FCAU - Fiat Chrysler Automobiles

[Phaceliacapital]

Just my two cents (not nearly as experienced as PlanMaestro):

 

- US market flattens out, Chrysler loses momentum

- Latam market crashes

- Maserati's and/or Alfa's do not sell as projected

- EMEA market recovery takes much longer than projected

- Hassle over the option agreement to buy requiring stake

 

I think the third point is the most problematic one, but I am still fairly bullish and thus slightly biased so happy to hear all of your thoughts :)

[Phaceliacapital]

Fitch playing catch up on Peugeot and Fiat; opportunity to reflect on Fiat valuations

•

Yesterday afternoon Fitch moved negatively on Fiat and Peugeot. Peugeot’s senior unsecured debt rating has been affirmed at BB- with a negative outlook while the issuer default rating was taken down a notch to B+. Meanwhile Fiat was downgraded to BB- from BB with a negative outlook for both the senior unsecured rating and the issuer default rating. Fitch’s notching of Peugeot’s senior unsecured rating versus the issuer default rating reflects the agency’s believe that senior unsecured bonds would recover a relative high 50-70% in the event of an issuer default.

•

Fitch in our view tends to be act belatedly on the autos and given that the company does not rate Banque PSA and RCI Banque the agency’s relevance in High Yield autos is questionable. In any event the reasons for the moves serve to remind us of the fundamental issue that investors need to weigh in particular with regards to Peugeot. Essentially the agencies (all of them) have poured scorn on Peugeot’s promise to be cash flow neutral by the end of 2014. They also expect significant cash burn at Fiat for at least the next 2 years. Investors, then, need to decide if they believe the company guidance or the agencies. We tend to side with the agencies, primarily because insider expectations for the all important European theatre are too optimistic in our view.

•

Clearly none of this affects our current view in HY Autos; we are constructive on short-dated auto paper with a particular affection for the PEUGOT 8.375% 2014. We are cautious on longer dated Renault and Peugeot paper which we think will remain sensitive to potentially poor earnings in Europe.

•

We are neutral long dated Fiat paper (16s through 18s) which tend to trade flat to slightly wide of Peugeot’s industrial bonds. Fiat investors clearly need to weigh whether the company will succeed in merging with Chrysler and on what terms. In our view there is more downside in Fiat than there is upside. If they merge with Chrysler with no change in credit metrics (unlikely, credit metrics will diminish) then you are left with a High-B/Low-BB credit. But with Fiat trading 200bps wide of High-BB Renault in the long-end how much upside can there be in Fiat? Between 50 -100 bps in our view relative to Renault. On the other hand if Fiat is unable to consummate its marriage with Chrysler the downside is considerable (unless the company opts to sell assets like Chrysler or Ferrari). Anybody’s guess where a standalone Fiat would trade.•

 

Given the uncertainty on how bad the situation would be if Fiat can’t merge with Chrysler on favourable terms (or whether Fiat would be willing to make drastic disposals), and given the potential for a substantial rally if Ma

way we are forced to remain neutral on long dated Fiat paper.

 

I am guessing they do not completely understand the option agreement with the 5.5 cap on Chrysler stake?

[muscleman]

Fitch playing catch up on Peugeot and Fiat; opportunity to reflect on Fiat valuations

•

Yesterday afternoon Fitch moved negatively on Fiat and Peugeot. Peugeot’s senior unsecured debt rating has been affirmed at BB- with a negative outlook while the issuer default rating was taken down a notch to B+. Meanwhile Fiat was downgraded to BB- from BB with a negative outlook for both the senior unsecured rating and the issuer default rating. Fitch’s notching of Peugeot’s senior unsecured rating versus the issuer default rating reflects the agency’s believe that senior unsecured bonds would recover a relative high 50-70% in the event of an issuer default.

•

Fitch in our view tends to be act belatedly on the autos and given that the company does not rate Banque PSA and RCI Banque the agency’s relevance in High Yield autos is questionable. In any event the reasons for the moves serve to remind us of the fundamental issue that investors need to weigh in particular with regards to Peugeot. Essentially the agencies (all of them) have poured scorn on Peugeot’s promise to be cash flow neutral by the end of 2014. They also expect significant cash burn at Fiat for at least the next 2 years. Investors, then, need to decide if they believe the company guidance or the agencies. We tend to side with the agencies, primarily because insider expectations for the all important European theatre are too optimistic in our view.

•

Clearly none of this affects our current view in HY Autos; we are constructive on short-dated auto paper with a particular affection for the PEUGOT 8.375% 2014. We are cautious on longer dated Renault and Peugeot paper which we think will remain sensitive to potentially poor earnings in Europe.

•

We are neutral long dated Fiat paper (16s through 18s) which tend to trade flat to slightly wide of Peugeot’s industrial bonds. Fiat investors clearly need to weigh whether the company will succeed in merging with Chrysler and on what terms. In our view there is more downside in Fiat than there is upside. If they merge with Chrysler with no change in credit metrics (unlikely, credit metrics will diminish) then you are left with a High-B/Low-BB credit. But with Fiat trading 200bps wide of High-BB Renault in the long-end how much upside can there be in Fiat? Between 50 -100 bps in our view relative to Renault. On the other hand if Fiat is unable to consummate its marriage with Chrysler the downside is considerable (unless the company opts to sell assets like Chrysler or Ferrari). Anybody’s guess where a standalone Fiat would trade.•

 

Given the uncertainty on how bad the situation would be if Fiat can’t merge with Chrysler on favourable terms (or whether Fiat would be willing to make drastic disposals), and given the potential for a substantial rally if Ma

way we are forced to remain neutral on long dated Fiat paper.

 

I am guessing they do not completely understand the option agreement with the 5.5 cap on Chrysler stake?

 

Or they think Fiat does not have money, or needs a big dilutive financing package to buy out Chrysler at $5.5 bn.

[Phaceliacapital]

Company Press Release:

 

• Any purchase of VEBA’s interest in Chrysler (beyond periodic exercise of call options) will be financed in a manner to preserve Fiat’s existing liquidity position
   
  
• Group liquidity over 20% of revenues with Fiat ex-Chrysler over 30%, the highest percentage among European OEM’s
  

[PlanMaestro]

May I ask you a question? There seems to be a large margin of safety. What has to happen for this investment to die? :)

 

Two big reasons in my opinion:

 

(1) Established perceptions do not change fast: Fiat was never much alive until the Chrysler comeback. Fiat Automotive was a marginal player one step from disappearence for decades. If the Uno had not worked, if the Punto had not worked, if the Panda had not worked, we would not be talking about Fiat.

 

(2) Italy: in these times being Italian is not much of an endorsement for a stock despite that an Italy leaving the Euro would be a boom for Fiat. But for the moment the Euro is putting them in the red in Europe and it can get worse.

 

 

[Phaceliacapital]

With limited exposure to Italy (8% of sales) and to Europe (20% of sales) the question is, how worse?

[muscleman]

May I ask you a question? There seems to be a large margin of safety. What has to happen for this investment to die? :)

 

Two big reasons in my opinion:

 

(1) Established perceptions do not change fast: Fiat was never much alive until the Chrysler comeback. Fiat Automotive was a marginal player one step from disappearence for decades. If the Uno had not worked, if the Punto had not worked, if the Panda had not worked, we would not be talking about Fiat.

 

(2) Italy: in these times being Italian is not much of an endorsement for a stock despite that an Italy leaving the Euro would be a boom for Fiat. But for the moment the Euro is putting them in the red in Europe and it can get worse.

 

If Italy leaves Europe, Fiat will be more competitive cost-basis wide, right? Since it generates most of the profits outside of Italy, its revenue will not be impacted by the worthless Lira.

I still don't see how German will allow Italy to leave. It even tries to keep Greece in.

 

How about Alfa Romeo and and Maserati? If Fiat spends 3 bn cash of capex to upgrade the plants for these cars and they couldn't sell, then it will be a big problem for Fiat, no? Will there be enough cash to close down the plants by then?

[PlanMaestro]

http://www.gwinvestors.com/Main/Blog/Entries/2013/2/28_Fourth_Quarter_2012_Letter_files/2013.02.28%20Q4%202012%20Letter%20to%20Investors.pdf

 

As you review the positions above, you will notice without surprise that our largest position is Fiat SpA (F IM), which one may think of as being a particularly risky investment, given Fiat is an Italian company and the country’s circus-like politics have made the United States government look utopian.

 

The “downside” scenario of Italy exiting the Eurozone and potentially bringing the EU into a depression would actually result in no projected losses for our investment. Because Fiat’s debt holders do not have a lien on any specific assets, the very profitable Brazilian operations could be sold to Chrysler, and Fiat’s (soon to be) 65% holding in Chrysler could be distributed to Fiat’s stockholders. Additionally, Fiat’s 90% ownership of Ferrari could be distributed to stockholders without bondholder approval. At recent Aston Martin sale prices, Ferrari is worth just over €4.50 per Fiat share and using Ford’s & GM’s valuation, Chrysler is faster-growing and worth between €4.50-8.00 per share, depending on the comparable metric used.

 

Also notable is that in this same scenario,the “safer” investment in Volkswagen could turn out to be quite a disaster, with production based in a country with a swiftly appreciating currency. Even Volkswagen’s profitable Chinese dominance couldn’t subsidize its European price war then.

 

Even though our underlying risk in Fiat is limited, the risk-adjusted return display in Table 2 assumes that the equity price of Fiat can go down precipitously, and stacks this possibility against our upside potential should a few relatively simple things happen over the next two years, such as the global expansion of Maserati, Alfa Romeo and Jeep, the achievement of modest cost synergies between Chrysler and Fiat, and the completion of the merger between the two companies.

[Phaceliacapital]

Good information, also my line of thinking.

 

[PlanMaestro]

The sort of thing that "One Ford'" cannot do. I love how they are segmenting and differentiating their brands.

 

Imported from Motown.

http://www.nytimes.com/2013/03/01/business/a-shared-history-in-detroit-is-an-ad-inspiration.html

[bathtime]

Info on Italian trading tax:

 

Interactive Brokers would like to inform clients of the Italian Financial Transaction Tax (IFTT) which comes into force 1 March 2013. Key information regarding this new tax is provided below:

 

Tax Rate: The rate is currently set at 0.12% (12 basis points)

 

Tax Base: The tax is assessed on the purchase of certain Italian equities and ADRs. The tax is due on the net position delivered on settlement date, as such purchases and sales which settle at a common depository will be eligible to be netted for determination of the tax.

 

Effective Date: The IFTT is applicable to trades on applicable securities commencing on March 1, 2013

 

Transaction Types: The IFTT will be applied to both exchange trades and to the purchase of shares resulting from an options exercise or assignment, or futures contract delivery.

 

Derivatives: The Italian FTT will apply to derivative transactions effective July 1, 2013. IB will provide updated information regarding the rates as additional information becomes available.

[fareastwarriors]

Chrysler Group, the third-largest U.S. automaker, said its U.S. sales rose 4.1 percent to 139,015 in February,

[fareastwarriors]

Fiat SpA F.MI +5.88%grabbed the spotlight at the Geneva International Motor Show on Tuesday with new racy flagship models for its Ferrari and Alfa Romeo, two of the Italian auto maker's premium brands.

 

More significant was Chief Executive Sergio Marchionne's renewed commitment to buying the 41.5% stake in Chrysler Group LLC, Fiat's majority-owned U.S. unit, in the face of a demand for an initial public offering by its minority shareholder. Mr. Marchionne said he has no wish to take Chrysler through an IPO.

 

Mr. Marchionne insisted Fiat has the financial capability to pull off a full merger by buying the stake of a United Auto Workers union trust despite heavy losses in Fiat's European operations. In contrast, Chrysler's sales and profit have bounced back strongly in the U.S. since emerging from bankruptcy protection under Fiat's management.

 

"We need to have all the activities under one umbrella," Mr. Marchionne said during a news conference here. "Having two types of shareholders for the same business is a bit ridiculous."

 

Fiat's sister company, Fiat Industrial SpA, FI.MI +4.82%is in the process of buying the shares it doesn't already own in U.S.-based industrial-equipment unit CNH Global CNH +4.39%NV.

 

Mr. Marchionne said Fiat should get access to the necessary credit from banks to fund the multibillion-dollar acquisition cost and has about €9 billion of cash on its balance sheet. Fiat aims to pay down debt at Chrysler to help facilitate the merger, according to people close to the companies.

 

"I have renewed a number of friendships with bankers," Mr. Marchionne said.

 

Fiat expects its net industrial debt to widen to about €7 billion ($9.12 billion) at the end of this year, from €6.5 billion at the end of 2012 due to sustained losses in Europe. Sales of new cars in the region are headed toward their sixth consecutive year of decline as the prolonged European economic crisis has hit mass-market auto makers like Fiat hard. Registrations of new cars in Italy, Fiat's home market, fell 17% in February to their lowest level since the 1980s.

 

Debt-ratings firm Fitch Ratings downgraded Fiat's creditworthiness to BB- from BB last week. It warned a further downgrade is in the offing because of the "persistent weakness of Fiat's stand-alone results;" uncertainty about Fiat's plan to turn around its European business; and the prospect Fiat will shell out cash to buy shares in Chrysler.

 

The family-controlled auto maker skipped its dividend for 2012 to shore up its cash reserves in anticipation of buying out the trust's Chrysler shares.

 

The Turin, Italy-based auto maker holds options to buy Chrysler shares every six months from the trust with the total capped at 16.6%. Fiat has pledged to increase its Chrysler ownership until it gets to more than 70%; it now holds a 58.5% stake.

 

The trust, called the UAW Retiree Medical Benefits Trust, which was set up to pay medical costs of Chrysler's union retirees, has asked Chrysler to initiate proceedings for an IPO as part of a 2009 agreement that helped bring the Auburn Hills, Mich., car maker out of court protection.

 

The trust declined to comment on Tuesday.

 

Last July, Fiat sought to exercise its first call option to buy a 3.3% stake in Chrysler from the trust. The trust, according to a lawsuit filed by Fiat in September, refused to turn over the shares. Earlier this month, with the lawsuit still pending, Fiat asked to buy additional shares from the trust. The court is expected to rule on the suit in the next several months, Fiat said.

 

Fiat had offered $139.7 million last year to buy 3.3% of Chrysler from the trust and this month proposed paying $198 million for another 3.3% stake. The trust responded to Fiat's suit over the initial 3.3% stake by asking for about $343 million.

 

Chrysler's U.S. profits—it has a set a net profit target of $2.2 billion and expects revenue of between $72 billion and $75 billion this year—are helping to offset Fiat's losses in Europe.

 

In the U.S., Chrysler's vehicle sales climbed 21% last year to 1.65 million, while its market share rose to 11.4% from 10.7%, making it the only major U.S. auto maker to gain share in 2012.

 

Fiat's problems have gotten so serious in Europe that, with many of its factories working well below full capacity, Mr. Marchionne last year tore up one restructuring plan to focus on another.

 

The auto maker is streamlining its lineup to focus on premium brands, principally the Fiat 500 range of city cars, Alfa Romeo and Maserati, aimed at export markets rather than Europe. Fiat is counting on the new Alfa Romeo 4C roadster to spearhead the brand's return to the U.S. later this year.

 

 

 

http://online.wsj.com/article/SB10001424127887324178904578342311170472032.html?mod=WSJ_business_whatsNews

 

 

Fiat's Marchionne Pursues Full Ownership of Chrysler .

[PlanMaestro]

 

Former Italian Premier Silvio Berlusconi convicted in illegal publication of wiretaps (And all the other charges.)

 

http://www.brandonsun.com/world/breaking-news/former-italian-premier-silvio-berlusconi-convicted-in-illegal-publication-of-wiretaps-195836721.html?thx=y

[PlanMaestro]

http://www.ft.com/cms/s/0/06ab83e8-6c7d-11e2-b774-00144feab49a.html#ixzz2MsHucOWv

 

Ms Krebs said Chrysler, which is controlled by Italy’s Fiat, had suffered from a 70 per cent decline in sales of the Jeep Liberty, which dragged down Jeep sales 4 per cent year on year. Jeep has been key to Chrysler’s recovery from its bankruptcy in 2009. Ms Krebs said the replacement for the Liberty, due to be unveiled in March at the New York Auto Show, could not hit the market soon enough.

 

“The wind-down of the old Liberty hurt Jeep sales, which have led Chrysler’s revival,” she said. “The freshened Compass saw a sales surge that bodes well for a revamped Liberty.”

 

[Phaceliacapital]

I think he stated in an earlier interview (some months ago) that Jeep sales would be disappointing in Q1.

[PlanMaestro]

 

http://farm9.staticflickr.com/8510/8539803884_31f216f6e0.jpg[/url]

 

[PlanMaestro]

Marchionne's big gamble.

http://europe.autonews.com/apps/pbcs.dll/article?AID=/20130307/ANE/130309970/marchionnes-big-gamble#axzz2Mxf3Syvc

 

All the analyst points:

 

Analysts are skeptical about Marchionne's new plan because it will likely conflict with his other mission, which is to take full control of Chrysler Group. Industry watchers say Fiat simply does not have enough cash to buy the stake it still needs to take over Chrysler and also to invest billions to revive Alfa Romeo and Maserati.

 

"While Fiat adapting its product to a polarizing market makes sense, we think the market could be disappointed that capacity actions do not feature in Fiat's plans, especially given Ford, GM and PSA have all made tough capacity decisions recently," Morgan Stanley analysts wrote in a note to investors. In early February, Marchionne reiterated that Fiat won't close any Italian vehicle assembly factories. The Cassino, Melfi, Mirafiori (Turin) and Pomigliano plants have an installed capacity of 1 million units, but last year their combined output declined by 18 percent to 394,620 units, according to the Italian automakers association ANFIA.

 

Analysts believe Marchionne's mission might be too costly to achieve. "Fiat's plan to move upmarket comes with a big price tag. With up to 18 billion in capital expenditures to fund over two years, net debt is unlikely to decline before 2015, meaning a full buyout for Chrysler may be off the table for some time," Morgan Stanley said.

 

Barclays Capital also signaled concern in a recent analyst note. The firm wonders how Fiat can succeed when most of its rivals "are pursuing the opposite strategy of trying to localize production to hedge against currency risk." The analysts also said: "Competitors have tried on numerous occasions but failed to push upscale, with the notable exception of Audi."

 

Another skeptic is Max Warburton of Bernstein Research. He wrote: "Perhaps it is possible to grow Maserati, Alfa, the [Fiat] 500 [range] and Jeep, but it will take time, capital and success is obviously far from assured." Warburton noted that Marchionne's strategy results from pressure from the Italian government to pursue growth when the pragmatic choice would be to rationalize.

 

Massimo Vecchio, a financial analyst with Mediobanca Securities in Milan, said the new Alfa plan will not succeed because the competition is too tough. "Even if it reaches the planned 300,000 units, Alfa will continue to lose money and remain a pygmy in the battle of titans between the German premium brands, which are already selling well over a 1 million units a year," Vecchio said.

 

Mediobanca's Vecchio agrees: "In the years to come, Maserati looks to become a success story. This relaunch was long overdue."

[muscleman]

Marchionne's big gamble.

http://europe.autonews.com/apps/pbcs.dll/article?AID=/20130307/ANE/130309970/marchionnes-big-gamble#axzz2Mxf3Syvc

 

All the analyst points:

 

Analysts are skeptical about Marchionne's new plan because it will likely conflict with his other mission, which is to take full control of Chrysler Group. Industry watchers say Fiat simply does not have enough cash to buy the stake it still needs to take over Chrysler and also to invest billions to revive Alfa Romeo and Maserati.

 

"While Fiat adapting its product to a polarizing market makes sense, we think the market could be disappointed that capacity actions do not feature in Fiat's plans, especially given Ford, GM and PSA have all made tough capacity decisions recently," Morgan Stanley analysts wrote in a note to investors. In early February, Marchionne reiterated that Fiat won't close any Italian vehicle assembly factories. The Cassino, Melfi, Mirafiori (Turin) and Pomigliano plants have an installed capacity of 1 million units, but last year their combined output declined by 18 percent to 394,620 units, according to the Italian automakers association ANFIA.

 

Analysts believe Marchionne's mission might be too costly to achieve. "Fiat's plan to move upmarket comes with a big price tag. With up to 18 billion in capital expenditures to fund over two years, net debt is unlikely to decline before 2015, meaning a full buyout for Chrysler may be off the table for some time," Morgan Stanley said.

 

Barclays Capital also signaled concern in a recent analyst note. The firm wonders how Fiat can succeed when most of its rivals "are pursuing the opposite strategy of trying to localize production to hedge against currency risk." The analysts also said: "Competitors have tried on numerous occasions but failed to push upscale, with the notable exception of Audi."

 

Another skeptic is Max Warburton of Bernstein Research. He wrote: "Perhaps it is possible to grow Maserati, Alfa, the [Fiat] 500 [range] and Jeep, but it will take time, capital and success is obviously far from assured." Warburton noted that Marchionne's strategy results from pressure from the Italian government to pursue growth when the pragmatic choice would be to rationalize.

 

Massimo Vecchio, a financial analyst with Mediobanca Securities in Milan, said the new Alfa plan will not succeed because the competition is too tough. "Even if it reaches the planned 300,000 units, Alfa will continue to lose money and remain a pygmy in the battle of titans between the German premium brands, which are already selling well over a 1 million units a year," Vecchio said.

 

Mediobanca's Vecchio agrees: "In the years to come, Maserati looks to become a success story. This relaunch was long overdue."

 

This is what I wonder too. Does Fiat really have that much cash to do both at the same time?

He seems pretty confident so far, and he said he has some bank friends. If he can get a $5bn loan from the bank for funding the merger, then there is no question what will happen.

Do you know if the debt market closes the door to Italy government bonds, can companies headquartered in Italy have debt access?

Do you know similar examples in Greece?

 

Chrysler is getting stronger everyday. Maybe in the end it is Chrysler taking the $5bn loan to do the reverse merger with Fiat. Is that possible?

[muscleman]

http://www.gwinvestors.com/Main/Blog/Entries/2013/2/28_Fourth_Quarter_2012_Letter_files/2013.02.28%20Q4%202012%20Letter%20to%20Investors.pdf

 

Green Wood investor's latest letter. It says that Fiat's debt has no liens, which means in the worst case scenario, it can sell Ferrari or Chrysler and distribute the cash to shareholders, without bond holder approval, and the two adds up to be worth more than 9 euro per share. I think this is very good as it will be easier for Fiat to get a senior secured loan to fund the merger. What do you think?

[dolce2think]

It would be difficult to distribute the assets to the shareholders in the mentioned way, as the bondholders are then left with the european operations and the parts business. Anyways, if Italy were to exit the euo - which looks unlikely - then Fiat could still serve the debt, as it exports most of its cars and as the italian factories would be competitive again. Only its european finance arm could be under stress, since the south europeans would pay in Lira and the debt would be in euros. As they have only 50% in the JV, this would be around 0,7 Euro per share at risk, at most.

 

I think, that the break-even numbers on the factories are a bit misleading, since this probably refers to the mass market brands with operating margins

of 5% and sales prices around 20000 Euros. The Maserati plan is for 50.000 cars and 20% EBITDA margin, so this alone could bring in enough to cover

the deficit, as it would take 0,5 mio mass market cars to produces the same result. The Maserati success is quite possible, as for example Porsche has

problems in the early nineties and hires Wendelin Wiedeking to fix it, they went from 20K cars to 50K cars pretty quickly. The Cayenne sold 75K units last

year, and the Panamera 30K - and both models ramped very quickly. So for Maserati - I think 50K is possible.

Alfa is a bit more vexing, since they tried several times. Actually 10 years ago, the already sold more than 200K cars, with the 156, 147,...

In Germany, many buyers opted for it, but later they simply could not keep pace with BMW. Still, its possible to achieve this, since they have the chrysler

distribution in USA.

 

Valuation wise, is very attractive as Fiat is basically an option on 1) Chrysler revaluation (along with GM and Ford) and 2) Maserati, Alfa, Jeep, strategy.

Even if only Chrysler were valued more normally, this could bring a 2x or 3x on the Fiat shares. Best case, they buy out the rest with a loan, worst would

be an premature IPO for Chrysler, with the VEBA stake covering less than the treshold amount. If they IPO at higher prices down the road, it is even

likely that Fiat gets another 10-15% for free, as the threshold is covered by the rest. Chryslers valuation is volatile as it is levered via its pension debt,

vs GM which has a cash hoard to offset it. Of course, the leverage works both ways, but the payoff is heavily skewed to the upside.

 

 

[muscleman]

It would be difficult to distribute the assets to the shareholders in the mentioned way, as the bondholders are then left with the european operations and the parts business. Anyways, if Italy were to exit the euo - which looks unlikely - then Fiat could still serve the debt, as it exports most of its cars and as the italian factories would be competitive again. Only its european finance arm could be under stress, since the south europeans would pay in Lira and the debt would be in euros. As they have only 50% in the JV, this would be around 0,7 Euro per share at risk, at most.

 

I think, that the break-even numbers on the factories are a bit misleading, since this probably refers to the mass market brands with operating margins

of 5% and sales prices around 20000 Euros. The Maserati plan is for 50.000 cars and 20% EBITDA margin, so this alone could bring in enough to cover

the deficit, as it would take 0,5 mio mass market cars to produces the same result. The Maserati success is quite possible, as for example Porsche has

problems in the early nineties and hires Wendelin Wiedeking to fix it, they went from 20K cars to 50K cars pretty quickly. The Cayenne sold 75K units last

year, and the Panamera 30K - and both models ramped very quickly. So for Maserati - I think 50K is possible.

Alfa is a bit more vexing, since they tried several times. Actually 10 years ago, the already sold more than 200K cars, with the 156, 147,...

In Germany, many buyers opted for it, but later they simply could not keep pace with BMW. Still, its possible to achieve this, since they have the chrysler

distribution in USA.

 

Valuation wise, is very attractive as Fiat is basically an option on 1) Chrysler revaluation (along with GM and Ford) and 2) Maserati, Alfa, Jeep, strategy.

Even if only Chrysler were valued more normally, this could bring a 2x or 3x on the Fiat shares. Best case, they buy out the rest with a loan, worst would

be an premature IPO for Chrysler, with the VEBA stake covering less than the treshold amount. If they IPO at higher prices down the road, it is even

likely that Fiat gets another 10-15% for free, as the threshold is covered by the rest. Chryslers valuation is volatile as it is levered via its pension debt,

vs GM which has a cash hoard to offset it. Of course, the leverage works both ways, but the payoff is heavily skewed to the upside.

 

Thanks a lot. I think your analysis makes a lot of sense.

Right now Fiat cannot access Chrysler's cash flow unless it acquires 80% of the stakes, under their agreement with VEBA.

What happens if the IPO happens? I think if the IPO happens, then this restriction should be removed, right? At that time, Chrysler can declare a dividend, which means Fiat can access their cash flow. The only problem with that is the double taxation, I think. Will Fiat have to pay for the tax on the dividends in this case?

[dolce2think]

No, the dividends would be tax exempt (95% exempt) on the Italian side, the way I read it.

 

https://www.deloitte.com/assets/Dcom-Global/Local%20Assets/Documents/Tax/Taxation%20and%20Investment%20Guides/2012/dttl_tax_highlight_2012_Italy.pdf

 

Further, Fiat already accesses the cashflow, since they plan their capex together and chrysler does more than half.

Also, it has been indicated, that chrysler could loan money to Fiat, which "might" need VEBA approval. There are many

ways in which they can come around this, at the end of the day, VEBA would like to reach the treshold payment amount.

If Fiat buys the rest of the stake for say 4 bio USD, then the combined entity would be levered around 1xEBITDA (2013,

ex pension leverage). This is maybe doable, but in todays auto-environment it is considered risky - especially since

the spend all of the CF on Capex for 2013/14.

 

The European car market is viewed very negatively at the moment - maybe too negative. The "hard facts" are:

weak demographics, fleet age much younger than US (8.5 vs 11y) and of course the austerity. So the consensus

is "no recovery till the end of the decade". Especially hit is Peugeot - which sells most of its cars in Southern Europe.

During the credit bubble 2004-2007 they bought all new cars there and will keep them till better times come.

On the other hand, the car companies are very cheap and beaten down and will downsize to the environment.

 

[muscleman]

No, the dividends would be tax exempt (95% exempt) on the Italian side, the way I read it.

 

https://www.deloitte.com/assets/Dcom-Global/Local%20Assets/Documents/Tax/Taxation%20and%20Investment%20Guides/2012/dttl_tax_highlight_2012_Italy.pdf

 

Further, Fiat already accesses the cashflow, since they plan their capex together and chrysler does more than half.

Also, it has been indicated, that chrysler could loan money to Fiat, which "might" need VEBA approval. There are many

ways in which they can come around this, at the end of the day, VEBA would like to reach the treshold payment amount.

If Fiat buys the rest of the stake for say 4 bio USD, then the combined entity would be levered around 1xEBITDA (2013,

ex pension leverage). This is maybe doable, but in todays auto-environment it is considered risky - especially since

the spend all of the CF on Capex for 2013/14.

 

The European car market is viewed very negatively at the moment - maybe too negative. The "hard facts" are:

weak demographics, fleet age much younger than US (8.5 vs 11y) and of course the austerity. So the consensus

is "no recovery till the end of the decade". Especially hit is Peugeot - which sells most of its cars in Southern Europe.

During the credit bubble 2004-2007 they bought all new cars there and will keep them till better times come.

On the other hand, the car companies are very cheap and beaten down and will downsize to the environment.

 

 

Fiat already accesses the cashflow? Where did you get that info? Just because they plan capex together doesn't mean Fiat has access to Chrysler's cashflow.

 

If Chrysler can lend a loan to Fiat, then I don't see how they couldn't merge.

[Phaceliacapital]

N.B.: All Chrysler Group activities are included under Industrial Activities and Chrysler Group’s treasury activities

(including funding and cash management) are managed separately from the rest of Fiat Group.

 

From the 2012 report.