FCAU - Fiat Chrysler Automobiles

[RadMan24]

why should fiat increase its exposure to europe? With GM, it would have increased its exposure to suvs, trucks, and china, markets of which are superior to Europe in all aspects.

[Spekulatius]

why should fiat increase its exposure to europe? With GM, it would have increased its exposure to suvs, trucks, and china, markets of which are superior to Europe in all aspects.

 

There is a difference between what you want and what you can get unfortunately. I don’t think that plant closures and layoffs would be seen favorably by the current government or any government for that matter and I think those would be inevitable, because where else would the savings come from? So while a GM Chrysler tuneup would just restore the GM market share from 30 years ago, I just don’t fit the current narrative of saving blue collar jobs in the Midwest. So I am guessing that a tie up  with Peugeot May be perused as a second best solution to win scale and bail out the European Fiat operations. These are just guesses of course, and they would have to have benefits for both parties and palpable to politicians on both sides of the pond.

[Pondside47]

why should fiat increase its exposure to europe? With GM, it would have increased its exposure to suvs, trucks, and china, markets of which are superior to Europe in all aspects.

 

There is a difference between what you want and what you can get unfortunately. I don’t think that plant closures and layoffs would be seen favorably by the current government or any government for that matter and I think those would be inevitable, because where else would the savings come from? So while a GM Chrysler tuneup would just restore the GM market share from 30 years ago, I just don’t fit the current narrative of saving blue collar jobs in the Midwest. So I am guessing that a tie up  with Peugeot May be perused as a second best solution to win scale and bail out the European Fiat operations. These are just guesses of course, and they would have to have benefits for both parties and palpable to politicians on both sides of the pond.

 

From Confession of a capital junkie, savings will not be majorly from reduction of number employed.

 

Consolidation carries executional risks BUT benefits are too large to ignore

● Up to €4.5bn per annum, ~70% of which is a reduction in investments and R&D

● Optimized industrial allocations, with no impact on number employed

● Distribution (dealer networks not merged) and brands untouched by consolidation

● An exceptional value creation opportunity for shareholders

 

 

[compounding]

why should fiat increase its exposure to europe? With GM, it would have increased its exposure to suvs, trucks, and china, markets of which are superior to Europe in all aspects.

 

Because PSA Group have the same margins globally that FCA have in NAFTA (!).

 

I think people in this thread should let go of the idea of a merger with GM. There is no indication that something in that direction is in the works. Also, I disagree pretty strongly that the Chinese market is better than the European in all aspects.

[Parsad]

It's a paid subscription link, but the FT had an article about Elkann also pushing for a deal.  Nothing imminent but it looks like the "moons might be aligned" as Peugeot's CEO commented.  Cheers!

 

https://finance.yahoo.com/m/db06b96f-f6f9-319d-95c5-3f8ae92ff77e/%5B%24%24%5D-fiat-chrysler%E2%80%99s-chairman.html

[rolling]

It's a paid subscription link, but the FT had an article about Elkann also pushing for a deal.  Nothing imminent but it looks like the "moons might be aligned" as Peugeot's CEO commented.  Cheers!

 

https://finance.yahoo.com/m/db06b96f-f6f9-319d-95c5-3f8ae92ff77e/%5B%24%24%5D-fiat-chrysler%E2%80%99s-chairman.html

It seems to be just a matter of time for a deal to appear. Marelli deal. Comau speculation. Merger speculation. It seems that that  marchioni departure has increased their willingness to get things done.

[Parsad]

Another rumour:

 

https://finance.yahoo.com/news/renault-aims-restart-nissan-merger-054654446.html

 

I suspect FCAU is a piece that a few companies would want.  Cheers!

[fareastwarriors]

PSA Group and Fiat Chrysler Explore European Venture

 

 

 

Peugeot and Fiat evaluating development of "super platform"

Companies considering sharing investments for cars in Europe

 

 

https://www.bloomberg.com/news/articles/2019-03-30/psa-group-fiat-chrysler-are-said-to-explore-europe-venture

[TwoCitiesCapital]

Bizarre action today. Almost as if the market didn't expect the deal to close or the special dividend to be paid/announced?

 

Why else are we up 6-7% for something that was expected?

[Shooter MacGavin]

Bizarre action today. Almost as if the market didn't expect the deal to close or the special dividend to be paid/announced?

 

Why else are we up 6-7% for something that was expected?

seriously

 

two theories:

 

1) short covering -although it didn't look too heavily shorted

2) confirmed FY 19 guidance.

 

haven't heard the call yet.

[Gray Fox]

A lot of it is both.  Everyone knew that Q1 numbers would be bad based on monthly auto sales data.  The question would be if they stick to their guidance for the back half.  The Q1 call in February was a disaster because the cut 2019 guidance so much. 

 

Its interesting to note that some very vocal managers regarding the stock really trimmed or completely bailed in Q1.

 

ADW Capital put this out in November

 

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

 

And FCAU is nowhere to be found on their Q1 13F

 

https://www.sec.gov/Archives/edgar/data/1745214/000138713119002818/xslForm13F_X01/infotable.xml

 

It was the first of the top 5 positions mentioned in the Greenhaven Road Q4 2018 Letter.

 

https://static1.squarespace.com/static/5498841ce4b0311b8ddc012b/t/5c4bc50842bfc120277fb927/1548469513395/Greenhaven+2018+Q4+FINAL.pdf

 

Its no longer in his top 5 and he now has the position via long-dated calls

 

https://static1.squarespace.com/static/5498841ce4b0311b8ddc012b/t/5cc366e74442bb0001c72482/1556309735923/Greenhaven+Letter+%282019+Q1%29.pdf

 

 

 

[valueinvestor]

Bizarre action today. Almost as if the market didn't expect the deal to close or the special dividend to be paid/announced?

 

Why else are we up 6-7% for something that was expected?

seriously

 

two theories:

 

1) short covering -although it didn't look too heavily shorted

2) confirmed FY 19 guidance.

 

haven't heard the call yet.

 

Sounds unbelievable right? I cut my position in half because I did not know why the market was responding the way it does, and I do not have that much confidence in the macro (which shouldn't matter, as 99% of my investment desicions was never macro). Therefore, when google had that decline, I allocated my proceeds from fiat to google. I already knew the following:

 

1. Special Dividend

2. Regular Dividend

3. Guidance

4. Worst Case SAAR Scenario

 

Yet, I @!*&$!@&$) Sold.

 

About half my portfolio was in Fiat Chrysler. Still a meaningful position, and does not matter much. In hindsight it maybe the right move, as I was not really comfortable with having half my life savings in a car company.

 

 

[NBL0303]

I already knew the following:

 

1. Special Dividend

2. Regular Dividend

3. Guidance

4. Worst Case SAAR Scenario

 

 

Could you elaborate on your perception of the "Worst Case SAAR Scenario"? Thanks, I'm just trying to learn.

[valueinvestor]

I already knew the following:

 

1. Special Dividend

2. Regular Dividend

3. Guidance

4. Worst Case SAAR Scenario

 

 

Could you elaborate on your perception of the "Worst Case SAAR Scenario"? Thanks, I'm just trying to learn.

 

Not a problem - SAAR means Seasonally Adjusted Annual Rate. If you check out Fiat's presentations, especially the investor day presentations, you will see them use it to explain what happens when a recession-like scenario happens, they will still make a profit.

[Spekulatius]

I already knew the following:

 

1. Special Dividend

2. Regular Dividend

3. Guidance

4. Worst Case SAAR Scenario

 

 

Could you elaborate on your perception of the "Worst Case SAAR Scenario"? Thanks, I'm just trying to learn.

 

Not a problem - SAAR means Seasonally Adjusted Annual Rate. If you check out Fiat's presentations, especially the investor day presentations, you will see them use it to explain what happens when a recession-like scenario happens, they will still make a profit.

 

The problem is that during a recession, we typically have a) lower volume , b) less profitable models or trims and c) more discounting.

 

The models typically only account for a)..

[TwoCitiesCapital]

A lot of it is both.  Everyone knew that Q1 numbers would be bad based on monthly auto sales data.  The question would be if they stick to their guidance for the back half.  The Q1 call in February was a disaster because the cut 2019 guidance so much. 

 

Its interesting to note that some very vocal managers regarding the stock really trimmed or completely bailed in Q1.

 

ADW Capital put this out in November

 

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

 

And FCAU is nowhere to be found on their Q1 13F

 

https://www.sec.gov/Archives/edgar/data/1745214/000138713119002818/xslForm13F_X01/infotable.xml

 

It was the first of the top 5 positions mentioned in the Greenhaven Road Q4 2018 Letter.

 

https://static1.squarespace.com/static/5498841ce4b0311b8ddc012b/t/5c4bc50842bfc120277fb927/1548469513395/Greenhaven+2018+Q4+FINAL.pdf

 

Its no longer in his top 5 and he now has the position via long-dated calls

 

https://static1.squarespace.com/static/5498841ce4b0311b8ddc012b/t/5cc366e74442bb0001c72482/1556309735923/Greenhaven+Letter+%282019+Q1%29.pdf

 

Interesting. I got out of all my long-dated calls when I started to expect a regular dividend. Figured there was the potential for strikes to react negatively given such a high percentage being distributed as a regular dividend which the strikes don't get adjusted for.

[NBL0303]

I already knew the following:

 

1. Special Dividend

2. Regular Dividend

3. Guidance

4. Worst Case SAAR Scenario

 

 

Could you elaborate on your perception of the "Worst Case SAAR Scenario"? Thanks, I'm just trying to learn.

 

Not a problem - SAAR means Seasonally Adjusted Annual Rate. If you check out Fiat's presentations, especially the investor day presentations, you will see them use it to explain what happens when a recession-like scenario happens, they will still make a profit.

 

Yes, sorry, I should have asked my question better. What levels were you considering as the worst-case SAAR scenario that you personally were using?

[valueinvestor]

I already knew the following:

 

1. Special Dividend

2. Regular Dividend

3. Guidance

4. Worst Case SAAR Scenario

 

 

Could you elaborate on your perception of the "Worst Case SAAR Scenario"? Thanks, I'm just trying to learn.

 

Not a problem - SAAR means Seasonally Adjusted Annual Rate. If you check out Fiat's presentations, especially the investor day presentations, you will see them use it to explain what happens when a recession-like scenario happens, they will still make a profit.

 

Yes, sorry, I should have asked my question better. What levels were you considering as the worst-case SAAR scenario that you personally were using?

 

No worries, arguments can be made that I misunderstood you. Just used the 14M figure, reason for the figure is because it is similar to the rate of decline experienced in the Great Financial Recession.

[gokou3]

Interesting. I got out of all my long-dated calls when I started to expect a regular dividend. Figured there was the potential for strikes to react negatively given such a high percentage being distributed as a regular dividend which the strikes don't get adjusted for.

 

Will there be an adjustment to the strike prices of the options for the EUR$1.3/share special dividends?  For sure no adjustment on the *quarterly* dividend, but there have been a couple adjustments in the last few years for FCAU alone for various one-time things, like RACE and the tractor unit spin-offs.  The value of the latter is less than this special dividend.

[TwoCitiesCapital]

Interesting. I got out of all my long-dated calls when I started to expect a regular dividend. Figured there was the potential for strikes to react negatively given such a high percentage being distributed as a regular dividend which the strikes don't get adjusted for.

 

Will there be an adjustment to the strike prices of the options for the EUR$1.3/share special dividends?  For sure no adjustment on the *quarterly* dividend, but there have been a couple adjustments in the last few years for FCAU alone for various one-time things, like RACE and the tractor unit spin-offs.  The value of the latter is less than this special dividend.

 

It's my understanding special dividends DO impact strike price on options.

 

I simply didn't want my LEAPS to react negatively to having to climb an additional 4-6% in the next 12 months to overcome the newly announced dividend so rolled out of the options for shares when the talks about a MM sale seemed to be getting serious.

 

 

[JRM]

Interesting. I got out of all my long-dated calls when I started to expect a regular dividend. Figured there was the potential for strikes to react negatively given such a high percentage being distributed as a regular dividend which the strikes don't get adjusted for.

 

Will there be an adjustment to the strike prices of the options for the EUR$1.3/share special dividends?  For sure no adjustment on the *quarterly* dividend, but there have been a couple adjustments in the last few years for FCAU alone for various one-time things, like RACE and the tractor unit spin-offs.  The value of the latter is less than this special dividend.

 

It's my understanding special dividends DO impact strike price on options.

 

I simply didn't want my LEAPS to react negatively to having to climb an additional 4-6% in the next 12 months to overcome the newly announced dividend so rolled out of the options for shares when the talks about a MM sale seemed to be getting serious.

 

I don't think a dividend has any effect on the strike price of an american option.  The value of the option should definitely be re-priced if a special dividend is issued, though.  I'm assuming you're talking about call options.  Expected dividends will be priced into the intrinsic value of the option discounted to present value.  A special dividend will likely be short notice, so you should see a step change down in intrinsic value when the special dividend is announced. In theory the value of the underlying should be re-priced lower when the dividend is announced, and that should be carried through to the derivative. 

 

[TwoCitiesCapital]

Interesting. I got out of all my long-dated calls when I started to expect a regular dividend. Figured there was the potential for strikes to react negatively given such a high percentage being distributed as a regular dividend which the strikes don't get adjusted for.

 

Will there be an adjustment to the strike prices of the options for the EUR$1.3/share special dividends?  For sure no adjustment on the *quarterly* dividend, but there have been a couple adjustments in the last few years for FCAU alone for various one-time things, like RACE and the tractor unit spin-offs.  The value of the latter is less than this special dividend.

 

It's my understanding special dividends DO impact strike price on options.

 

I simply didn't want my LEAPS to react negatively to having to climb an additional 4-6% in the next 12 months to overcome the newly announced dividend so rolled out of the options for shares when the talks about a MM sale seemed to be getting serious.

 

I don't think a dividend has any effect on the strike price of an american option.  The value of the option should definitely be re-priced if a special dividend is issued, though.  I'm assuming you're talking about call options.  Expected dividends will be priced into the intrinsic value of the option discounted to present value.  A special dividend will likely be short notice, so you should see a step change down in intrinsic value when the special dividend is announced. In theory the value of the underlying should be re-priced lower when the dividend is announced, and that should be carried through to the derivative.

 

The problem is the strikes AREN'T adjusted for regular dividends...but the stock price is.

 

Let's assume a stock trades at $9. You expect it should trade above $10, so you buy $10 LEAPS hoping to leverage that return.

 

Now assume the company announces regular dividends of $1/share. The options don't adjust for the regular dividend, but the share price will adjust lower each time it's paid. So now the only way your $10 options end up in the money is if the stock appreciates by at least $2/share over the course of the next year (because the dividend will reduce the share price by $1 all things being equal). 

 

Options buyers now know this, where before they might not have. It will certainly effect the premium buyers are willing to pay for the options knowing the stock has to now appreciate by $2/share ($1 AFTER adjusting for the dividends paid) where before it only had to go up by $1 over the same period of time.

 

At least, that's how I thought about it which is why I dropped the options in favor of the actual sharss when I suspected a dividend might be announced.

[JRM]

that is correct, assuming efficient pricing of the options.  I still don't understand what you mean by adjusting the strike price, though.  not important to the discussion...carry on.

[Gray Fox]

The option prices should adjust for the special dividend.  According to Fidelity, if the special dividend is more than $12.50/contract it adjusts.  The dividend is 1.30 Euro/share, or $1.46 USD.  At 100 shares per contract, the dividend is $146 per contract.  The $16 calls will essentially become contracts with a strike price of $14.54.

 

https://www.fidelity.com/learning-center/investment-products/options/contract-adjustments

 

A special cash dividend is outside the typical policy of being paid on a quarterly basis. Assuming a dividend is special, the value of the dividend must be at least $12.50 per option contract and then an adjustment will be made to the contract.

 

The dividend earlier this year was an ordinary dividend representing 20% of earnings last year.  The dividend was 0.65 Euro or $0.73.  The stock currently trades at a 4.6% yield.  The GM trades at a 3.92% trailing yield and pays out at 38% of adjusted net income.  Fiat earned Euro 3.25/share last year, guidance this year is for at least Euro 2.70.  If they paid out at the same rate of earnings as GM (38%) and traded at the same yield, it would be a dividend of $1.15 this year and a share price of $29.60.  If you backed out the Cruze stake on GM obviously the math looks less compelling, but still implies a lot of upside for FCAU.

 

There are a lot of perceived issues that lead to the valuation gap (European business, China weakness, Maserati running at just better than breakeven), but they contribute almost nothing to earnings.  If they were to give them away for free, the stock would probably jump up.  If they could find ways to make them cash flow positive and valuable its an added bonus.

 

[JRM]

Interesting.  Thanks for the link.  I've had option contracts adjust strike due to split, but I guess I've never seen the special dividend cause a strike price adjustment.  I guess it makes sense if the special dividend wasn't priced into the contract when the option was bought/sold.