FCAU - Fiat Chrysler Automobiles

[merkhet]

His point is that u can remove capacity without losing sales, no?

 

IIRC, much of the savings come from reduced investment and R&D and not necessarily what we are referring to as "reduced (existing) capacity."

 

[goldfinger]

Bonkers-

 

Thanks for the cheer up call. I appreciate it but live in a world where very large Macro Managers are shorting Italy, Autos, etc. and have alot more capital to push things around. Its my understanding that most of the prominent 10+ bn managers are short autos and fiat in particular. You can catch a small glimpse of this on CIQ which shows which managers are short FCA common. Does not include swap obviously. lots of guys short this on swap too..

 

The problem I have is that over the course of the cycle you can normalize earnings. Makes X.00 EPS at the peak and for this long and makes/(loses) X.00 EPS for this long. You add the numbers together and divide by the number of years and you get NORMALIZED earnings. I dont think I or anyone else can accurately do this math and hence the car stocks trade on the direction of sales volumes and not earnings.....b/c when sales turn no one knows what earnings look like and for how long? I think the same issue is plaguing Airlines for that matter. Perhaps we need to go thru a recession or a downturn to desensitize folks. I dunno.

 

My issue is that I have ZERO idea how low this can go. If EPS is Zero or negative why can this thing trade sub > 1. Not like the Company will be paying dividends out of cash/re or buying back stock to juice earnings on the other side... Whats the rationale for staying?

 

A buddy of mine said all the auto companies would be better off distributing all cash when industry volumes are near peak as opposed to repurchasing or growing... It kind of makes sense when you take a step back and think about it. What if FCA wanted to expand capacity in LatAm and China when the world is in a global recession? Wouldnt material costs and all these things cost a whole lot less then?

 

FCA has debt today becauase they are halfway thru a 54bn eur plan that the market gives no credit for the growth investments. If we didnt spend that cash we would have three / four times the companies market cap in cash today!!!  Perhaps we could have spent half and just rationalized US Capacity... You get my point...

 

THe Company has spent an ENORMOUS amount of capital for earnings that the market doesnt believe will ever materialize...

If one looks at sales numbers last quarter in us+EU+canada+other it is market 0 fca 1.

Hopefully Sergio continues to outperform...

 

[ZenaidaMacroura]

 

But it's time to cheer up the mood on this thread 

Whatever you did worked, it's up today (along with the market).

[Foreign Tuffett]

 

But it's time to cheer up the mood on this thread 

Whatever you did worked, it's up today (along with the market).

 

I think as long as COB&F posters continue to do two things FCAU will build on today's success:

 

1) Post only positive thoughts in this thread

 

2) Continue their efforts to arrange a leveraged buyout of the entire company

 

;D

[Jurgis]

They need to make more cars with doors that go like this ... and not like this ...

[vinod1]

The upside is obvious but there are lots of downside risks too. Fiat makes money on two things - Jeep globally and Trucks in US. Strong recent results have been helped by the tailwind from low oil prices.

 

I can think of many ways these two key drivers could be hurt. Jeep is a very strong brand and if it can be spun off like Ferrari, I can see how downside risk if protected. Otherwise, you got to buy in into managements recession resistant, non-cyclical fairy tale.

 

Vinod

[Jurgis]

Not that Sergio will do it (I think), but if you spin off Jeep, the remaining company becomes even more unattractive.

[goldfinger]

Not that Sergio will do it (I think), but if you spin off Jeep, the remaining company becomes even more unattractive.

You figured it all out in 2 minutes. Hats off to you, you are a genius. Every single time mister market pushes the stock down the same types of comments are made and then the same types of answers are produced... We will see, but utter disdain for repetitive outperformance, clear and transparent communication, laser focus on results and black belt track record doesn't strike me as the sainest or smartest behavior. None of you has even gone into the details of product refresh by brand... Whatever... I am not taking it personally; I was just hoping for another type of discussion at page 236 of this thread on a board like that.

[Picasso]

Guys, adjusted for the Ferrari spin this isn't even down that much.  Heaven forbid the market misprices a security after you bought it.

 

Interesting points by bonkers and whatdadil. The entire cyclical space is cheap at the moment and you could argue FCAU is among the cheapest depending on what happens in a few years. It's just tough to ignore that yield curve and say this time is different otherwise I'd probably be a buyer as well.

[Jurgis]

I am not taking it personally

 

You are.

 

Edit: /deleted the rest/

[goldfinger]

I am not taking it personally

 

You are.

Yes you are right! I am sorry!

 

On another note: Picasso is right, taking into account race+fcau this is not down that much. Just market thing.

[Jurgis]

goldfinger may not like what I post, but anyway just to clarify: I don't own FCAU, I don't care about the short term market price movements of FCAU. I don't plan to buy it. I own some EXOSF. I don't particularly like being a part owner of FCAU through EXOSF. I like Sergio, but I think that he has tough business to work in. <Insert Buffett quote about great management and crappy business here>. I look at this at very high level. Bulls might be right and Sergio might be able to line up all the rabbits in line perfectly. But I'd rather EXOSF had a more moaty company as a huge long-term holding. Even if rabbits line up, I'm not sure the exit will be great. In some sense, my hands are more tied than FCAU bull holders: bulls can sell if market runs up FCAU on whatever reason; I will only get good returns if company does well long term or if EXOSF sells it.

 

And, yeah, it's very unfair comparison, so sorry guys, but I hope we don't end up with SHLD-like situation long-term.

 

And, yeah, I am aware of the track record, the plans, the product changes/focuses, the "hidden" values in parts/services, etc.

 

Have fun

[TwoCitiesCapital]

Guys, adjusted for the Ferrari spin this isn't even down that much.  Heaven forbid the market misprices a security after you bought it.

 

Interesting points by bonkers and whatdadil. The entire cyclical space is cheap at the moment and you could argue FCAU is among the cheapest depending on what happens in a few years. It's just tough to ignore that yield curve and say this time is different otherwise I'd probably be a buyer as well.

 

Collectively across both names, it's down ~30% from highs where many of us still agreed that it was severely undervalued. FCAU itself is down ~40% post Ferrari spin-off. If a 30-40% decline isn't "down that much", then I think we'll just have to agree to disagree.

 

I don't think anyone will really argue that it's not a cyclical business. I do buy into the argument that it's likely to be less cyclical than in prior years due to improved cost structures, decreasing leverage, and the fact that the average age of cars in the U.S. still seems relatively old. We might hit peak sales soon if the economy slows, but that doesn't mean they'll trough anywhere near where they did in 08/09 simply due to the forced refresh cycle of many car owners as cars need to be replaced regardless of what the economy does. 

 

The peak and trough for this cycle may be supported at higher levels than in prior cycles simply due to the lasting impacts of the 08/09 recession.

[Picasso]

The highs were when all the event driven guys were piling in the name for the RACE spin.  You have 1/10th of RACE, so $4 plus another $5.70 in FCAU.  This stock was at $5 or $6 in 2012/2013, so not a bad return?  I don't think those highs were representative of some deeply undervalued situation as if no one was aware of the value from RACE.  It was all being priced in.

 

By the time the RACE spin happened, it was already trading at $44 and FCAU was back at $7.  So $11.40 was the "peak?" And here we are at $9.70 today?  This is what happens to small equity stubs....

 

Slightly off topic, but it makes me wonder how DELL would have traded on the stub had they done that levered recap.  It's not unusual to see all kinds of volatility once you pull out big chunks of value.

[ratiman]

If you had to buy and hold FCAU for 10 years, is the thesis that sure, there is large overcapacity and there will be a recession and the marginal supply will be driven out, but Fiat will survive and thrive  and the stock will be a great investment for the next ten years because . . . what? If I had to predict who would get driven out in the next industry shake out (though that never seems to happen - Opel and Volvo are still around), I would have to put Maserati and Fiat at the top of the list. Sure, Ram and Jeep are valuable, but how valuable are they if they'll be bailing out Maserati and Fiat in the next downturn? When I see valuations for Maserati at $3B, I really have to wonder about that. Is Maserati going to generate that kind of free cash over the next 10 years? There is a new Maserati/Fiat dealership nearby, it is on a small strip of land squeezed between an overpass and a gas station. It used to be a fish restaurant. Meanwhile, the Porsche dealership nearby looks like a work of art. I offer this as the perspective of the uninformed investor who wouldn't buy Fiat at any price because I don't see a future for the auto industry until the inevitable bloodbath is over. You're welcome.

[Jurgis]

I think ratiman's scenario is what EXOSF investors have to worry about. FCAU investors might be able to sell out before the next big downturn hits. Maybe. If ducks line up. Of course there are more positive scenarios.

[Oreo]

I used to own FCAU but that was for event reasons (Ferrari spin). I concur with the concerns raised here.

 

Commoditized product? Check.

No pricing power? Check.

Oversupplied market? Check (the marginal benefit of owning a car is constantly dropping thanks to Uber).

Not the lowest marginal cost producer? Check (that honor goes to Asian producers).

Cultural disadvantage? Check (Italian and Anglo-Saxon work ethics are inferior to German and Asian work ethics, in my view).

Constant regulatory pressure? Check. Do the wrong thing and people die (worst case), or you get fined millions (best case).

Maturing up-cycle? Check.

 

Marchionne and Agnelli are certainly the kinds of folks I would want to align myself with, but not in FCAU.

And I am obviously sceptical of profitability margin upside.

Out of all the securities out there, why own FCAU?

[bbarberayr]

Here is a chart of light vehicle sales in the USA since 1993.

 

http://www.tradingeconomics.com/united-states/total-vehicle-sales

 

While current sales are up from the last 7 years, we are ready for a downturn.  Sales from 2000 - 2008 were all in the 16 - 18 million range and, without a recession, it is very hard to see why we would fall out of the current range anytime soon.  Auto makers are very profitable now and are better focused on profits and not volume (eg. see GM).  FCAU will continue to enhance its balance sheet.

 

[glorysk87]

Here is a chart of light vehicle sales in the USA since 1993.

 

http://www.tradingeconomics.com/united-states/total-vehicle-sales

 

While current sales are up from the last 7 years, we are ready for a downturn.  Sales from 2000 - 2008 were all in the 16 - 18 million range and, without a recession, it is very hard to see why we would fall out of the current range anytime soon.  Auto makers are very profitable now and are better focused on profits and not volume (eg. see GM).  FCAU will continue to enhance its balance sheet.

 

 

To layer another data point on, I think we still have a lot of catching up to do.  Vehicle age remains near all time highs and from my understanding while some of that is due to higher quality vehicles, there's still quite a bit of demand to transition to newer vehicles.  I think the only thing that can really derail auto volumes to a significant extent is a deep recession. Otherwise my working assumption is that we putter along around the 16mm SAAR range for the foreseeable future.

[rohitc99]

Here is a chart of light vehicle sales in the USA since 1993.

 

http://www.tradingeconomics.com/united-states/total-vehicle-sales

 

While current sales are up from the last 7 years, we are ready for a downturn.  Sales from 2000 - 2008 were all in the 16 - 18 million range and, without a recession, it is very hard to see why we would fall out of the current range anytime soon.  Auto makers are very profitable now and are better focused on profits and not volume (eg. see GM).  FCAU will continue to enhance its balance sheet.

 

 

To layer another data point on, I think we still have a lot of catching up to do.  Vehicle age remains near all time highs and from my understanding while some of that is due to higher quality vehicles, there's still quite a bit of demand to transition to newer vehicles.  I think the only thing that can really derail auto volumes to a significant extent is a deep recession. Otherwise my working assumption is that we putter along around the 16mm SAAR range for the foreseeable future.

 

We have around 260 Mn vehicle and average vehicle age at around 11.5 yrs (http://www.rita.dot.gov/bts/sites/rita.dot.gov.bts/files/publications/national_transportation_statistics/html/table_01_26.html_mfd)

 

So even a 16 Mn SAAR would mean that average age will continue to increase. So as you said, barring a deep recession 16 Mn SAAR looks doable. Even if we have a deep recession, that will only postpone the demand. The only thing which could change this dramatically in the short term is if driverless cars went mainstream soon and the demand for new cars just crashed (like a switch to iphone from feature phones). that will most likely happen eventually, but difficult to see how it will happen in US and globally in the next 3-4 years.

[bbarberayr]

When driverless cars do become viable, this will drive a multi-year surge in sales as people move to this technology, similar to the migration to smartphones, after which we will move to a new steady state.  And for all the talk about technology companies getting into cars. it will still be the car manufacturers making the cars, not Apple and Google, so it would not be surprising to see higher car sales at some point in the not too distant future to support this migration

[muscleman]

When driverless cars do become viable, this will drive a multi-year surge in sales as people move to this technology, similar to the migration to smartphones, after which we will move to a new steady state.  And for all the talk about technology companies getting into cars. it will still be the car manufacturers making the cars, not Apple and Google, so it would not be surprising to see higher car sales at some point in the not too distant future to support this migration

 

Agree. For all those worrying about driverless cars, do you guys even know how often a taxi driver changes his car or at least rebuild his engine? I think it is every 2-3 years.

Driverless cars don't make car depreciation per mile slower!

[rohitc99]

When driverless cars do become viable, this will drive a multi-year surge in sales as people move to this technology, similar to the migration to smartphones, after which we will move to a new steady state.  And for all the talk about technology companies getting into cars. it will still be the car manufacturers making the cars, not Apple and Google, so it would not be surprising to see higher car sales at some point in the not too distant future to support this migration

 

Agree. For all those worrying about driverless cars, do you guys even know how often a taxi driver changes his car or at least rebuild his engine? I think it is every 2-3 years.

Driverless cars don't make car depreciation per mile slower!

 

So if we are saying the same thing :), what is the case for the SAAR in the US and globally to crash. The stock price seems to be discounting an imminent recession where SAAR drops in US (not a glide down) and does not recover from current levels for EU and South america

 

I am trying to understand and quantify the bear case better here beyond the standard statements - a recession is imminent as X years have passed, or tesla / driverless cars will cause a big drop in sales in less than 5 years

[TwoCitiesCapital]

When driverless cars do become viable, this will drive a multi-year surge in sales as people move to this technology, similar to the migration to smartphones, after which we will move to a new steady state.  And for all the talk about technology companies getting into cars. it will still be the car manufacturers making the cars, not Apple and Google, so it would not be surprising to see higher car sales at some point in the not too distant future to support this migration

 

Agree. For all those worrying about driverless cars, do you guys even know how often a taxi driver changes his car or at least rebuild his engine? I think it is every 2-3 years.

Driverless cars don't make car depreciation per mile slower!

 

No, but they do make fleet far more efficient where the vast majority aren't sitting idle at any one time. There will still be a car industry and there will likely be a ramp up cycle that has the ability to increase sales, but if driverless cars really take over, the most likely impact would be a drastic reduction in car sales as you'd likely need far fewer vehicles on the road.

[merkhet]

I don't think that's true. Unless you believe there will be an increase in carpooling for driverless cars, you'll still need roughly the same number of cars.

 

The statistic that cars are idle 96% of the time is a great talking point, but it overlooks the idea that at specific times, say morning and night rush hours, that idle capacity drops tremendously. Peak capacity utilization is what's important here.