FCAU - Fiat Chrysler Automobiles

[dolce2think]

I should have been more explicit - of course, Fiat entity cannot "soak" the cash of chrysler entity, albeight I heard Marchionne saying, that

in theory chrysler could lend to fiat.

But - looking at it the other way - Fiat and Marchionne do have effective control over Chryslers actions, its capital spending...

and that spending is beeing allocated in a way that benefits Fiat (as well as Chrysler). If they were totally separate entities, would they build

Jeeps in Italy, Maseratis in USA? Maybe, but beeing under one control, they act differently, and of course are Fiats empty factories driving decisions.

 

It will be interesting to see how this plays out and what rabbits Marchionne can pull out of his hat.

 

[Phaceliacapital]

Fiat SpA (F) is raising 1.25 billion euros ($1.6 billion) from its first sale of bonds in the currency since July, helping spur the busiest start to a year for euro debt issuance from carmakers since 2009.

Fiat is selling high-yield notes due in five years at 6.625 percent, according to a person familiar with the matter. The deal lifts sales from carmakers to 11.5 billion euros this year, compared with 10.7 billion euros during the same period in 2012, according to data compiled by Bloomberg.

[fareastwarriors]

http://www.businessweek.com/articles/2013-03-14/the-italian-legend-steering-car-design-for-fiat-chrysler#r=rss

 

The Italian Legend Steering Car Design for Fiat-Chrysler

[brker_guy]

http://www.autonews.com/article/20130319/OEM/303199842/fiat-says-profit-to-fall-as-jeep-launch-compounds-europe-woes&cciid=email-autonews-daily#axzz2O2FgdFEF

 

 

[Sportgamma]

I was mistaken. Exor has not announced anything about converting preferred and saving shares into ordinary. What I read was a passage in a report from Cheuvreux:

"In our view, the simplification of the holding structure would be the best

way for Exor to shrink the holding discount. The planned cancellation of

FIAT/FIAT Industrial non-voting shares could be the first step in this

direction. We believe a similar deal for Exor would have a beneficial

impact on the cost of capital, reducing dividend commitments."

 

However, if a mandatory conversion were to happen, it will most likely not be on a 1:1 basis. In the case of Fiat Industrial the conversion was as stated:

"...at the Extraordinary General Meeting held 5 April 2012, Fiat Industrial shareholders approved a resolution

for the mandatory conversion of preference and savings shares into ordinary shares at a conversion ratio of

0.700 ordinary shares per preference share and 0.725 ordinary shares per savings share;"

http://www.fiatindustrial.com/en-US/investor_relations/advices/FiatDocuments/Annuncio%20La%20Stampa_Fiat%20Industrial_135x420_ENG.pdf

 

In the case of Fiat the conversion rate was higher:

"preference shares will be converted into newly issued ordinary shares according to a conversion ratio of 0.850

ordinary shares for each preference share;

n savings shares will be converted into newly issued ordinary shares according to a conversion ratio of 0.875

ordinary shares for each savings share."

http://www.fiatspa.com/en-US/investor_relations/shareholders/FiatDocuments/Punto5_AssemblAzion_UK.pdf

 

Conversion announced:

 

The special meeting of the holders of EXOR savings shares, held today in Turin, approved the mandatory conversion of the preferred and savings shares into ordinary shares, on the basis of a conversion ratio of 1 ordinary share for each preferred or savings share.

The ordinary shares issued in the conversion would be eligible for dividends (to the extent declared) with respect to the 2013 financial results.

The conversion and the related amendments to the bylaws will be submitted to the approval of the General Meeting of EXOR (extraordinary session) called in single call for tomorrow, March 20, 2013.

As previously communicated, the conversion of preferred and savings shares into ordinary shares is conditional upon the cash amount to be paid by the Company pursuant to Article 2437-quater of the Italian Civil Code to the withdrawing shareholders not exceeding €80 million, in the case of the preferred shares, and €20 million in the case of savings shares; provided that in the event that either of these limits is exceeded for any given class, the conversion of both classes of shares will nevertheless become effective if the aggregate cash amount to be paid by the Company for the exercise of the withdrawal rights in respect of both classes does not exceed €100 million.

[Olmsted]

A 1-datapoint “channel check,” for what it is worth:

 

I test-drove the new 2014 Grand Cherokee Limited, which was apparently the first re-design to have started and finished under Marchionne leadership.  Very nice car, my wife loved it.  He said most of their trade-ins for the Grand Cherokee have been luxury brands (though that may have been part of a sales pitch).

 

The salesman said that their sales used to be driven by trucks and big cars (Dodge Chargers), but although those sales haven’t declined – Jeep Grand Cherokees and Jeep Wranglers are their main sales engines now.  I was told there was a worldwide shortage of Jeep products; for example dealers are not transferring those to other dealers now (e.g. if a customer wants a color not on the lot) without getting another one in return.  They had heard of plans to build Jeeps in Europe, and are looking forward to that freeing up more US-made Jeeps for the US market.

 

There was a Fiat section attached to the dealer, carrying 500s.  I was told that prospective customers tend to approach these with skepticism, but have a much better impression after they have driven one.  I was told sales were tepid – but I got the impression that sentiment was just compared to the Chrysler/Dodge/Jeep line (which is not a surprise – there’s only one model available and it’s a bit of a niche for where I live – in pickup truck country).  Apparently dealers’ future allocations of higher-end Fiat products – Alfa Romeos, Maseratis, etc. depend on their current sales of Fiat 500s.  So dealerships are incentivized to move the 500s. 

 

I asked whether the dealership had heard any chatter about when to expect more Fiat products.  Not really.  Waiting on the cars to jump through all the regulatory hoops – safety, emissions, etc.  Apparently the process for the Fiat 500 took about 3 years.

 

I’ll be going back for some more car shopping, so let me know if there are some other business questions I can pose.

 

EDIT: the salesman told me it was a 2014, but this article says it hasn't been unveiled yet.  Hmmm...maybe he mispoke.

 

http://www.autonews.com/apps/pbcs.dll/article?AID=/20130321/RETAIL01/130329980/jeep-boss-says-another-sales-record-depends-on-new-cherokee#ixzz2OEH1LnsP

 

(thanks PlanMaestro for the article)

 

EDIT 2: The salesman wasn't in error.  I was looking at a 2014 Grand Cherokee.  The article is talking about the regular Cherokee. 

[fareastwarriors]

http://www.bloomberg.com/news/2013-03-28/fiat-seeks-2-5-billion-credit-line-before-chrysler-deal.html

 

 

 

Fiat Seeks $2.5 Billion Credit Line Before Chrysler Deal

 

[PLynchJr]

Rumors that Audi may be buying Alfa Romeo.

 

http://www.autoblog.com/2013/03/28/audi-rumored-to-buy-alfa-romeo-officials-deny-it/?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+weblogsinc%2Fautoblog+%28Autoblog%29&utm_content=Google+Reader

[Sportgamma]

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.

 

Chrysler Group and Fiat continue to separately manage their own financial matters, including treasury services

 

Chrysler’s May 2011 credit agreement limits financial support to Fiat (inter alia cumulative limit on dividend payments of $500mn payable only if specified minimum liquidity is met)

 

Fiat’s 3-year RCF also limits financial support to Chrysler (including limits on guarantees and loans)

 

p.7

 

http://www.chryslergroupllc.com/Investor/presentations/other/ChryslerDocuments/Citi%202012%20Credit%20Conference%20Presentation.pdf

[fareastwarriors]

Major Automakers Enjoy Strong US Monthly Sales in March

 

http://www.cnbc.com/id/100609345

 

 

Chrysler, a unit of Italian automaker Fiat SpA, said March sales totaled 171,606 vehicles, up 5 percent from 163,381 a year earlier. The Fiat, Dodge, and Ram Truck brands all posted increases.

 

 

Chrysler's estimate of the industry's seasonally adjusted annual rate in March is in line with an average SAAR of 15.3 million from a group of analysts polled by Thomson Reuters. Chrysler's total includes about 300,000 heavy-duty vehicles, while the Thomson Reuters poll excluded such vehicles.

 

 

 

[brker_guy]

http://www.autonews.com/apps/pbcs.dll/article?AID=/20130402/RETAIL01/130409990/honda-detroit-3-set-pace-as-march-sales-advance-3#axzz2PLghGG18

[luck]

not sure how material this is, but good to finally see somebody putting out the word a little bit on fiat as a buy:

 

http://www.cnbc.com/id/100610983

[Sportgamma]

Since the middle of February Exor has been buying back stock. During that time the company has bought around 3.7m shares (common, preferred and saving shares) or about 1.7% of the total shares outstanding for a sum of €81.2m.

 

They haven't been buying for months and now all of a sudden they start again. We have the FI/CNH merger going through soon and Marchionne talking to banks about financing the merger FIAT and Chrysler.

 

Just makes me wander...

 

 

 

[muscleman]

http://www.4-traders.com/news/Trade-Talks-Spur-Worries-Among-Car-Makers--16582767/

 

This is some concern. I think this affects Chrysler more than Fiat because Fiat is going all luxury.

[Phaceliacapital]

Since the middle of February Exor has been buying back stock. During that time the company has bought around 3.7m shares (common, preferred and saving shares) or about 1.7% of the total shares outstanding for a sum of €81.2m.

 

They haven't been buying for months and now all of a sudden they start again. We have the FI/CNH merger going through soon and Marchionne talking to banks about financing the merger FIAT and Chrysler.

 

Just makes me wander...

 

Could you elaborate on this?

 

Thanks

[muscleman]

http://www.nytimes.com/2013/04/12/business/global/automakers-recall-3-4-million-vehicles-over-air-bags.html?_r=0

 

Let's look at how the Japanese competitors are doing. The recall problems seem to be endless.

[claphands22]

Just finished Overhaul.

 

The author, Steven Rattner, ran the government restructuring of the auto industry. Rattner, has high praise for Sergio Marchionne. Views Marchionne as the supreme workaholic who is passionate and ruthless. I walked away believing Rattner was most impressed with Marchionne -- compared to the other executives.

 

---

Interestingly, at the end of the book, he points out Jack Welch and Michael Esiner provided out-sized investment returns for shareholders because they were fantastic executives. Intriguing how he juxtaposed this thought with recent praise for Marchionne.

[siddharth18]

Just finished Overhaul.

 

The author, Steven Rattner, ran the government restructuring of the auto industry. Rattner, has high praise for Sergio Marchionne. Views Marchionne as the supreme workaholic who is passionate and ruthless. I walked away believing Rattner was most impressed with Marchionne -- compared to the other executives.

 

---

Interestingly, at the end of the book, he points out Jack Welch and Michael Esiner provided out-sized investment returns for shareholders because they were fantastic executives. Intriguing how he juxtaposed this thought with recent praise for Marchionne.

 

I watched 60 Minutes' episode on Marchionne and came away very impressed. I've been meaning to read a book on him - so is Overhaul the toi-go book if one wants to read more about him?

 

Cheers!

[claphands22]

The author goes through the processes of understanding the auto industry as the book progresses. Not fully, but you learn what disadvantageous the big 3 had and what happened during the crisis that evened out the playing field.

 

I'd probably not buy the book again to understand Marchionnne but I have horrible buyer's remorse.

[muscleman]

The author goes through the processes of understanding the auto industry as the book progresses. Not fully, but you learn what disadvantageous the big 3 had and what happened during the crisis that evened out the playing field.

 

I'd probably not buy the book again to understand Marchionnne but I have horrible buyer's remorse.

 

Wow, you truly do a ton of research before buying!

[Sportgamma]

I´m beginning to suspect that Giofranchi is actually John Elkann. At least they seem to have the same appetite for good quotes. Elkann´s letter to shareholders is worth a read, including quotes from Ben Graham, J.M. Keynes, Einstein and Mark Twain...I know...sounds like Gio to me.

 

http://www.exor.com/sito/pdf/4c_en_lettera_presidente.pdf

[giofranchi]

I´m beginning to suspect that Giofranchi is actually John Elkann. At least they seem to have the same appetite for good quotes. Elkann´s letter to shareholders is worth a read, including quotes from Ben Graham, J.M. Keynes, Einstein and Mark Twain...I know...sounds like Gio to me.

 

http://www.exor.com/sito/pdf/4c_en_lettera_presidente.pdf

 

Sportgamma,

did you really enjoy the letter? To tell the truth, I didn’t. I enjoy a letter when I find some ideas I hadn’t already thought of, when I can learn something (both Mr. Buffett and Mr. Watsa never fail! And they are not alone!). This, I think, is a good reason to partner with someone: if he is a true master at what he does and, therefore, can teach me a lot about those topics! Instead, if what he says and writes is shallow and has no depth, I leave disappointed and look somewhere else.

 

My idea of Exor hasn’t really changed: it might be an excellent trading opportunity. But I wouldn’t invest in Exor for the long-term. They have 76% of their GAV, which is 91.5% of their NAV, invested in 4 businesses they will probably never sell. Vice versa, I would treat them all as trading opportunities, when they sell far below IV, to sell them as soon as they approach IV. It automatically follows that I think about Exor the same way!

 

Finally, the section GROSS DEBT is the reason why a very cheap and very safe source of leverage, like float, is the gift that keeps on giving! And Exor simply cannot benefit from it.

 

PS

This is not to say that I wouldn’t like to be in Mr. Elkann shoes… ;D Unfortunately, I must admit I have not written that letter!!  :(

 

giofranchi

[Sportgamma]

I´m beginning to suspect that Giofranchi is actually John Elkann. At least they seem to have the same appetite for good quotes. Elkann´s letter to shareholders is worth a read, including quotes from Ben Graham, J.M. Keynes, Einstein and Mark Twain...I know...sounds like Gio to me.

 

http://www.exor.com/sito/pdf/4c_en_lettera_presidente.pdf

 

Sportgamma,

did you really enjoy the letter? To tell the truth, I didn’t. I enjoy a letter when I find some ideas I hadn’t already thought of, when I can learn something (both Mr. Buffett and Mr. Watsa never fail! And they are not alone!). This, I think, is a good reason to partner with someone: if he is a true master at what he does and, therefore, can teach me a lot about those topics! Instead, if what he says and writes is shallow and has no depth, I leave disappointed and look somewhere else.

 

My idea of Exor hasn’t really changed: it might be an excellent trading opportunity. But I wouldn’t invest in Exor for the long-term. They have 76% of their GAV, which is 91.5% of their NAV, invested in 4 businesses they will probably never sell. Vice versa, I would treat them all as trading opportunities, when they sell far below IV, to sell them as soon as they approach IV. It automatically follows that I think about Exor the same way!

 

Finally, the section GROSS DEBT is the reason why a very cheap and very safe source of leverage, like float, is the gift that keeps on giving! And Exor simply cannot benefit from it.

 

PS

This is not to say that I wouldn’t like to be in Mr. Elkann shoes… ;D Unfortunately, I must admit I have not written that letter!!  :(

 

giofranchi

 

I can honestly say that I did enjoy the letter. I think he did a good job on:

1. Explaining their business

2. Communicating what their plan is

3. Being frank and admitting mistakes

4. Alerting the shareholder of the risks involved

 

By these measures I think he did well. Or maybe I´m just blinded by the fact that my exor share are up 38% (in €) since I bought.

 

 

[giofranchi]

I can honestly say that I did enjoy the letter. I think he did a good job on:

1. Explaining their business

2. Communicating what their plan is

3. Being frank and admitting mistakes

4. Alerting the shareholder of the risks involved

 

By these measures I think he did well. Or maybe I´m just blinded by the fact that my exor share are up 38% (in €) since I bought.

 

Well, he admitted they made a mistake in a 0.76% of NAV investment? Easy enough, right?

Anyway, a 38% return is really impressive! Congratulations! But discount to NAV surely must be narrowing now. Isn’t it? So, what are you going to do? Will you let your capital compound in Exor, or will you cash in your very satisfying profits and look somewhere else? In other words, do you see Exor as a long-term investment, or just as a very successful trading opportunity, whose thesis is playing out exactly the way you expected?

 

giofranchi

[giofranchi]

Sportgamma,

I am asking just because on the one hand I would really love to expand my circle of competence and to come to know another business that I could reckon a very good and reliable long-term investment, on the other hand, though, I have pretty high standards and don’t want to lower them…  ::)

Thank you,

 

giofranchi