FCAU - Fiat Chrysler Automobiles

[cmlber]

Inventory levels for the highest margin trucks across the Detroit Three are at record highs (

).

 

This guy that you keep citing pretends to do deep due diligence on this sector yet is unaware of anything going on in the industry.  The chart he showed for April 1 inventories shows the F-150 inventory hasn't changed in 3 years and the Chevy/Ram inventory levels are temporarily high due to factors he should know about if he spends any time doing real research.  Both those lines got remodels and they built inventory ahead of plant shutdowns associated with switching over to the new model and the remodels (particularly in the case of Ram which hadn't been remodeled in 8 years) should lead to market share gains which means the denominator in the inventory days calculation is too low in his numbers. 

 

He also shows the Wrangler spike and is completely unaware that they built inventory ahead of the prime spring/summer selling season in anticipation of shutting down the plant to tool the new EV Wrangler.  Also, again, Wrangler had been run-rating 240k vehicles a year and was capacity constrained, not demand constrained.  Capacity is up ~50% now which means his denominator (12 month avg monthly sales) is too low going forward.

 

Sales of the trucks that provide huge chunks of FCAU's, GM's, and F's, EBITDA are falling rapidly (https://twitter.com/DRuizG80/status/1129032612012527617).

 

If you're going to cite this idiots charts, at least cite them right.  Truck sales are not "falling rapidly" even looking at his charts.  The GROWTH in truck sales is falling QoQ.  That is big difference...  Ram is up double digits YoY.

[compounding]

 

 

 

On the other hand, you probably should be popping champagne when capital allocation continues to improve and the company trades for a low single digit multiple.

 

A few years ago investors in FCA were overestimating Sergio, putting too much emphasis on the jockey in a bad business. Now it's the other way around. Surprisingly enough, the comments inevitably come after the stock has traded weakly for a period of time. Go figure.

 

 

 

So the guy who boasts about being able to average down into an auto stock 10 years into a SAAR recovery even though residual values are falling, inventory levels are super high, truck sales are declining, consumers are stretched, auto defaults are soaring, and every great investor in history has warned strongly against owning OEMs towards the tail end of a cycle, is saying Marchionne was overestimated by investors and didn't deserve a premium even though Chrysler and therefore Jeep wouldn't be owned by Fiat without him, Ferrari got priced at the extreme end of its range because of him, and he also turned a 3B euro company with 22B euros of gross debt into 60B euros worth of total market cap (including spin-offs) in just 14 years.

 

The last time a read a sentence that long was in The Origin of Species. Thanks for that, gave me a pleasant flashback.

 

I’m not sure what your point is exactly. I think you’re trying to say that macros in some ways have been better than they are right now and that Sergio was a great CEO. I agree with both those statements.

 

 

Haha. Your initial post said investors overestimated him. That's clearly BS. The guy was a GOAT CEO with a 20%+ annualized CAGR over 14 years which incredibly included handling the worst auto industry crisis any of us may see in our lifetimes. When news of his illness got out, the stock dropped by around 20% in the following weeks. It hasn't come close to recovering since. Your original assessment of him is ridiculous based on his career record, plus the way investors started valuing the business after he was incapacitated.

 

Your statement that "macros in some ways have been better than they are right now" also sounds recklessly euphimistic. Inventory levels for the highest margin trucks across the Detroit Three are at record highs (

). Auto delinquency rates are at GFC levels (image below). Sales of the trucks that provide huge chunks of FCAU's, GM's, and F's, EBITDA are falling rapidly (https://twitter.com/DRuizG80/status/1129032612012527617). Over 4 million Americans will turn in leases in 2019, but residual values have dropped so much that many will only be able to afford used vehicles (https://www.aftermarketnews.com/edmunds-record-number-of-americans-with-car-leases-ending-in-2019-will-face-significant-price-hikes/). And these same potential buyers, will also have $830 per household less to spend this year because of tariffs (

).

 

The fact that we are 10 years into a SAAR expansion and you treat residuals, auto loan defaults, inventory levels, interest rates, used car values, consumer spending power, and other factors that are vital to new truck sales and therefore the margins of the Detroit Three, as some minor academic afterthought, sounds like a bad joke and some truly amazing complacency on your part.

Finally, if you're going to attempt to smarmily criticize my sentence structure at least check your own spelling first. Screwing up something like that could well lead people to reasonably question your ability to conduct intelligent and accurate due diligence.

 

No, either you misunderstood me or I wasn't clear. A few years ago people were saying that FCAU shareholders overestimating Sergio, I'm not saying anything of the sort since I was, and am, one of them (!). So I'm not in need of a lecture on the virtues of Sergio Marchionne, thank you very much. My point was that there always seems to be experts telling shareholders how to think, and invariably this "advice" magically appears after the stock has gone down.

 

Inventories for trucks are high after being constantly too low for the last five years or so, I don't think this is a big problem. I see that cmlbr has already pointed out the specific reasons for Jeep, Ram and Chevy to be higher right now so I won't repeat that, except to say that sales for those trucks are also at record highs, which naturally makes it more attractive to build inventory in line with that. Sales of Ram are falling? Try checking your numbers again.

 

Despite the supposedly lackluster condition of the American consumer, average transaction prices are at record highs with incentives that have fallen for maybe 7-8 months straight. Why is that?

 

You have found Daniel Ruiz and found his research valuable, good for you. Your endless repetition of his thoughts is a bit tiresome though. If I wanted to debate Daniel Ruiz I would rather talk to him, so I think I'll just leave it at that. There are counter arguments to the rest of your points as well, but you seem more interested in throwing insults around than actually debating the merits of the research, so I'll give you the pleasure of finding it out yourself.

 

The Origin of Species comment was a joke, calm down. Thanks for the heads up on people thinking I'm dumb and lazy.

[Guest ajc]

 

Inventory levels for the highest margin trucks across the Detroit Three are at record highs (

).

 

This guy that you keep citing pretends to do deep due diligence on this sector yet is unaware of anything going on in the industry.  The chart he showed for April 1 inventories shows the F-150 inventory hasn't changed in 3 years and the Chevy/Ram inventory levels are temporarily high due to factors he should know about if he spends any time doing real research.  Both those lines got remodels and they built inventory ahead of plant shutdowns associated with switching over to the new model and the remodels (particularly in the case of Ram which hadn't been remodeled in 8 years) should lead to market share gains which means the denominator in the inventory days calculation is too low in his numbers. 

 

He also shows the Wrangler spike and is completely unaware that they built inventory ahead of the prime spring/summer selling season in anticipation of shutting down the plant to tool the new EV Wrangler.  Also, again, Wrangler had been run-rating 240k vehicles a year and was capacity constrained, not demand constrained.  Capacity is up ~50% now which means his denominator (12 month avg monthly sales) is too low going forward.

 

Sales of the trucks that provide huge chunks of FCAU's, GM's, and F's, EBITDA are falling rapidly (https://twitter.com/DRuizG80/status/1129032612012527617).

 

If you're going to cite this idiots charts, at least cite them right.  Truck sales are not "falling rapidly" even looking at his charts.  The GROWTH in truck sales is falling QoQ.  That is big difference...  Ram is up double digits YoY.

 

 

Hehe, my own stupidity. Glad to admit it and appreciate you pointing it out. Intelligent and accurate due diligence, something, something. After owning that, I'd still point out the trend is going in the wrong direction and is the closest it has been to turning into negative territory since the GFC.

Furthermore, the points I made about other variables such as delinquency rates, falling residual and used car values, higher interest rates than 3 years ago, a record 4 million plus leases ending this year, and the impact of tariffs on US consumers, all still stand and are at the riskiest levels we've seen for almost a decade.

In other words, there are still plenty of warnings signs that matter which are not being discussed on this thread.

 

As far as Ruiz's commentary goes, I agree that his research in terms of digging into the strategic and operating specifics of each auto company doing business in the US is not where he shines brightest (though to be fair there are many companies operating in the US). When I owned FCAU, there were times when we discussed the company and it was clear he wasn't paying full attention to their individual approach. So I think there is a definite amount of truth to the things you've mentioned on that score.

On the other hand, having followed the industry-wide and sometimes company-specific calls he makes probably 10 or 20 times a year on his Twitter account, my estimate is that he is correct with his calls somewhere between 2/3rds and 4/5ths of the time.

In other words, simply using his broad approach with the data points I've highlighted, has yielded pretty incredible results.

 

Anyone here can visit his Twitter, scroll back 3 years, open browser windows for the FCAU, GM, and F stock charts, and then page through his calls while comparing, to see how eerily accurate they have tended to be with regard to substantial price changes.

Put differently, just because his methods rely on using different data to what an individual FCAU investor might, does not mean his understanding of the general industry and consumption side isn't extremely sharp and something worth paying attention to.

We all know Buffett also focuses on rail car loadings, Iscar tool bit sales, and reads industry magazines to learn the dynamics of the variables that impact specific sectors, etc, to keep a handle on and read the pulse of the US economy, there's no reason why an auto investor shouldn't want to do the same for all the relevant factors that impact the industry they're invested in. That to me, is common sense.

 

Overall while I gladly admit screwing up where you pointed out, I think branding Ruiz an idiot because he isn't a deep-dive, individual company value guy is over the top and extremely close-minded.

Trying to understand how the thinking and modelling of someone with that high of a hit rate works, is to my mind something every reasonable investor should at least be interested in figuring out, and at best I think anyone making serious bets in the auto industry should absolutely want to understand what's happening there in order to improve their edge. Anything less seems crazy to me.

Even if you end up disagreeing with 50% or 75% of it, it's only going to deepen your margin-of-safety understanding, improve your decision making toolkit, and most likely protect your downside while boosting your returns.

Finally, I'd say if someone with that good a batting average is the most bearish he has been on the sector over the past five years or so, then dismissing it out of hand seems a little haughty.

Last time I checked, looking seriously at ways to kill our theses never stopped being a priority.

 

 

 

[cmlber]

Furthermore, the points I made about other variables such as delinquency rates, falling residual and used car values, higher interest rates than 3 years ago, a record 4 million plus leases ending this year, and the impact of tariffs on US consumers, all still stand and are at the riskiest levels we've seen for almost a decade.

 

Agreed.  Clearly the demand picture will not be as bright over the next 10 years as it was the last 10 years.  But context is key.  Rates are marginally higher over 3 years.  The 5yr treasury was 50-100bps lower 3 years ago.  The impact of moving APRs from 4% to 5% is pretty minimal on the monthly payment.  On short-term financing with such low rates, the vast majority of the payment is principal.  Also, used car prices may fall in the future, but they are not "falling" in the present.  4 million plus leases ending this year; do you think this is the first time that a lot of leases have ended?  There are 250 million cars in the U.S., many leased.  1-2% of the car parc is coming off lease (assuming that statistic is accurate).  What do you expect to happen in any given year?

 

On the other hand, having followed the industry-wide and sometimes company-specific calls he makes probably 10 or 20 times a year on his Twitter account, my estimate is that he is correct with his calls somewhere between 2/3rds and 4/5ths of the time.  In other words, simply using his broad approach with the data points I've highlighted, has yielded pretty incredible results.

 

Can you recall some specific "calls" he has made that were correct?  I highly doubt he's made 10-20 specific "calls" that turned out to be right 80% of the time based on how little understanding he seems to have about the companies he's doing "deep research" on.

[Shooter MacGavin]

Official PR:

https://www.fcagroup.com/en-US/media_center/fca_press_release/FiatDocuments/2019/may/FCA_SUBMITS_PROPOSAL_FOR_A_TRANSFORMATIVE_MERGER_WITH_GROUPE_RENAULT.pdf

 

Now is the $2.5B Euro dividend in the deal on top of the $2B Euro dividend being paid out this week?  Plus the Comau shares on top of that.  Cheers!

 

So it looks like we get our:

 

- $2B Euro (1.46 USD/share) special dividend (from Magnetti deal) this week

- plus another $2.5B Euro (approx $1.75 USD) equalization dividend through the merger

- plus another $0.18 USD /share dividend in cash or Comau spinoff shares

- plus the $3.55 Euro / 5.328 merger exchange or $0.74 USD / FCAU share Renault annual dividend on June 19th! 

 

Cheers!

 

I'm running a pro-forma basic post-deal analysis.  I do not doubt the industrial logic of this deal. I would have to defer to Sergio's Capital Junkie/Elkann/FCA mgmt analysis on the logic of this deal but it makes sense.

 

However, with the caveat that I do not know Renault very well, I don't think this is a better economic deal taking into account FCA's original 2022 plan for FCA shareholders.

 

Basically, it seems like we are effectively (though I know its a merger of equals) giving up half our ownership in an extraordinarily cheap stock with lots of potential to purchase a less extraordinary investment (though apparently still well run) concentrated in somewhat rocky markets such as Russia/Iran and a business unfriendly European union. Additionally, the $5B of projected run-rate synergies don't seem to make up for the economics that would flow to current FCA shareholders from the original plan.

 

Look at how much money GM threw out the door trying to get Opel to profitability in Europe finally relegating it to Peugot.  Eur 5B is incredibly optimistic in my view.  That is 50% higher than Adj. EBIT of the two companies together currently.

 

I don't know enough about Renault and what they are hoping to accomplish in terms of headcount and revenue synergies (cross-distribution) and I wish these European companies were better about talking it through on a call, but I'm not thrilled about it based on my initial analysis.  Would love to hear some different thoughts from anyone who has run their own analysis.  Thank you.

[Guest ajc]

 

Furthermore, the points I made about other variables such as delinquency rates, falling residual and used car values, higher interest rates than 3 years ago, a record 4 million plus leases ending this year, and the impact of tariffs on US consumers, all still stand and are at the riskiest levels we've seen for almost a decade.

 

Agreed.  Clearly the demand picture will not be as bright over the next 10 years as it was the last 10 years.  But context is key.  Rates are marginally higher over 3 years.  The 5yr treasury was 50-100bps lower 3 years ago.  The impact of moving APRs from 4% to 5% is pretty minimal on the monthly payment.  On short-term financing with such low rates, the vast majority of the payment is principal.  Also, used car prices may fall in the future, but they are not "falling" in the present.  4 million plus leases ending this year; do you think this is the first time that a lot of leases have ended?  There are 250 million cars in the U.S., many leased.  1-2% of the car parc is coming off lease (assuming that statistic is accurate).  What do you expect to happen in any given year?

 

On the other hand, having followed the industry-wide and sometimes company-specific calls he makes probably 10 or 20 times a year on his Twitter account, my estimate is that he is correct with his calls somewhere between 2/3rds and 4/5ths of the time.  In other words, simply using his broad approach with the data points I've highlighted, has yielded pretty incredible results.

 

Can you recall some specific "calls" he has made that were correct?  I highly doubt he's made 10-20 specific "calls" that turned out to be right 80% of the time based on how little understanding he seems to have about the companies he's doing "deep research" on.

 

 

I think this article explains the coming demand concerns reasonably well - https://www.aftermarketnews.com/edmunds-record-number-of-americans-with-car-leases-ending-in-2019-will-face-significant-price-hikes/.

Add to that, the fact that Trump's 2019 tariffs are effectively one of the biggest tax increases in the past 25 years - https://www.cnbc.com/2019/05/16/trumps-tariffs-are-equivalent-to-one-of-the-largest-tax-increases-in-decades.html

And, if you watch this old video you'll see that the 4.3 million for 2019 is actually a huge increase on previous years - https://www.youtube.com/watch?v=PwoHxIvqXIk.

 

Maybe I'm being an idiot, but I'd want to think about those 4.3 million in terms of the roughly 17m SAAR and the 40m used cars sold annually, not total cars owned in the US.

Then I'd ask just how stretched are those consumers because really the only segment that matters is the high margin truck one because that's where so much of the margin and EBITDA comes from.

Purely hypothetically, if this year because of tighter wallets and lower residuals you had an extra 500 000 of those people who would usually be able to spring for a truck no longer being able to, then that would seem to be a very painful scenario.

I mean, I have no idea if the number could get that high but that's how I would think about the risk.

 

I'm not saying this is all guaranteed to cause the auto sector to roll over, I'm simply pointing out that there are far more things to be concerned about than there have been for a very long time and therefore I think the prudent course of action over the next 6, 12, or maybe more months is to be hyper-aware of what's happening at all levels and as the social commentator Calvin Broadus has previously noted: "keep your mind on your money and your money on your mind".

 

These were all the accurate calls he made over a recent roughly 6 month period. Beware he does use some TA, but he uses it well so I'm not judging.

 

Ford long-term buy

https://twitter.com/DRuizG80/status/1061659181147676673

 

Short GM between ranges

https://twitter.com/DRuizG80/status/1067087346447855617

 

Short HTZ between ranges

https://twitter.com/DRuizG80/status/1067816155761573889

 

Short FCAU in 2019

https://twitter.com/DRuizG80/status/1070055989284663296

 

Short FCAU between ranges

https://twitter.com/DRuizG80/status/1069650646436065280

 

Short Chinese auto production

https://twitter.com/DRuizG80/status/1080585427294265348

 

News of falling Chinese auto production 1 week later

https://twitter.com/DRuizG80/status/1082974621689962498

 

Accurate wholesale estimates forecast

https://twitter.com/DRuizG80/status/1093202822290644992

 

Bullish CVNA call

https://twitter.com/DRuizG80/status/1094332876689158144

 

and CVNA write-up

https://twitter.com/DRuizG80/status/1096744587291447296

 

He did also make a bullish call on UXIN before its December rise which has lost a little money and noted F might go lower short-term in December when it actually rose, but every other call between these dates has turned out correctly as far as I can tell.

Unfortunately, it looks like his feed from somewhat before about a year ago is no longer available.

Hopefully you'll take my word for it that his calls from the past few years have been just as accurate.

The alternative, if you're really swimming in a pool of money, is to subscribe to his blog and then you could access all his historical market reports.

Personally I'm not a subscriber, since I always just followed his Twitter account and no longer own FCAU.

 

 

 

[Parsad]

Official PR:

https://www.fcagroup.com/en-US/media_center/fca_press_release/FiatDocuments/2019/may/FCA_SUBMITS_PROPOSAL_FOR_A_TRANSFORMATIVE_MERGER_WITH_GROUPE_RENAULT.pdf

 

Now is the $2.5B Euro dividend in the deal on top of the $2B Euro dividend being paid out this week?  Plus the Comau shares on top of that.  Cheers!

 

So it looks like we get our:

 

- $2B Euro (1.46 USD/share) special dividend (from Magnetti deal) this week

- plus another $2.5B Euro (approx $1.75 USD) equalization dividend through the merger

- plus another $0.18 USD /share dividend in cash or Comau spinoff shares

- plus the $3.55 Euro / 5.328 merger exchange or $0.74 USD / FCAU share Renault annual dividend on June 19th! 

 

Cheers!

 

I'm running a pro-forma basic post-deal analysis.  I do not doubt the industrial logic of this deal. I would have to defer to Sergio's Capital Junkie/Elkann/FCA mgmt analysis on the logic of this deal but it makes sense.

 

However, with the caveat that I do not know Renault very well, I don't think this is a better economic deal taking into account FCA's original 2022 plan for FCA shareholders.

 

Basically, it seems like we are effectively (though I know its a merger of equals) giving up half our ownership in an extraordinarily cheap stock with lots of potential to purchase a less extraordinary investment (though apparently still well run) concentrated in somewhat rocky markets such as Russia/Iran and a business unfriendly European union. Additionally, the $5B of projected run-rate synergies don't seem to make up for the economics that would flow to current FCA shareholders from the original plan.

 

Look at how much money GM threw out the door trying to get Opel to profitability in Europe finally relegating it to Peugot.  Eur 5B is incredibly optimistic in my view.  That is 50% higher than Adj. EBIT of the two companies together currently.

 

I don't know enough about Renault and what they are hoping to accomplish in terms of headcount and revenue synergies (cross-distribution) and I wish these European companies were better about talking it through on a call, but I'm not thrilled about it based on my initial analysis.  Would love to hear some different thoughts from anyone who has run their own analysis.  Thank you.

 

I originally felt the same way until I looked at Renault's finances:

 

- Renault does half as much in revenues, but both gross and net margins are higher than FCAU

- Net income for both companies is about $3-3.5B Euro a year each

- Renault's balance sheet is slightly better than FCAU when you back out the finance division...and both companies have an equal amount of cash available.

- Renault has a successful finance division, which could easily be adaptable to FCAU.

- Renault at the time of the deal was a $51 stock after their dividend...trading at $64 right now which bodes well for FCAU stock moving up based on the ratio

- FCAU price to book at time of deal was about 0.7...Renault was at 0.4

- Price to cash flow for both businesses was about the same at 2.2-2.3

- Market cap of 43% of Nissan owned by Renault alone, was nearly equal to Renault's entire market cap.

 

So we merged with a company on equal terms or better than ours to make us 3rd largest in the world, received 21.5% of Nissan for free, plus will receive nearly $3 USD per share in cash.  On top of that, we would become a global auto company with electric technology that could easily be adaptable to our vehicles.  Cheers!

[RadMan24]

Let's just hope that post-merger, if it happens, Renault and Alfa Romeo combine resources and make a better F1 team.

[Spekulatius]

Let's just hope that post-merger, if it happens, Renault and Alfa Romeo combine resources and make a better F1 team.

 

That alone would justify the merger. LOL

 

FCAU does pretty good in the US, but was never able to make Fiat reasonably profitable. I believe rationalization with Renault should be able to do the trick. Fiat is still a millstone for FCAU and the merger with Renault should be able to address this issue.

[Guest ajc]

 

 

No, either you misunderstood me or I wasn't clear. A few years ago people were saying that FCAU shareholders overestimating Sergio, I'm not saying anything of the sort since I was, and am, one of them (!). So I'm not in need of a lecture on the virtues of Sergio Marchionne, thank you very much. My point was that there always seems to be experts telling shareholders how to think, and invariably this "advice" magically appears after the stock has gone down.

 

Inventories for trucks are high after being constantly too low for the last five years or so, I don't think this is a big problem. I see that cmlbr has already pointed out the specific reasons for Jeep, Ram and Chevy to be higher right now so I won't repeat that, except to say that sales for those trucks are also at record highs, which naturally makes it more attractive to build inventory in line with that. Sales of Ram are falling? Try checking your numbers again.

 

Despite the supposedly lackluster condition of the American consumer, average transaction prices are at record highs with incentives that have fallen for maybe 7-8 months straight. Why is that?

 

You have found Daniel Ruiz and found his research valuable, good for you. Your endless repetition of his thoughts is a bit tiresome though. If I wanted to debate Daniel Ruiz I would rather talk to him, so I think I'll just leave it at that. There are counter arguments to the rest of your points as well, but you seem more interested in throwing insults around than actually debating the merits of the research, so I'll give you the pleasure of finding it out yourself.

 

The Origin of Species comment was a joke, calm down. Thanks for the heads up on people thinking I'm dumb and lazy.

 

 

 

My bad. There I was interpreting your initial comments the way an English speaker would, and responding by pointing out some massive questionables in your own perspective. Turns out that was all just one big misunderstanding. Thank goodness for that, very convenient.

 

I stand by my opinion on your original post. Also, the fact your favored argument is based around seeing high inventories across the board for trucks (even if some specific auto's might have valid reasons for it), record high transaction prices, and falling incentives, as a good thing in what is more likely to be a late, rather than early or mid, cycle phase, is fascinating. I'm sure some people in 2007 also thought all-time market highs, record house prices, and low unemployment rates, were amazing, even though the data showed mortgage delinquency rates were increasing, new hiring was dropping, and potential new buyers were financially squeezed.

 

Blue-sky thinking, with no serious emphasis on trying to completely kill the thesis or hunting down strongly disconfirming evidence, is really awesome though. Easy to forget how Buffett saw good value in Irish banks and Gayner saw the same in US financials heading into the GFC. Both their positions ended up getting crushed. Apparently ignoring the underlying health of the industry or consumer is a bad idea, who knew? Doesn't matter I'm sure, we're all way smarter. It's also great that different company cultures are always easy to merge, combining businesses only happens inexpensively, and governments never turn situations like these into political footballs. Super happy these risks no longer exist in the real world because my spreadsheet says so.

 

On the topic of your comedic talents, they're great but I'd strongly urge you to put every ounce of effort into making sure this investing thing works out. Anyway, that's more than enough about all this stupid, boring being-paranoid-late-cycle and protecting-your-downside stuff... it's totally Chuck Prince time in the auto sector and that means if you're not already up on your feet and shaking that ass, you're probably not even a real value investor anymore. Let's turn the volume up to 11, get wasted, and see where this party takes us! Woohoo, hell yeah.

 

 

 

[NBL0303]

 

I originally felt the same way until I looked at Renault's finances:

 

- Renault does half as much in revenues, but both gross and net margins are higher than FCAU

- Net income for both companies is about $3-3.5B Euro a year each

- Renault's balance sheet is slightly better than FCAU when you back out the finance division...and both companies have an equal amount of cash available.

- Renault has a successful finance division, which could easily be adaptable to FCAU.

- Renault at the time of the deal was a $51 stock after their dividend...trading at $64 right now which bodes well for FCAU stock moving up based on the ratio

- FCAU price to book at time of deal was about 0.7...Renault was at 0.4

- Price to cash flow for both businesses was about the same at 2.2-2.3

- Market cap of 43% of Nissan owned by Renault alone, was nearly equal to Renault's entire market cap.

 

So we merged with a company on equal terms or better than ours to make us 3rd largest in the world, received 21.5% of Nissan for free, plus will receive nearly $3 USD per share in cash.  On top of that, we would become a global auto company with electric technology that could easily be adaptable to our vehicles.  Cheers!

 

These are good points, Parsad.

[Shooter MacGavin]

Official PR:

https://www.fcagroup.com/en-US/media_center/fca_press_release/FiatDocuments/2019/may/FCA_SUBMITS_PROPOSAL_FOR_A_TRANSFORMATIVE_MERGER_WITH_GROUPE_RENAULT.pdf

 

Now is the $2.5B Euro dividend in the deal on top of the $2B Euro dividend being paid out this week?  Plus the Comau shares on top of that.  Cheers!

 

So it looks like we get our:

 

- $2B Euro (1.46 USD/share) special dividend (from Magnetti deal) this week

- plus another $2.5B Euro (approx $1.75 USD) equalization dividend through the merger

- plus another $0.18 USD /share dividend in cash or Comau spinoff shares

- plus the $3.55 Euro / 5.328 merger exchange or $0.74 USD / FCAU share Renault annual dividend on June 19th! 

 

Cheers!

 

I'm running a pro-forma basic post-deal analysis.  I do not doubt the industrial logic of this deal. I would have to defer to Sergio's Capital Junkie/Elkann/FCA mgmt analysis on the logic of this deal but it makes sense.

 

However, with the caveat that I do not know Renault very well, I don't think this is a better economic deal taking into account FCA's original 2022 plan for FCA shareholders.

 

Basically, it seems like we are effectively (though I know its a merger of equals) giving up half our ownership in an extraordinarily cheap stock with lots of potential to purchase a less extraordinary investment (though apparently still well run) concentrated in somewhat rocky markets such as Russia/Iran and a business unfriendly European union. Additionally, the $5B of projected run-rate synergies don't seem to make up for the economics that would flow to current FCA shareholders from the original plan.

 

Look at how much money GM threw out the door trying to get Opel to profitability in Europe finally relegating it to Peugot.  Eur 5B is incredibly optimistic in my view.  That is 50% higher than Adj. EBIT of the two companies together currently.

 

I don't know enough about Renault and what they are hoping to accomplish in terms of headcount and revenue synergies (cross-distribution) and I wish these European companies were better about talking it through on a call, but I'm not thrilled about it based on my initial analysis.  Would love to hear some different thoughts from anyone who has run their own analysis.  Thank you.

 

I originally felt the same way until I looked at Renault's finances:

 

- Renault does half as much in revenues, but both gross and net margins are higher than FCAU

- Net income for both companies is about $3-3.5B Euro a year each

- Renault's balance sheet is slightly better than FCAU when you back out the finance division...and both companies have an equal amount of cash available.

- Renault has a successful finance division, which could easily be adaptable to FCAU.

- Renault at the time of the deal was a $51 stock after their dividend...trading at $64 right now which bodes well for FCAU stock moving up based on the ratio

- FCAU price to book at time of deal was about 0.7...Renault was at 0.4

- Price to cash flow for both businesses was about the same at 2.2-2.3

- Market cap of 43% of Nissan owned by Renault alone, was nearly equal to Renault's entire market cap.

 

So we merged with a company on equal terms or better than ours to make us 3rd largest in the world, received 21.5% of Nissan for free, plus will receive nearly $3 USD per share in cash.  On top of that, we would become a global auto company with electric technology that could easily be adaptable to our vehicles.  Cheers!

 

Sanjeev,

 

Great points. I reached the same conclusion after diving into Renault more.  My biggest mistake was assuming Nissan was included in their Adj. EBIT numbers but it's actually a separate line. The more I'm learning about the Alliance the more I realize why this deal is potentially incredible (on paper for us nerds) but culture and execution and regulatory blessings are obviously important.

 

I'm not sure that Renault's captive finance arm will be of much use in the US, at least not for a while. FCA already has JV captive finance arms overseas.  But who knows? I'm not sure what the regulatory implications of setting up a US captive are. 

 

Rumors re: Comau sale were for $2B, so I do think we'll likely see a spin rather than a EUR 250M payout. 

 

Doing more work on it, but great insight so far. Thanks for sharing.

[Guest ajc]

 

My fault for overlooking the 'stable genius' variable as well as the tariff one, when I listed my bearish concerns the other day.

According to Deutsche Bank, the potential 25% Mexican tariffs - if fully carried by automakers - would cost $3.3B for Ford, $6.3B for GM, and $4.8B for FCA, in terms of the EBIT impact (

).

 

Anyway, we know Trump might change his mind next week and act like it was his plan all along but I think investors need to wonder.

If you take the views of China expert @BaldingsWorld (

) into account, it seems like the Chinese are actually just stalling and planning to wait until November 2020, while targeting industries in states where Trump is vulnerable, in order to try get a Democrat elected.

 

Biden is known to have a far more dovish view on China and apparently the CCP think that any Democrat would be better than Trump at this point.

I guess it's worth asking if the Mexicans could afford to do the same and just wait it out for a year or so, even if it meant taking a bunch of short term pain.

Trump's picking fights with what looks like every country and bloc at the same time, so it does raise the issue of whether he's overplayed his hand so much that they all just decide to punt until the US elections in the hope of someone else being elected.

 

Not saying another tweet or executive action can't completely change this dynamic next week, but it does appear there's a potential risk here over the next 18 months if that turns out not to be the case.

 

 

[Sunrider]

The thing that many people outside MAGA land wonder is why it should be a smart strategy to first spit in your allies' face, then pick a conflict, which you could've more easily won by first forming an alliance. Most of the world sees the substantive issues the negotiations seek to address as real issues, but who wants to work with someone who insults you the first day and then pretends nothing happened the next (or in reverse).

 

... so the Chinese may well succeed because it sure as hell doesn't look like this administration will bring on board allies to help.

 

 

 

My fault for overlooking the 'stable genius' variable as well as the tariff one, when I listed my bearish concerns the other day.

According to Deutsche Bank, the potential 25% Mexican tariffs - if fully carried by automakers - would cost $3.3B for Ford, $6.3B for GM, and $4.8B for FCA, in terms of the EBIT impact (

).

 

Anyway, we know Trump might change his mind next week and act like it was his plan all along but I think investors need to wonder.

If you take the views of China expert @BaldingsWorld (

) into account, it seems like the Chinese are actually just stalling and planning to wait until November 2020, while targeting industries in states where Trump is vulnerable, in order to try get a Democrat elected.

 

Biden is known to have a far more dovish view on China and apparently the CCP think that any Democrat would be better than Trump at this point.

I guess it's worth asking if the Mexicans could afford to do the same and just wait it out for a year or so, even if it meant taking a bunch of short term pain.

Trump's picking fights with what looks like every country and bloc at the same time, so it does raise the issue of whether he's overplayed his hand so much that they all just decide to punt until the US elections in the hope of someone else being elected.

 

Not saying another tweet or executive action can't completely change this dynamic next week, but it does appear there's a potential risk here over the next 18 months if that turns out not to be the case.

[Guest ajc]

 

 

The thing that many people outside MAGA land wonder is why it should be a smart strategy to first spit in your allies' face, then pick a conflict, which you could've more easily won by first forming an alliance. Most of the world sees the substantive issues the negotiations seek to address as real issues, but who wants to work with someone who insults you the first day and then pretends nothing happened the next (or in reverse).

 

... so the Chinese may well succeed because it sure as hell doesn't look like this administration will bring on board allies to help.

 

 

My fault for overlooking the 'stable genius' variable as well as the tariff one, when I listed my bearish concerns the other day.

According to Deutsche Bank, the potential 25% Mexican tariffs - if fully carried by automakers - would cost $3.3B for Ford, $6.3B for GM, and $4.8B for FCA, in terms of the EBIT impact (

).

 

Anyway, we know Trump might change his mind next week and act like it was his plan all along but I think investors need to wonder.

If you take the views of China expert @BaldingsWorld (

) into account, it seems like the Chinese are actually just stalling and planning to wait until November 2020, while targeting industries in states where Trump is vulnerable, in order to try get a Democrat elected.

 

Biden is known to have a far more dovish view on China and apparently the CCP think that any Democrat would be better than Trump at this point.

I guess it's worth asking if the Mexicans could afford to do the same and just wait it out for a year or so, even if it meant taking a bunch of short term pain.

Trump's picking fights with what looks like every country and bloc at the same time, so it does raise the issue of whether he's overplayed his hand so much that they all just decide to punt until the US elections in the hope of someone else being elected.

 

Not saying another tweet or executive action can't completely change this dynamic next week, but it does appear there's a potential risk here over the next 18 months if that turns out not to be the case.

 

 

 

Agreed.

 

I will credit Trump with being the only candidate in the last election who actually brought this up in a major way. If he has done one or two smart things so far and screwed up many, then bringing the China issue to the fore definitely qualifies as one of his intelligent moves. Clearly, there are real issues with China and its approach to trade.

For better and worse, Trump was the one who really saw the importance of the subject.

 

As you note though, this seems best done in a strategic and multilateral way with the use of concerted pressure from the US and a bunch of important allies.

Instead, for now I'd argue the current POTUS is looking more and more frustrated, as well as out of his depth, and with the election already sort of on the horizon, I think from a risk management perspective it's important to wonder how badly the next 18 months could end up being.

For companies that have major trade war exposure, I'd suggest some really healthy caution. For ones that benefit from trade wars, say potentially a US-based rare earth miner, I'd think businesses like that could be worth investigating.

 

Hehe. I saw someone tweet the other day that Trump is the guy who starts a fight with every single person at the bar and then expects one of them to buy him a drink afterwards.

Crazy thought for a US president, but for now I'm not sure it's too far away from the reality.

 

 

[TwoCitiesCapital]

 

My fault for overlooking the 'stable genius' variable as well as the tariff one, when I listed my bearish concerns the other day.

According to Deutsche Bank, the potential 25% Mexican tariffs - if fully carried by automakers - would cost $3.3B for Ford, $6.3B for GM, and $4.8B for FCA, in terms of the EBIT impact (

).

 

Anyway, we know Trump might change his mind next week and act like it was his plan all along but I think investors need to wonder.

If you take the views of China expert @BaldingsWorld (

) into account, it seems like the Chinese are actually just stalling and planning to wait until November 2020, while targeting industries in states where Trump is vulnerable, in order to try get a Democrat elected.

 

Biden is known to have a far more dovish view on China and apparently the CCP think that any Democrat would be better than Trump at this point.

I guess it's worth asking if the Mexicans could afford to do the same and just wait it out for a year or so, even if it meant taking a bunch of short term pain.

Trump's picking fights with what looks like every country and bloc at the same time, so it does raise the issue of whether he's overplayed his hand so much that they all just decide to punt until the US elections in the hope of someone else being elected.

 

Not saying another tweet or executive action can't completely change this dynamic next week, but it does appear there's a potential risk here over the next 18 months if that turns out not to be the case.

 

I think my hope is that Trump recognizes the impact to manufacturing jobs/companies he's been trying to support and walks this back.

 

China is easy - we don't export much to them and providing a subsidy to the farmers is able to fly under the radar pretty easily. Providing multi-billion subsidies to the Big 3 wouldn't be politically popular and we do quite a bit of trade with Mexico that could end up being fairly impactful to our businesses.

 

Methinks this gets walked back, but I don't have enough confidence to be adding to the position here.

[Sunrider]

 

My fault for overlooking the 'stable genius' variable as well as the tariff one, when I listed my bearish concerns the other day.

According to Deutsche Bank, the potential 25% Mexican tariffs - if fully carried by automakers - would cost $3.3B for Ford, $6.3B for GM, and $4.8B for FCA, in terms of the EBIT impact (

).

 

Anyway, we know Trump might change his mind next week and act like it was his plan all along but I think investors need to wonder.

If you take the views of China expert @BaldingsWorld (

) into account, it seems like the Chinese are actually just stalling and planning to wait until November 2020, while targeting industries in states where Trump is vulnerable, in order to try get a Democrat elected.

 

Biden is known to have a far more dovish view on China and apparently the CCP think that any Democrat would be better than Trump at this point.

I guess it's worth asking if the Mexicans could afford to do the same and just wait it out for a year or so, even if it meant taking a bunch of short term pain.

Trump's picking fights with what looks like every country and bloc at the same time, so it does raise the issue of whether he's overplayed his hand so much that they all just decide to punt until the US elections in the hope of someone else being elected.

 

Not saying another tweet or executive action can't completely change this dynamic next week, but it does appear there's a potential risk here over the next 18 months if that turns out not to be the case.

 

I think my hope is that Trump recognizes the impact to manufacturing jobs/companies he's been trying to support and walks this back.

 

China is easy - we don't export much to them and providing a subsidy to the farmers is able to fly under the radar pretty easily. Providing multi-billion subsidies to the Big 3 wouldn't be politically popular and we do quite a bit of trade with Mexico that could end up being fairly impactful to our businesses.

 

Methinks this gets walked back, but I don't have enough confidence to be adding to the position here.

 

he may well ... but it seems just as likely that it'll change a couple of times along the way, with a lot of volatility.

[ukvalueinvestment]

Have people received their Special Dividend for Magnetti Marelli sale?  I thought payment date was 31st May but I don't seem to have it?

[Snorky]

Have people received their Special Dividend for Magnetti Marelli sale?  I thought payment date was 31st May but I don't seem to have it?

 

Received it today!

[landstander]

TD Ameritrade paid it on the May 30th after close.

[Parsad]

Have people received their Special Dividend for Magnetti Marelli sale?  I thought payment date was 31st May but I don't seem to have it?

 

Most brokerages settled on the 31st.  Cheers!

[plato1976]

For U.S. holders, I am not sure if they withhold 15% foreign dividend tax.

This is eps. annoying if you bought it in your RothIRA b/c your cannot claim it back later

In fact this 15% shouldn't be withheld according to this:

 

https://www.fcagroup.com/en-US/investors/stock_info_and_shareholder_corner/Pages/dividend_distribution.aspx

 

"US and other non-Dutch resident shareholders are not subject to Dutch withholding tax. However, unless tax residency information is submitted by your stockbroker or other financial intermediary as requested by GlobeTax by May 23, 2019, 15% of the dividend will be subject to holdback with respect to DTC shareholders and only paid after the appropriate information including tax residency has been provided by the shareholder’s broker or other financial intermediary as requested by GlobeTax as discussed below."

 

So obviously Firstrade did not do its work I assume...

 

 

 

TD Ameritrade paid it on the May 30th after close.

[TwoCitiesCapital]

For U.S. holders, I am not sure if they withhold 15% foreign dividend tax.

This is eps. annoying if you bought it in your RothIRA b/c your cannot claim it back later

In fact this 15% shouldn't be withheld according to this:

 

https://www.fcagroup.com/en-US/investors/stock_info_and_shareholder_corner/Pages/dividend_distribution.aspx

 

"US and other non-Dutch resident shareholders are not subject to Dutch withholding tax. However, unless tax residency information is submitted by your stockbroker or other financial intermediary as requested by GlobeTax by May 23, 2019, 15% of the dividend will be subject to holdback with respect to DTC shareholders and only paid after the appropriate information including tax residency has been provided by the shareholder’s broker or other financial intermediary as requested by GlobeTax as discussed below."

 

So obviously Firstrade did not do its work I assume...

 

 

 

TD Ameritrade paid it on the May 30th after close.

 

This is why I sold and repurchased. I may withholding taxes on a ton of my ADRs in my tax-free accounts :/

 

It's not something I can typically avoid with a 3-5% yield that pays out over 4 separate dates, but for companies that pay a single annual dividend OR a large special dividend, you better believe I'm going to sell the day before the ex-date and repurchase on ex-date to avoid the guaranteed 15-20% loss of the div.

 

You take a risk in doing this, but worked out favorably for me this time. Avoided any issues with potential taxes, had the cash upfront, and the stock fell 1-2% further before I repurchased the shares.

[mwtorock]

For U.S. holders, I am not sure if they withhold 15% foreign dividend tax.

This is eps. annoying if you bought it in your RothIRA b/c your cannot claim it back later

In fact this 15% shouldn't be withheld according to this:

 

https://www.fcagroup.com/en-US/investors/stock_info_and_shareholder_corner/Pages/dividend_distribution.aspx

 

"US and other non-Dutch resident shareholders are not subject to Dutch withholding tax. However, unless tax residency information is submitted by your stockbroker or other financial intermediary as requested by GlobeTax by May 23, 2019, 15% of the dividend will be subject to holdback with respect to DTC shareholders and only paid after the appropriate information including tax residency has been provided by the shareholder’s broker or other financial intermediary as requested by GlobeTax as discussed below."

 

So obviously Firstrade did not do its work I assume...

 

 

 

TD Ameritrade paid it on the May 30th after close.

 

This is why I sold and repurchased. I may withholding taxes on a ton of my ADRs in my tax-free accounts :/

 

It's not something I can typically avoid with a 3-5% yield that pays out over 4 separate dates, but for companies that pay a single annual dividend OR a large special dividend, you better believe I'm going to sell the day before the ex-date and repurchase on ex-date to avoid the guaranteed 15-20% loss of the div.

 

You take a risk in doing this, but worked out favorably for me this time. Avoided any issues with potential taxes, had the cash upfront, and the stock fell 1-2% further before I repurchased the shares.

that is neat

[Ahab]

https://www.wsj.com/articles/fiat-chrysler-withdraws-merger-offer-for-renault-11559773129

 

Looks like the deal is off folks.