before, I think electrification and self driving cars are interesting, and will clearly have a place in the future...but are WAY overhyped.  I think a lot of analysts are "living in a bubble" and are out of touch with "middle America". 

 

In middle America, a lot of people OWN their vehicle(s).  We will use ride sharing, but for limited instances (going out partying & drinking, going to airport) but it is NOT cost effective or convenient to give up vehicle ownership.

 

Electric vehicles might be interesting, but at this point, they are NOT cost effective and still suffer from range limitations.

 

Finally, study after study has shown that Lift & Uber drivers frequently make UNDER minimum wage after accounting for gas/insurance/depreciation.  Why are untold BILLIONS being spent to "disrupt" this "business"?  Automated vehicles are going to take sub minimum wage jobs?  I can see a lot of capital being incinerated here!

[Guest ajc]

 

Why would you want them to do that? Wouldn't you rather the market not react and then they can buyback cheaper?

 

 

Disappointing market reaction. Less than a 1B euro bump.

Would be great if they used the upcoming conference call to announce a share repurchase program over the next 3 years for up to 20% of the outstanding shares.

Or something along those lines.

 

 

 

Might be half of one, half a dozen of the other.

 

A grand buyback announcement would highlight the undervaluation to market participants. Could essentially put a floor under the stock. Also, it'd signal that new management is as serious as Marchionne was about constantly creating and distributing value to shareholders.

 

On the other hand, if they did it with a casual Friday press release and bought back a ton over the next 12 or 24 months, that'd show up noteably in the results. So, it'd be just as good.

 

I'd be fine with either, but I think it's important not to underestimate the fact that Marchionne was a great salesman as well as a world-class operator.

He was perfectly comfortable dropping big hints about, and taking action on, value distribution in all the forms that your average investor would recognize.

Perhaps one of his more underappreciated qualities.

 

I mean, just as a thought experiment, what would happen to the stock price if FCAU announced at the next earnings call that they'd be creating tracking stocks for Jeep and Maserati say. Purely hypothetically.

My guess is analysts would go around valuing the parts of the business more separately and the price targets would rocket.

Nothing would've changed business-wise, but some intrinsic value would've had a spotlight shined on it.

 

I think perception should always be based on the underlying reality, but a person who is great at managing perception while always being driven by the facts, is a rare individual to find.

I'd say the previous CEO was actually pretty incredible at pulling of that combination in a way that usually seemed to be amazingly beneficial for the business as well as for shareholders.

He wasn't afraid to say out loud if he thought something or some course of action was worthless or super valuable.

 

 

 

[walkie518]

The KKR deal pales in comparison to what Marchionne had in mind--either there were material underlying problems with MM that were not disclosed or KKR is getting a good deal.  And of course, the latter is more likely than the former...

[Parsad]

Hey all:

 

The credit rating services are not upgrading FCAU debt on this development.

 

They anticipate that some of the money will go back to shareholders.  They also anticipate that FCAU will need tremendous amounts of capital to deal with electric vehicles and self driving cars.

 

They do admit that FCAU's financial position will be improving though...

 

The trading day still has a few hours to go.  Maybe FCAU can get down to break even or maybe even a small loss?

 

As I have said before, I think electrification and self driving cars are interesting, and will clearly have a place in the future...but are WAY overhyped.  I think a lot of analysts are "living in a bubble" and are out of touch with "middle America". 

 

In middle America, a lot of people OWN their vehicle(s).  We will use ride sharing, but for limited instances (going out partying & drinking, going to airport) but it is NOT cost effective or convenient to give up vehicle ownership.

 

Electric vehicles might be interesting, but at this point, they are NOT cost effective and still suffer from range limitations.

 

Finally, study after study has shown that Lift & Uber drivers frequently make UNDER minimum wage after accounting for gas/insurance/depreciation.  Why are untold BILLIONS being spent to "disrupt" this "business"?  Automated vehicles are going to take sub minimum wage jobs?  I can see a lot of capital being incinerated here!

 

Credit rating services are like equity analysts...looking in the rear-view mirror or looking too far ahead...never in the present!  Electric and hybrid cars make up less than 3% of all vehicles on the road today.  That number will definitely increase over time, but do you really think FCAU is missing the boat here, or are they actually focusing on where they should be focusing...solid financials, low cost, strong balance sheet and creating partnerships to share the burden of developing electric vehicles. 

 

Remember how credit analysts rated Fairfax as things improved...or Bank of America...they were always so far behind, like the target prices set by the equity analysts.  $7B sale...nearly 30% of market cap, yet revenues will only drop by about 5% and earnings by less than 10%...and the shares barely move.  FCAU should be a high-priority target...especially now that things are even more simplified after the Magnetti deal.  Cheers!

[Parsad]

The KKR deal pales in comparison to what Marchionne had in mind--either there were material underlying problems with MM that were not disclosed or KKR is getting a good deal.  And of course, the latter is more likely than the former...

 

I'm not sure "pales in comparison" is correct.  The $6.2B deal is only $0.6B away from the $6.8B Marchionne wanted from KKR before he passed away.  At that time, KKR had offered $5.8B.  FCAU needed two things to happen in any deal...a reasonable price and ensure that their component supply wasn't disrupted.  They got both.  Could they have held out for more...possibly.  But they got mostly what they were asking for and they can move forward.  Cheers!

[John Hjorth]

Anyone have any knowledge about what KKR has of operational experience in this space? How do you assess the MM management on a stand-alone basis [as alternative to be a part of FCAU]? How much in earnings after tax per year is disappearing from FCAU going forward by this deal?