Fiat Chrysler bets on Jeep, Alfa revamp to go global – Reuters

Posted: Tuesday, May 06, 2014

DETROIT (Reuters) – Fiat Chrysler (FIA.MI) is betting on a breakneck expansion of its upmarket Alfa Romeo, Jeep and Maserati brands to transform itself into a global car making powerhouse within five years.

The newly merged group outlined a long-awaited business plan on Tuesday, aiming to revive its historic car making names and persuade investors it can overcome high debt, an uncertain market backdrop and past missteps to close the gap on industry leaders such as Volkswagen AG (VOWG_p.DE) and Toyota Motor Corp.

“Today is much more than a new chapter. We are writing an entire new book,” Chief Executive Sergio Marchionne told reporters and analysts during a day of presentations in Detroit.

Besides an aggressive, belated push into Asia, Marchionne promised to increase North American sales by half as Chrysler broadens its lineup and the embattled Dodge brand digs in.

Fiat Chrysler said it would invest billions of dollars to build new models and ramp up output, predicting sales would surge to almost 7 million vehicles by 2018 from 4.4 million last year – a target some analysts thought highly ambitious.

“It’s definitely a tall order, but I don’t think we ever expected anything less from Marchionne in terms of the ambition,” said Exane-BNP Paribas analyst Stuart Pearson.

“Even getting half or two-thirds of the way to those business plan targets would be a positive achievement industrially – it’s then a question of what investors are expecting and what’s already priced into the shares.”

Fiat shares have risen 44 percent, outpacing a 5.4 percent gain for the broader sector .SXAP, since the Italian company announced a January 1 deal to take full control of Chrysler and create the world’s seventh-biggest carmaker. The stock closed 1.2 percent lower at 8.47 euros on Tuesday.

The group, preparing to move its main share listing from Milan, Italy, to New York as soon as October 1, hopes its combined clout and profitable U.S. business can overcome European losses and propel it into the major league.

At stake are thousands of jobs, particularly in Italy where Fiat Chrysler plans to make many of the new Alfa Romeo models.

The core Fiat marquee’s future growth prospects now lie elsewhere, brand chief Olivier Francois said, pledging model updates tailored to Latin America and Asia, including a long overdue Punto revamp.

“There is no easy fix,” Francois said. “We are all realizing that notwithstanding Fiat’s great European history, things have changed.”

Marchionne is seeking to emulate rivals such as Volkswagen by building global brands and a strong position in the rapidly expanding and high-margin market for premium cars, particularly in Asia, where the group lags behind its main rivals.

The company forecast Alfa Romeo would multiply sales more than fivefold to 400,000 vehicles in 2018 as it invested 5 billion euros ($7 billion) to add eight new models and ramp up production.

Maserati sales would rise at a similar rate to 75,000 on the back of more than 2 billion euros of capital spending, while Jeep would double output to 1.9 million vehicles in 2018, almost half assembled at six new sites outside the United States.


With sales of the mass-market Fiat brand expected to remain flat in a struggling European market over the coming years, analysts said the strategy made sense, though some were skeptical of the sales targets.

“Of all the plans presented so far, Jeep is both the most interesting and the most tangible,” said ISI Group analyst George Galliers from the sidelines of the presentations.

“The opportunity is clearly there, but 1.9 million Jeep units is a stretch,” he added. The brokerage has forecast Jeep sales of 1.2 million in 2018.

Jeep, whose globally recognized products trace their roots to the iconic World War Two vehicle, is seen as Fiat Chrysler’s biggest opportunity to tap fast-growing demand for sport utility vehicles (SUVs) in Asia.

While Marchionne has a track record of deal making in ten years at Fiat’s helm, he has been less successful at delivering a string of ambitious turnaround plans, with Fiat losing market share in its main European market amid delayed investments and some bad design choices.

There are other challenges too. Analysts expect the total cost of the revamp could top 8 billion euros a year – a big burden for a group with 9.8 billion euros of net debt.

Then there is the market backdrop. Europe’s car industry is battling to recover from a six-year slump in sales, while demand is faltering in some of Fiat Chrysler’s most important emerging markets, such as Brazil.

The U.S. market is altogether more buoyant, but Chrysler and Dodge have suffered lately from an investment slowdown in new models.

For the Dodge lineup, which lost ground as deliveries fell 6 percent through April, the company pledged to hold sales steady at 600,000 vehicles despite the discontinuation of the Avenger sedan and Grand Caravan people-mover.

“They kept Dodge because a performance brand can be profitable,” said IHS Automotive analyst Stephanie Brinley.

But Chrysler will add a subcompact 100 sedan and new SUVs including a plug-in hybrid to restore sales from 350,000 last year back to their 2005 peak of 800,000, the company said.

With the welcome investments, the company is “effectively returning the Chrysler brand to the volumes and share it has achieved in the past,” divisional chief Al Gardner said.

(Writing by Laurence Frost; editing by Mark Potter and Matthew Lewis)


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