FCAU - Fiat Chrysler Automobiles

[TwoCitiesCapital]

I get the disappointment over the $700M impairment taken for diesel issues, but it's not a loss just yet AND seems to be dwarfed by the news of the special dividend, regular dividend, and the freaking amount of money this company is making relative to their EV!

 

How is this not popping on these results?

[Parsad]

I get the disappointment over the $700M impairment taken for diesel issues, but it's not a loss just yet AND seems to be dwarfed by the news of the special dividend, regular dividend, and the freaking amount of money this company is making relative to their EV!

 

How is this not popping on these results?

 

Analysts and investors are so worried about tariffs and another slowdown, that they can't see the money piling up in cash flow and earnings.  Cheers!

[plato1976]

curious how they plan to use the remaining (7-2=5) billion dollars after the MM sale

Per my understanding they are now in net cash status, and there is no point to let 5B sit on their balance sheet?

 

 

Hey all:

 

Oh man...turns out I was way off in my prognostication for FCAU!

 

They only had earnings of $.89/share, which I think is a slight miss.  Obviously FCAU is a broken/damaged company...everybody needs to get out now!  Hopefully traders will notice this TERRIBLE turn of events and SELL OFF FCAU.  Hopefully, it can be one of the biggest losers for the day.  I would like to see it down at least 5 points.

 

In other news, it appears that upon closure of the Magenetti/Marelli sale, there is going to be a 2BB dividend of a special nature.

 

There also appears to be a regular quarterly dividend starting in 1st quarter of 2019?

 

Surprised no "news" outlet has picked up on this yet...must be asleep at the switch.

[TwoCitiesCapital]

curious how they plan to use the remaining (7-2=5) billion dollars after the MM sale

Per my understanding they are now in net cash status, and there is no point to let 5B sit on their balance sheet?

 

 

Hey all:

 

Oh man...turns out I was way off in my prognostication for FCAU!

 

They only had earnings of $.89/share, which I think is a slight miss.  Obviously FCAU is a broken/damaged company...everybody needs to get out now!  Hopefully traders will notice this TERRIBLE turn of events and SELL OFF FCAU.  Hopefully, it can be one of the biggest losers for the day.  I would like to see it down at least 5 points.

 

In other news, it appears that upon closure of the Magenetti/Marelli sale, there is going to be a 2BB dividend of a special nature.

 

There also appears to be a regular quarterly dividend starting in 1st quarter of 2019?

 

Surprised no "news" outlet has picked up on this yet...must be asleep at the switch.

 

Some probably will sit on their balance sheet a la Ford and GM.

 

Some could go to taxes on the sale, some to buying Chrysler Capital, and some to the underfunded pension.

 

I'd like to see continuous balance sheet improvement as there is still plenty of room to get better even now that they've reached net-cash for industrial production. If they wanted to do an equal amount of pension contributions and share repurchases, I'd be ok with that.

[plato1976]

Assuming a $4 per share earning next year and a 20% payout ratio as they mentioned, it's a 5% regular dividend ratio at today's price? It's not too bad for me

 

On the other hand I am curious how do they plan to use remaining earnings, and I hope it's not just capital investment. Is share-buyback in the card? Did they mention it?

 

 

curious how they plan to use the remaining (7-2=5) billion dollars after the MM sale

Per my understanding they are now in net cash status, and there is no point to let 5B sit on their balance sheet?

 

 

Hey all:

 

Oh man...turns out I was way off in my prognostication for FCAU!

 

They only had earnings of $.89/share, which I think is a slight miss.  Obviously FCAU is a broken/damaged company...everybody needs to get out now!  Hopefully traders will notice this TERRIBLE turn of events and SELL OFF FCAU.  Hopefully, it can be one of the biggest losers for the day.  I would like to see it down at least 5 points.

 

In other news, it appears that upon closure of the Magenetti/Marelli sale, there is going to be a 2BB dividend of a special nature.

 

There also appears to be a regular quarterly dividend starting in 1st quarter of 2019?

 

Surprised no "news" outlet has picked up on this yet...must be asleep at the switch.

 

Some probably will sit on their balance sheet a la Ford and GM.

 

Some could go to taxes on the sale, some to buying Chrysler Capital, and some to the underfunded pension.

 

I'd like to see continuous balance sheet improvement as there is still plenty of room to get better even now that they've reached net-cash for industrial production. If they wanted to do an equal amount of pension contributions and share repurchases, I'd be ok with that.

[Ahab]

 

Found that this article on Fiat sums up the situation nicely.

 

https://www.bloomberg.com/news/articles/2018-10-31/fiat-chrysler-investors-shrug-as-north-american-profits-match-gm

 

Improving margins + recent Marelli sale but market has shrugged both off. Added to Jan 2020 calls at these levels.

[DTEJD1997]

Assuming a $4 per share earning next year and a 20% payout ratio as they mentioned, it's a 5% regular dividend ratio at today's price? It's not too bad for me

 

On the other hand I am curious how do they plan to use remaining earnings, and I hope it's not just capital investment. Is share-buyback in the card? Did they mention it?

 

I don't think there was any mention of stock buyback in the latest FCAU earnings release.

 

The bulk of their earnings is going to have to go back into the company....Even with increased financial scrutiny, the auto industry needs capital for tool & die, marketing, plant maintenance, pensions & so on.

 

I think FCAU is going to need a good slug of capital to get an in house financing division going.

 

If 60% of earnings goes back into plant & equipment, 20% into dividends, 10% in debt reduction (cash buildup), 5% into pension, and 5% into financing (or other projects), that would be pretty good with me.

[Spekulatius]

Assuming a $4 per share earning next year and a 20% payout ratio as they mentioned, it's a 5% regular dividend ratio at today's price? It's not too bad for me

 

On the other hand I am curious how do they plan to use remaining earnings, and I hope it's not just capital investment. Is share-buyback in the card? Did they mention it?

 

I don't think there was any mention of stock buyback in the latest FCAU earnings release.

 

The bulk of their earnings is going to have to go back into the company....Even with increased financial scrutiny, the auto industry needs capital for tool & die, marketing, plant maintenance, pensions & so on.

 

I think FCAU is going to need a good slug of capital to get an in house financing division going.

 

If 60% of earnings goes back into plant & equipment, 20% into dividends, 10% in debt reduction (cash buildup), 5% into pension, and 5% into financing (or other projects), that would be pretty good with me.

 

Good point about building a financing arm. It will probably take several billion dollar in equity to fund this. I mentioned this before, but I consider it unlikely that any other automobile company could take FCAU over; there would just be too much political resistance. What FCAU really needs to do is get rid of the legacy Fiat operations in Europe. I am sure some noticed that they are actually losing money right now. Fiat has a high market share in their home country Italy, but is weak almost anywhere else. they need to do what GM did with Opel and dump it. This won’t be easy, since the populist government in Italy would  be screaming bloody murder. Trump would do the same thing, if someone were to take over the NA operations or the entire company, so I don’t think we will see a merger any time soon, they have to go it alone.

[Shooter MacGavin]

Assuming a $4 per share earning next year and a 20% payout ratio as they mentioned, it's a 5% regular dividend ratio at today's price? It's not too bad for me

 

On the other hand I am curious how do they plan to use remaining earnings, and I hope it's not just capital investment. Is share-buyback in the card? Did they mention it?

 

I don't think there was any mention of stock buyback in the latest FCAU earnings release.

 

The bulk of their earnings is going to have to go back into the company....Even with increased financial scrutiny, the auto industry needs capital for tool & die, marketing, plant maintenance, pensions & so on.

 

I think FCAU is going to need a good slug of capital to get an in house financing division going.

 

If 60% of earnings goes back into plant & equipment, 20% into dividends, 10% in debt reduction (cash buildup), 5% into pension, and 5% into financing (or other projects), that would be pretty good with me.

 

They didn't talk about buybacks in earnings but they did talk about it at the Capital Markets Day.  I don't know why they're paying a dividend.  They're starting to sound like GM.  At least it's not fixed, its 20% of earnings.

[DTEJD1997]

Assuming a $4 per share earning next year and a 20% payout ratio as they mentioned, it's a 5% regular dividend ratio at today's price? It's not too bad for me

 

On the other hand I am curious how do they plan to use remaining earnings, and I hope it's not just capital investment. Is share-buyback in the card? Did they mention it?

 

I don't think there was any mention of stock buyback in the latest FCAU earnings release.

 

The bulk of their earnings is going to have to go back into the company....Even with increased financial scrutiny, the auto industry needs capital for tool & die, marketing, plant maintenance, pensions & so on.

 

I think FCAU is going to need a good slug of capital to get an in house financing division going.

 

If 60% of earnings goes back into plant & equipment, 20% into dividends, 10% in debt reduction (cash buildup), 5% into pension, and 5% into financing (or other projects), that would be pretty good with me.

 

They didn't talk about buybacks in earnings but they did talk about it at the Capital Markets Day.  I don't know why they're paying a dividend.  They're starting to sound like GM.  At least it's not fixed, its 20% of earnings.

 

I like that they are starting up dividends.  That gives shareholders some amount of security against management losing their mind on capital spending.  For example, Ford is going to spend something like $700mm on the old abandoned Michigan Central Train Station.  This place was featured for years in various apocalyptic videos & movies.  One of the craziest things I've seen, and I've seen some crazy stuff.

 

The hipsters have kind of sort of started moving into the neighborhood.  So Ford figures that engineers want to be where it is "hip" to be.  I get that...but there are rumors that Ford has plenty of vacant office space in nearby Dearborn.  Ford is going to be spending HUNDREDS of dollars per square foot rehabbing and building out this new "hip" office space.  If I were a Ford shareholder, I would be irate.

 

If FCAU could use maybe 5%-10% of it's cash flow to buy back stock when it is below book value,  I think that would be a good idea also.

 

 

[QuesnelCap]

ADW Capital Letter to Fiat Chrysler Board. Adam Wyden has been known for taking activist position at much smaller companies, most recently Par Technology. Going for a whale here. His tone is friendly so far but interesting to see how it plays out.

 

https://www.prnewswire.com/news-releases/adw-capital-issues-letter-to-board-to-pursue-value-creation-strategies-300746687.html

[Foreign Tuffett]

ADW Capital Letter to Fiat Chrysler Board. Adam Wyden has been known for taking activist position at much smaller companies, most recently Par Technology. Going for a whale here. His tone is friendly so far but interesting to see how it plays out.

 

https://www.prnewswire.com/news-releases/adw-capital-issues-letter-to-board-to-pursue-value-creation-strategies-300746687.html

 

IMO the chart needs to adjust for FCAU's lack of an in-house financing division to be truly apples-to-apples. The #s look quite different if (for example) you separate out Ford Credit from F's automotive EBIT.

[Parsad]

ADW Capital Letter to Fiat Chrysler Board. Adam Wyden has been known for taking activist position at much smaller companies, most recently Par Technology. Going for a whale here. His tone is friendly so far but interesting to see how it plays out.

 

https://www.prnewswire.com/news-releases/adw-capital-issues-letter-to-board-to-pursue-value-creation-strategies-300746687.html

 

IMO the chart needs to adjust for FCAU's lack of an in-house financing division to be truly apples-to-apples. The #s look quite different if (for example) you separate out Ford Credit from F's automotive EBIT.

 

If you did that, the numbers would look even worse for Ford and GM automotive.  The finance business is a cash cow, and it would not be difficult for FCAU to add that component with their strong balance sheet and cash flow.  I agree with virtually every aspect of ADW's letter...especially the low hanging fruit of just filing in US GAAP.  Cheers!

[Foreign Tuffett]

ADW Capital Letter to Fiat Chrysler Board. Adam Wyden has been known for taking activist position at much smaller companies, most recently Par Technology. Going for a whale here. His tone is friendly so far but interesting to see how it plays out.

 

https://www.prnewswire.com/news-releases/adw-capital-issues-letter-to-board-to-pursue-value-creation-strategies-300746687.html

 

IMO the chart needs to adjust for FCAU's lack of an in-house financing division to be truly apples-to-apples. The #s look quite different if (for example) you separate out Ford Credit from F's automotive EBIT.

 

If you did that, the numbers would look even worse for Ford and GM automotive.  The finance business is a cash cow, and it would not be difficult for FCAU to add that component with their strong balance sheet and cash flow.  I agree with virtually every aspect of ADW's letter...especially the low hanging fruit of just filing in US GAAP.  Cheers!

 

I'm not sure how you can simultaneously hold both these positions:

(1) automaker in-house financing is a "cash cow"

and

(2) FCAU's lack of a significant in-house financing division somehow advantages its valuation relative to F and GM

 

 

If (for the sake of argument) one valued Ford Credit @ 1X tangible book value, the chart presented in ADW's letter would look quite different.

[NBL0303]

ADW Capital Letter to Fiat Chrysler Board. Adam Wyden has been known for taking activist position at much smaller companies, most recently Par Technology. Going for a whale here. His tone is friendly so far but interesting to see how it plays out.

 

https://www.prnewswire.com/news-releases/adw-capital-issues-letter-to-board-to-pursue-value-creation-strategies-300746687.html

 

IMO the chart needs to adjust for FCAU's lack of an in-house financing division to be truly apples-to-apples. The #s look quite different if (for example) you separate out Ford Credit from F's automotive EBIT.

 

If you did that, the numbers would look even worse for Ford and GM automotive.  The finance business is a cash cow, and it would not be difficult for FCAU to add that component with their strong balance sheet and cash flow.  I agree with virtually every aspect of ADW's letter...especially the low hanging fruit of just filing in US GAAP.  Cheers!

 

I'm not sure how you can simultaneously hold both these positions:

(1) automaker in-house financing is a "cash cow"

and

(2) FCAU's lack of a significant in-house financing division somehow advantages its valuation relative to F and GM

 

 

If (for the sake of argument) one valued Ford Credit @ 1X tangible book value, the chart presented in ADW's letter would look quite different.

 

It is about adjusting to get a better look-through of the financial comparisons of the respective companies auto operations.

[Foreign Tuffett]

ADW Capital Letter to Fiat Chrysler Board. Adam Wyden has been known for taking activist position at much smaller companies, most recently Par Technology. Going for a whale here. His tone is friendly so far but interesting to see how it plays out.

 

https://www.prnewswire.com/news-releases/adw-capital-issues-letter-to-board-to-pursue-value-creation-strategies-300746687.html

 

IMO the chart needs to adjust for FCAU's lack of an in-house financing division to be truly apples-to-apples. The #s look quite different if (for example) you separate out Ford Credit from F's automotive EBIT.

 

If you did that, the numbers would look even worse for Ford and GM automotive.  The finance business is a cash cow, and it would not be difficult for FCAU to add that component with their strong balance sheet and cash flow.  I agree with virtually every aspect of ADW's letter...especially the low hanging fruit of just filing in US GAAP.  Cheers!

 

I'm not sure how you can simultaneously hold both these positions:

(1) automaker in-house financing is a "cash cow"

and

(2) FCAU's lack of a significant in-house financing division somehow advantages its valuation relative to F and GM

 

 

If (for the sake of argument) one valued Ford Credit @ 1X tangible book value, the chart presented in ADW's letter would look quite different.

 

It is about adjusting to get a better look-through of the financial comparisons of the respective companies auto operations.

 

Yes, that's exactly the point I'm trying to make.

[Parsad]

ADW Capital Letter to Fiat Chrysler Board. Adam Wyden has been known for taking activist position at much smaller companies, most recently Par Technology. Going for a whale here. His tone is friendly so far but interesting to see how it plays out.

 

https://www.prnewswire.com/news-releases/adw-capital-issues-letter-to-board-to-pursue-value-creation-strategies-300746687.html

 

IMO the chart needs to adjust for FCAU's lack of an in-house financing division to be truly apples-to-apples. The #s look quite different if (for example) you separate out Ford Credit from F's automotive EBIT.

 

If you did that, the numbers would look even worse for Ford and GM automotive.  The finance business is a cash cow, and it would not be difficult for FCAU to add that component with their strong balance sheet and cash flow.  I agree with virtually every aspect of ADW's letter...especially the low hanging fruit of just filing in US GAAP.  Cheers!

 

I'm not sure how you can simultaneously hold both these positions:

(1) automaker in-house financing is a "cash cow"

and

(2) FCAU's lack of a significant in-house financing division somehow advantages its valuation relative to F and GM

 

 

If (for the sake of argument) one valued Ford Credit @ 1X tangible book value, the chart presented in ADW's letter would look quite different.

 

It is about adjusting to get a better look-through of the financial comparisons of the respective companies auto operations.

 

Yes, that's exactly the point I'm trying to make.

 

The presentation by ADW compares the valuation of FCAU versus the automotive and finance businesses of F & GM.  Adding in-house financing to FCAU would only make FCAU look even cheaper than already presented.  ADW's point is that FCAU is cheaper than it's competitors already.  Cheers!

[Foreign Tuffett]

ADW Capital Letter to Fiat Chrysler Board. Adam Wyden has been known for taking activist position at much smaller companies, most recently Par Technology. Going for a whale here. His tone is friendly so far but interesting to see how it plays out.

 

https://www.prnewswire.com/news-releases/adw-capital-issues-letter-to-board-to-pursue-value-creation-strategies-300746687.html

 

IMO the chart needs to adjust for FCAU's lack of an in-house financing division to be truly apples-to-apples. The #s look quite different if (for example) you separate out Ford Credit from F's automotive EBIT.

 

If you did that, the numbers would look even worse for Ford and GM automotive.  The finance business is a cash cow, and it would not be difficult for FCAU to add that component with their strong balance sheet and cash flow.  I agree with virtually every aspect of ADW's letter...especially the low hanging fruit of just filing in US GAAP.  Cheers!

 

I'm not sure how you can simultaneously hold both these positions:

(1) automaker in-house financing is a "cash cow"

and

(2) FCAU's lack of a significant in-house financing division somehow advantages its valuation relative to F and GM

 

 

If (for the sake of argument) one valued Ford Credit @ 1X tangible book value, the chart presented in ADW's letter would look quite different.

 

It is about adjusting to get a better look-through of the financial comparisons of the respective companies auto operations.

 

Yes, that's exactly the point I'm trying to make.

 

(1) The presentation by ADW compares the valuation of FCAU versus the automotive and finance businesses of F & GM. (2) Adding in-house financing to FCAU would only make FCAU look even cheaper than already presented.  ADW's point is that FCAU is cheaper than it's competitors already.  Cheers!

 

We're still talking past each other. I have divided your comment into two parts:

 

1) Yes, the chart in the letter lumps Ford and GM's auto EBIT and financing EBIT together. My point is that I don't think it's appropriate to do so. Instead, as financials, the in-house financing companies should probably be valued at some multiple of tangible book value. I already threw 1X TBV out as a valuation for Ford Credit.

 

2) It takes lots of hard work and capital to build or buy a financing org of this scale. Way back in 2010 GM paid $3.5B to acquire its way back into this line of business. If it were easy FCAU would already have done it.

[Parsad]

ADW Capital Letter to Fiat Chrysler Board. Adam Wyden has been known for taking activist position at much smaller companies, most recently Par Technology. Going for a whale here. His tone is friendly so far but interesting to see how it plays out.

 

https://www.prnewswire.com/news-releases/adw-capital-issues-letter-to-board-to-pursue-value-creation-strategies-300746687.html

 

IMO the chart needs to adjust for FCAU's lack of an in-house financing division to be truly apples-to-apples. The #s look quite different if (for example) you separate out Ford Credit from F's automotive EBIT.

 

If you did that, the numbers would look even worse for Ford and GM automotive.  The finance business is a cash cow, and it would not be difficult for FCAU to add that component with their strong balance sheet and cash flow.  I agree with virtually every aspect of ADW's letter...especially the low hanging fruit of just filing in US GAAP.  Cheers!

 

I'm not sure how you can simultaneously hold both these positions:

(1) automaker in-house financing is a "cash cow"

and

(2) FCAU's lack of a significant in-house financing division somehow advantages its valuation relative to F and GM

 

 

If (for the sake of argument) one valued Ford Credit @ 1X tangible book value, the chart presented in ADW's letter would look quite different.

 

It is about adjusting to get a better look-through of the financial comparisons of the respective companies auto operations.

 

Yes, that's exactly the point I'm trying to make.

 

(1) The presentation by ADW compares the valuation of FCAU versus the automotive and finance businesses of F & GM. (2) Adding in-house financing to FCAU would only make FCAU look even cheaper than already presented.  ADW's point is that FCAU is cheaper than it's competitors already.  Cheers!

 

We're still talking past each other. I have divided your comment into two parts:

 

1) Yes, the chart in the letter lumps Ford and GM's auto EBIT and financing EBIT together. My point is that I don't think it's appropriate to do so. Instead, as financials, the in-house financing companies should probably be valued at some multiple of tangible book value. I already threw 1X TBV out as a valuation for Ford Credit.

 

2) It takes lots of hard work and capital to build or buy a financing org of this scale. Way back in 2010 GM paid $3.5B to acquire its way back into this line of business. If it were easy FCAU would already have done it.

 

1)  You could take the financing business for GM and F out, but then they would look even more expensive than FCAU than they are by including them.  In other words, FCAU's auto business is more profitable and efficient than GM or F's auto business.  The mispricing of FCAU becomes even more egregious!

 

2)  Adding a finance business is actually not that difficult if you have a captive audience through in-house sales.  It would be simply extending financing to existing retail and commercial customers.  The reason FCAU has not done it yet is because they were deleveraging and trying to get the automotive business fairly valued...both by markets and credit markets.  Now that the heavy lifting is done, the auto business simplified, and credit quality expected to increase, they would have a lower cost finance business than if they had launched years ago.  You have to be competitive in the finance business, and if your credit offerings are not comparable to the best competitors, buyers will find financing elsewhere and you'll be stuck with lesser quality borrowers that completely skew your expected loss ratios.

 

Cheers!

[LC]

2)  Adding a finance business is actually not that difficult if you have a captive audience through in-house sales.  It would be simply extending financing to existing retail and commercial customers.  The reason FCAU has not done it yet is because they were deleveraging and trying to get the automotive business fairly valued...both by markets and credit markets.  Now that the heavy lifting is done, the auto business simplified, and credit quality expected to increase, they would have a lower cost finance business than if they had launched years ago.  You have to be competitive in the finance business, and if your credit offerings are not comparable to the best competitors, buyers will find financing elsewhere and you'll be stuck with lesser quality borrowers that completely skew your expected loss ratios.

This is correct.

[mcliu]

1)  You could take the financing business for GM and F out, but then they would look even more expensive than FCAU than they are by including them.  In other words, FCAU's auto business is more profitable and efficient than GM or F's auto business.  The mispricing of FCAU becomes even more egregious!

 

?????

 

Wouldn't the GM/F auto business look cheaper since the finance business trades at a bigger multiple? Ex. If you back out $1b in EBIT and $10b from EV.. but overall it's trading at 5x EV/EBIT.

 

Same with adding a finance business to FCAU, even though the earnings will be higher, you need to add the capital required to EV to compare apples to apples..?

[RadMan24]

1)  You could take the financing business for GM and F out, but then they would look even more expensive than FCAU than they are by including them.  In other words, FCAU's auto business is more profitable and efficient than GM or F's auto business.  The mispricing of FCAU becomes even more egregious!

 

?????

 

Wouldn't the GM/F auto business look cheaper since the finance business trades at a bigger multiple? Ex. If you back out $1b in EBIT and $10b from EV.. but overall it's trading at 5x EV/EBIT.

 

Same with adding a finance business to FCAU, even though the earnings will be higher, you need to add the capital required to EV to compare apples to apples..?

 

Yes. Also, it would be better to compare all auto company multiples (maybe 2-3 Chinese ones) so you have a broader idea of how the auto industry is valued. Needless to say, each has their own advantages and disadvantages.

[rkluwer]

Fiat Is Said to Weigh Robotics Arm Sale for Up to $2.3 Billion.

 

https://www.bloombergquint.com/business/fiat-is-said-to-weigh-robotics-arm-sale-for-up-to-2-3-billion

 

 

Filling up their pockets!

[DTEJD1997]

Hey all:

 

In all the analysis I've read of FCAU's situation, I've not seen discussion of the sale of the robotics unit.  The price being bandied about is $2BB to $2.5BB.  This is pretty significant for a company the size of FCAU, translating into about $1.35 to $1.70/share in proceeds.

 

That would be NICE cash cushion.

 

Great news if it actually goes through!

[nikhil25]

Fiat Chrysler Is Expected to Pay Nearly $650M in emissions case

 

https://www.nytimes.com/2019/01/09/business/fiat-chrysler-justice-settlement-emissions.html