David Fickling is a Bloomberg Gadfly columnist covering commodities, as well as industrial and consumer companies. He has been a reporter for Bloomberg News, Dow Jones, the Wall Street Journal, the Financial Times and the Guardian.

There's one primary, scarcely spoken reason behind the widespread skepticism that greeted Great Wall Motor Co.'s mooted (and swiftly walked-back) bid for Fiat Chrysler Automobiles NV's Jeep brand. Great Wall's President Wang Fengying will only get her hands on Jeep if she buys the whole business.

And Fiat Chrysler as a whole -- so the thinking goes -- is a beat-up old jalopy.

That's certainly what the equity market reckons. Before Wang's interest sparked last week's share price surge, Fiat Chrysler had for some time been the unchallenged banger of the automotive industry -- well behind the price-earnings ratios of even lumbering monsters like Volkswagen AG, Renault SA and General Motors Co.

Fiat Chrysler has for several years trailed its major rivals based on blended forward 12-month price-earnings ratios
Source: Bloomberg

It appears to be the opinion of GM and Volkswagen too, who've been distinctly lukewarm about the prospects of a merger with Fiat Chrysler despite Chief Executive Officer Sergio Marchionne's desperate attempts to broker a marriage.

So what is there to like about Fiat Chrysler these days? More than you'd think, actually.

Have a look at return on equity. Helped, to be sure, by the slim net asset base left behind by Chrysler's 2009 bankruptcy, it's been rising on an annual basis in every quarter of the past two years and now trails only GM among the largest global carmakers.

Fiat Chrysler's return on equity has steadily moved ahead of most other large carmakers
Source: Bloomberg

Fiat Chrysler's latest reported operating margin, at 9.6 percent, is 6.2 percent above its three-year average, the most dramatic improvement of any carmaker with more than $10 billion in annual sales.

Largely propelling the recovery is the company's heavy weighting to some of the best-performing segments -- principally SUVs and sporty premium marques such as Alfa Romeo and Maserati.

While that's been held back by the underperforming Fiat brand, the picture is changing. North America, where the higher-margin cars dominate, accounts for about 62 percent of revenue; even in Europe, the Middle East and Africa, where a more Fiat-heavy mix contributes 20 percent of group revenue, monthly sales of Alfa Romeos and Jeeps have roughly doubled since the firm's 2014 IPO.

Baby You Can Drive My Car
European deliveries of Fiat Chrysler's more profitable Alfa Romeo and Jeep brands have doubled since its 2014 initial public offering
Source: Bloomberg Intelligence

A shift toward selling a bigger share of such higher-margin cars in Europe, Asia and Latin America was the biggest single factor behind Fiat Chrysler's 15 percent, 283 million euro ($334 million) improvement in second-quarter Ebit last month.

Many of the issues often cited as Fiat Chrysler-specific black marks are better seen as industry-wide problems. While its pension liabilities, at 8.61 billion euros, are more than a third of the market capitalization of the company, they're not drastically higher than GM's or VW's as a share of Fiat Chrysler's total long-term liabilities.

Fiat Chrysler's greatest strength as a business, in fact, is the same as its greatest weakness: a tendency to move fast and break things in the pursuit of profit before all else.

Marchionne has shown reluctance to invest in some of the game-changing technologies around autonomous and electric vehicles roiling the rest of the industry. Making dirty big SUVs that sell in large numbers and produce good margins has worked well for him, particularly in contrast to the sums that rivals have invested in developing unpopular and unprofitable low-emission sedans.

Big Really Is Beautiful
Deliveries of SUVs in the U.S. are on the brink of overtaking cars
Source: Bloomberg Intelligence, Gadfly calculations

At the same time, it will leave Marchionne struggling to catch up should the technology bets competitors are making pay off. If his recent conversion to a rapid electrification of the Maserati brand works out, he may just have time to reverse that.

The only question is, who other than Fiat Chrysler's existing shareholders should benefit from this turnaround?

GM, which only just shed one European carmaker (with its sale of Opel and Vauxhall to Peugeot-maker PSA Group) hardly seems likely to jump back into another one. VW has enough problems getting past its own diesel scandal.

As Gadfly's Shelly Banjo has written, Wang would probably have been better off making her move on Jeep a decade ago, when Fiat swept in to Chrysler's Chapter 11 process. Still, Great Wall's almost complete dependence on China forms a neat complement to Fiat Chrysler's minimal local presence.

On this occasion, Wang has reversed after a quick glance through the fence at Marchionne's used-car lot. If she decides to go for a test drive, she may just pick up a bargain.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

  1. It's even reflected in the reliability of Fiat Chrysler's cars: In JD Power's rankings of the long-term dependability of marques, Fiat, Jeep and Dodge regularly occupy the lowest rungs; even Ram and Chrysler, the better performing of its brands, tend to fall below the industry average.

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David Fickling in Sydney at

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