Fiat Chrysler's SUV Shift Lifts Profits, Confidence in Targets

Updated on
  • Italian-American carmaker sidelined sedans to boost margins
  • CEO says second Maserati model needed to reach goals for brand

Fiat Chrysler Automobiles NV is reaping the rewards of an aggressive shift to more lucrative SUVs, with models including the Jeep Compass and Maserati Levante boosting profit despite weaker sales.

Chief Executive Officer Sergio Marchionne eliminated several passenger cars including the Chrysler 200 so that the Italian-American automaker could better tap robust industrywide demand for roomier and more rugged models. The pivot paid off in the quarter that ended last month, when adjusted earnings increased 17 percent and beat analyst estimates.

“Marchionne’s shift to SUVs is paying off as you see a jump in profit with lower revenue, especially in North America,” said Vincenzo Longo, a strategist at IG Markets in Milan.

The longtime Fiat Chrysler CEO has been emphasizing profit over sales growth as he prepares the company for his departure in April 2019. The goal is to shore up the balance sheet and put the automaker in a better position to weather the changes sweeping the auto industry. Those efforts will include spinning off car-parts operations such as Magneti Marelli, which will probably happen next year, Marchionne said Tuesday in a conference call with analysts.

Fiat Chrysler shares rose as much as 7.5 percent in New York and were up 6 percent to $17.55 as of 2:48 p.m. The stock has surged about 93 percent this year.

The SUV push is still ongoing. A “flawless” start of production of the all-new Jeep Wrangler in November and a refreshed Jeep Cherokee coming in the first quarter of 2018 -- along with a fully redesigned Ram 1500 full-size pickup -- will virtually guarantee Fiat Chrysler meets the big-picture goals set as part of the five-year plan Fiat Chrysler released in 2014, Marchionne said. Beyond that, he told analysts a second, smaller SUV is needed for Maserati to reach its potential for volume and profit.

Margins Improve

The shift to more profitable models helped lift margins to 6.7 percent last quarter, from 5.6 percent a year earlier. The results underpin the company’s goals of increasing annual profit by at least 15 percent to more than 7 billion euros ($8.2 billion).

Adjusted earnings before interest and taxes rose to 1.76 billion euros in the third quarter, beating the 1.67 billion-euro average of seven analyst estimates compiled by Bloomberg. Revenues declined 1.6 percent to 26.4 billion euros as deliveries slipped 1.4 percent.

Marchionne is spending on the products and technologies that make money now, taking a different tack than competitors making billion-dollar investments toward self-driving and electric cars. The conservative approach should help Fiat Chrysler toward its goal to eliminate debt by the end of next year.

‘Not Laggards’

While the company will invest capital in its self-driving partnership with BMW AG, Intel Corp. and Delphi Automotive Plc, the money will come from its existing research and development budget.

“We’re not laggards here, we’ve just chosen our spot very carefully before we started playing,” Marchionne said.

In 2015, Marchionne argued in favor of consolidation given the magnitude of investments needed for electrification and autonomy. He proposed a merger with General Motors Co., which also beat analyst estimates with third-quarter earnings announced on Tuesday. GM’s CEO Mary Barra rebuffed his efforts.

Asked on Tuesday’s call which companies would be his second or third choices, Marchionne demurred.

“I’m just monogamous,” he said. “We’ll leave it at that.”

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