FCAU - Fiat Chrysler Automobiles

[merkhet]

If you take the EU/USD exchange and apply it to the high end of their EBIT range (which I think is albeit too low) then apply an appropriate interest rate on their debt. They said they will require 15bn of liquidity and 5bn of net cash so thats roughly 10bn of debt at ~5pct rates is 500m eur finance cost with no credit for the cash.. Their EPS estimate doesnt tie to EBIT. I think they have built in alot of wiggleroom. Run the math.

 

I agree there's quite a bit of wiggle room (they didn't take into account either margin expansion related to commodity prices dropping or the below the operating line interest expense dropping because of the ring fence coming off and getting to net cash) -- but if I take what you just said here, and I run the numbers, this is what I get:

 

Adjusted EBIT of €9.8 billion

Subtract out €0.5 billion of cash, so €9.3 billion

Then apply a 35% tax rate, and you get €6 billion over 1.5 billion shares or €4 per share

 

I suppose, alternatively, you could use the theoretical tax rate of 19% post-2017, but their historical effective tax rate has been higher than their theoretical tax rate for the last few years because of various reasons -- so is there reason to believe that they'll run closer to the theoretical tax rate in the future?

 

If you apply the 19% tax rate, then you get €7.5 billion over 1.5 billion shares or €5 per share, which is closer, but not quite $6 per share.

[whatdadil9]

I think you are getting closer. I think they can surpass 9.8 BN based on the new mix vehicles and the margins they are already achieving in NAFTA. Improvement in parts, maserati, jeep/ram, etc.

 

If you say they do 10.3bn and take a tax rate closer to where you are talking (china is also low tax-rate)...I am getting to over 5 EU a share and then you apply the 1.14 exchange rate...

 

Does it really matter though?

 

As far as I can tell, this thing could be a negative EV and no one would care. It is pre-ordained that this will lose money and the cycle will eventually come. I struggle to see how you get paid regardless of how the numbers pan out...

 

Do you?

[merkhet]

I think we are both in agreement that it's stupid cheap. I was just trying to figure out your underlying assumptions to get to $6 EPS.

 

I think you get a sentiment change before you run through the cycle... but I thought that you'd have had a sentiment change on GM by now and have been wrong about that as well. So who knows.

[goldfinger]

I think we are both in agreement that it's stupid cheap. I was just trying to figure out your underlying assumptions to get to $6 EPS.

 

I think you get a sentiment change before you run through the cycle... but I thought that you'd have had a sentiment change on GM by now and have been wrong about that as well. So who knows.

 

It can come when they realize that the Great Recession is not coming back in the car industry. They will be investment grade by next year and can do but backs. Also a merger is going to be almost forced down the throat of main car businesses management when it becomes an cinch: in that case the resulting businesses will look much more valuable over the cycle.

[GregS]

I think we are both in agreement that it's stupid cheap. I was just trying to figure out your underlying assumptions to get to $6 EPS.

 

I think you get a sentiment change before you run through the cycle... but I thought that you'd have had a sentiment change on GM by now and have been wrong about that as well. So who knows.

 

It can come when they realize that the Great Recession is not coming back in the car industry. They will be investment grade by next year and can do but backs. Also a merger is going to be almost forced down the throat of main car businesses management when it becomes an cinch: in that case the resulting businesses will look much more valuable over the cycle.

 

Right now there is almost hostility to mergers in the  industry from anyone except FCA.  Under what conditions do you think that will change?  I'm struggling to see it, absent the cycle breaking.

[goldfinger]

I think we are both in agreement that it's stupid cheap. I was just trying to figure out your underlying assumptions to get to $6 EPS.

 

I think you get a sentiment change before you run through the cycle... but I thought that you'd have had a sentiment change on GM by now and have been wrong about that as well. So who knows.

 

It can come when they realize that the Great Recession is not coming back in the car industry. They will be investment grade by next year and can do but backs. Also a merger is going to be almost forced down the throat of main car businesses management when it becomes an cinch: in that case the resulting businesses will look much more valuable over the cycle.

 

Right now there is almost hostility to mergers in the  industry from anyone except FCA.  Under what conditions do you think that will change?  I'm struggling to see it, absent the cycle breaking.

When the bottom line makes it look obvious. I heard marchionne hint at this in a recent interview and it seems pretty damn rational to me.

[goldfinger]

I think we are both in agreement that it's stupid cheap. I was just trying to figure out your underlying assumptions to get to $6 EPS.

 

I think you get a sentiment change before you run through the cycle... but I thought that you'd have had a sentiment change on GM by now and have been wrong about that as well. So who knows.

In other terms, no one in the financial markets believes in his numbers (that has always been the case by the way...). If they can see the transformation, they will be the ones calling for financial rationalization.

 

It can come when they realize that the Great Recession is not coming back in the car industry. They will be investment grade by next year and can do but backs. Also a merger is going to be almost forced down the throat of main car businesses management when it becomes an cinch: in that case the resulting businesses will look much more valuable over the cycle.

 

Right now there is almost hostility to mergers in the  industry from anyone except FCA.  Under what conditions do you think that will change?  I'm struggling to see it, absent the cycle breaking.

When the bottom line makes it look obvious. I heard marchionne hint at this in a recent interview and it seems pretty damn rational to me.

 

In other terms no one in the financial markets believe in his numbers (always been like that by the way). When they see the transformation, they will be calling for rationalization (and they are being prepared and introduced to it early - an other manifestation of marchionne's genius)

[whatdadil9]

what interview are you referring to?

 

My concern is that the business will perform/rationalize but when SAAR dips to 16mm...stocks will be cut in half if not more... Momentum/direction/etc... I almost feel like you have to go thru a cycle for investors to see that breakevens are lower / attract a deal. It begs the question, why do you want to be a shareholder into all of that?

 

How do you substantiate the market changing sentiment?

 

The fact that it is completely immune to positive news developments is absurd. The stock doesnt go up on good news. Soros/Druckenmiller say thats when you sell. When stocks stop going up on good news. Why is this not a value trap?

[goldfinger]

what interview are you referring to?

 

My concern is that the business will perform/rationalize but when SAAR dips to 16mm...stocks will be cut in half if not more... Momentum/direction/etc... I almost feel like you have to go thru a cycle for investors to see that breakevens are lower / attract a deal. It begs the question, why do you want to be a shareholder into all of that?

 

How do you substantiate the market changing sentiment?

 

The fact that it is completely immune to positive news developments is absurd. The stock doesnt go up on good news. Soros/Druckenmiller say thats when you sell. When stocks stop going up on good news. Why is this not a value trap?

 

The interview was either earnings discussion or a recent public interview on bloomberg or so, don't remember. But he hinted at their honesty (comparatively speaking to the rest of the industry) and the fact that they didn't regret their communication for reasons that the merger will eventually have to happen if they can prove the numbers!  ::)

I apologize for being naive but I do not understand the concept of value trap: if a business is well managed and stays absurdly cheap compared to value, management will pay back shareholders in other ways... Also when they become investment grade - around 1H 2017 - they will be empowered to do so. I cannot think of a more shareholder oriented management in industrials/car and many other sectors by the same token as the Marchionne/Elkann pair...

Soros/Druckenmiller are amazing investors but they are not in the value camp: disagreements on IBM with Buffett/Munger may illustrate that difference (I do not know who is right or wrong or if it is just a timing/difference of investing goals in this case - both may be right in other words...).

Many value investors hate the car business for good reasons (I am not invested in GM). But Marchionne may be creating a unique situation of a business that will be very viable over the long term. In that case, time could be shareholders' friends. Elkann has everything to earn in having Ferrari and FCA show their true value rather sooner than later. Right now the market doesn't believe anything they say - you can see that as a value trap or an opportunity.

(It took a while for BAC for example to shine back again during the 2011/2012 crisis - Gundlach was pounding the table saying how bearish he was when we were buying that stock a 5$/share).

 

It is really fine if you disagree.  8)

 

Cheers!

[whatdadil9]

I am an owner. unfortunately.

 

I see all the same things you see but...Absent a sale of the company/merger or a spinoff of parts, I struggle to see how we get revalued. Even if we get to a net cash position the buyback will be viewed as value decreting... buying back stock at peak earnings. Thats the view on GM. I think the market needs to see these guys being more rational with capital to re-rate these stocks... consolidation ala airlines... The irony is that people could say even with consolidation you are still buying into an intensely cyclical business with alot of operational leverage and you dont warrant a multiple anyways. I see 101 reasons not to be long but struggle to find reasons to be... If it was trading below cash or what not, I get it. But its not. Maybe ev/ebit/da is not the way to look at it. The business consumes working capital in the downturn and also runs the risk of losses. Thats what the shorts are saying... If it was trading at 1x EPS and they were dividending out all the earnings...maybe that would work....

 

Barring a sale to google or google taking a stake where you could say maybe this is like tesla and not succeptible to the "cycle" i dont see how this works... I want someone to tell me how it works.

[whatdadil9]

No commentary on Fiat today? How convenient. Incremental bad news takes stock down but incremental good news does nothing.

 

 

healthy.

[muscleman]

No commentary on Fiat today? How convenient. Incremental bad news takes stock down but incremental good news does nothing.

 

 

healthy.

 

 

What news? I can't find any material news.

[Phaceliacapital]

The only thing I found was a downgrade from Exane.

 

A broker that in the past has never been right on Fiat (follow their coverage on Fiat for +5 years)

[indirect]

Picked up few more shares.

[bonkers]

I'm no Druckenmiller, so I'll just ask Mr. Market how to invest my money. He's always right.

 

Many of my stocks are today down -1...-7 %, so probably I was wrong on every single one of them.  ;)

 

QUESTION:

I don't have CapitalIQ, Bloomberg or any other modern tools for that matter. So can someone find the long-term stock charts (or ideally year-end stock prices) of GM and Chrysler, 1976-2009? I would highly appreciate it.

[Picasso]

I only have GM.  Not sure where to look up Chrysler...

[phil_Buffett]

http://europe.autonews.com/article/20160518/ANE/160519880/fiat-chrysler-shares-rise-on-report-of-guangzhou-auto-interest

 

MILAN -- Milan-listed shares in Fiat Chrysler Automobiles rose more than 3 percent today after a media report suggested that China's Guangzhou Automobile Group was considering making an offer for a majority stake in the automaker

[Drake]

Here in Germany, national regulators are suspecting FCAU (and Opel, the German subsidiary of GM) to have cheated in the emission tests of Diesel cars. They have started investigations that have been intensified, lately (see e.g. http://www.telegraph.co.uk/cars/news/diesel-emissions-scandal-fiat-under-investigation/).

 

My question: Are there any rumors/news of a similar investigation concerning FCAU by US authorities? I am asking this because the U.S. findings that Volkswagen cheated in the emission tests crushed Volkswagen's stock price. Well, currently it seems to me that most (all?) car manufacturers cheated in the emission tests. But as I am long FCAU, I am especially wary of what might happen to FCAU's price if it would turn out that they also might have cheated in the emission tests...

 

What do you think of this risk?

[Jurgis]

I was going to say that I don't think FCAU sold diesel cars in US (since diesels are not really popular in US and Volkswagen was an exception in selling diesels here), but apparently FCAU sells diesel trucks:

 

http://www.fool.com/investing/general/2014/09/30/how-chryslers-diesel-ram-is-helping-it-gain-on-for.aspx

 

 

[TwoCitiesCapital]

Here in Germany, national regulators are suspecting FCAU (and Opel, the German subsidiary of GM) to have cheated in the emission tests of Diesel cars. They have started investigations that have been intensified, lately (see e.g. http://www.telegraph.co.uk/cars/news/diesel-emissions-scandal-fiat-under-investigation/).

 

My question: Are there any rumors/news of a similar investigation concerning FCAU by US authorities? I am asking this because the U.S. findings that Volkswagen cheated in the emission tests crushed Volkswagen's stock price. Well, currently it seems to me that most (all?) car manufacturers cheated in the emission tests. But as I am long FCAU, I am especially wary of what might happen to FCAU's price if it would turn out that they also might have cheated in the emission tests...

 

What do you think of this risk?

 

Somewhere in this thread, someone had posted a link to a presentation done by a fund that is heavily into Fiat where they said that the likelihood of Fiat lying on its figures was pretty low given how terrible the figures were relative to competitors headlines. I don't know how likely it actually is, but there does seem to be a good argument for "why would they cheat and still report terrible emissions figures" unless if they really are just THAT far behind the rest of the industry.

 

It was posted shortly after the Volkswagon emissions scandal if that helps you narrow down the location in the thread.

[PLynchJr]

Marchionne has already publicly said they have not / do not use any cheat devices. 

[Phaceliacapital]

I think the German government is trying to make the problem seem industry specific instead of more country related ("german engineering excellence"). The research mentioned above is from a Greenwood writeup if I'm not mistaken.

[Drake]

I think the German government is trying to make the problem seem industry specific instead of more country related ("german engineering excellence"). The research mentioned above is from a Greenwood writeup if I'm not mistaken.

 

Yes,  that there is an industry specific problem is exactly the impression that I get from our media. IMHO, our press is as free as possible, but of course one can never rule out some some kind of bias. I believe that our problem here in Europe is that the rules for emission measurement are too lax. And they are lax because they have been dictated to the EU by our car industry. But IMHO lax emission rules are a disservice to the car industry - they do not help it but are damaging when cars are exported to countries with tighter rules.

 

What I read in our media is that Fiat had configured the emission control systems in their Diesel cars such that they are switched off after 22 minutes (the official standardized emission tests run for 20 minutes, only). It is possible that this "feature" is specific to Fiat cars manufactured for Europe (our lax rules beg for that kind of trick).

 

I will not get too concerned about consequences for FCAU as long as the allegations remain a European matter. In the last week, Fiat refused to talk to German officials about these allegations which offended the German minister of transport (makes him look like a fool). Hence, FCAU seems not take the German allegations seriously, at all. However, I would be worried if there were allegations by US officials - that's why I asked whether deceit in emission control was being discussed in the US for other car makers than Volkswagen...

[bonkers]

I am no expert at all in this matter, just ran a few-hour press search. I think the whole diesel thing is a negative to entire car industry and fighting CO2 emissions, but this latest development does not yet seem too dangerous for FCA.

 

There is some evidence that all diesel cars have bigger emissions in real life than in testing environments, e.g. the Dutch TNO tests. It seems that some composite values (of NOx, CHx, particles, etc.) are 2-5x what they reported in tests. If this is really the case, all diesel engines are more hazardous than the public believes. It also seems that so far this has been allowed by the regulators.

 

The real issue comes with the EU legislation, that appears to be unclear and lax, and is implemented in testing by national governments. The tests are apparently more complex than one would assume, and always include temperature windows, air pressure, etc. differences. I'm very uncertain on this one, but it seems that most or all engines use some kind of software that control how the engine is run, and "in order to protect the engine from damage" it runs in a certain way during tests, including the 20 min. control shutoff. Obviously, this should be regulated in a very detailed manner.

 

Sergio highlighted in 2015/Q4:

"One word on the European side. I think that after the advent of the diesel gate for a lack of a better term, FCA is undertaking a pretty thorough review and a thorough audit of its compliance schemes and I think we feel comfortable in making the statement that there are no defeat mechanisms or devices present in our vehicles. I think the car has performed in the same way on the road as they do in the lab under the same operating conditions."

 

...and in 2016/Q1:

"There's a phenomenal level of confusion out there about the degrees of freedom that are associated in the interpretation of that rule, what constitutes effectively a sound technical reason for the application or the suspension of emission controls in a particular vehicle, because of the fact that there are very strong technical arguments that would suggest for the protection of the engine a number of – a variety of responses are capable of being introduced as part of the software solution that runs these vehicles. I understand all this...

But in the absence of very clear rules about what those requirements are and how exceptions to those rules as we have in the United States, where there's a continuous dialog with both EPA and CARB about what is allowed as an exception to the general, zero exception application of the rules.

Until those European rules are crafted and agreed amongst the homologation bodies, I think it's going to be very, very difficult...

People, I think, have done their best; that we have done our best to meet those standards over time, fully understanding that there were technical limitations associated with our powertrains that we use, and that because of those technical limitations that the rule itself allowed for relief."

 

The core of this matter is, that emissions deviate from tests. They always do. Bosch says there is software included. There often/always is. But has this been allowed by the Italian regulators? Germans are blaming on Italians for interpreting the EU rules in a different way. The Bild article seems to apply only to Fiat 500X (some 10,000 sold in EU each month, only some of them diesel), and there are also other references to Ducato, Giuletta, Cherokee...  but also some 20 models from other manufacturers, including Mercedes, Opel, Renault, Hyundai, Nissan....

 

Sergio also hinted that the Italian officials allowed some exceptions to FCA due to their lackluster technology. But it's was allowed. FCA wants to deal with only Italian officials, and Germans are pissed off by this. In fact, Italian minister of transport Delrio supports this, and says that the officials need more dialogue. I think it seems like FCA might lose type approval in Germany (not their key market, anyway) for some models for some time, until they provide a fix.

 

However: no litigation, no huge recalls, minimal damage to brand.

[Ballinvarosig Investors]

The whole emissions thing is a storm in a teacup. Even if Fiat were found to be rigging emissions, I think the impact on the brand would be negligible. Perhaps things are different in the US, but here in Europe, even VW's sales are coming back and from talking to any owner on the street, they don't give a stuff about emissions and it wouldn't stop them buying VW in the future. It really does stand to reason. The fact that someone is buying a new diesel VW would immediately suggest that concerns about emissions are not even on the radar.

 

If you ask me, the spate of recalls from Toyota was more damaging to their brand (safety on the other hand is something people care about). It certainly bears out in conversations I've had with people (the perception is that the Toyota cars of today are not as good as they were 15 years ago).