Photographer: Patrick T. Fallon/Bloomberg

Fiat CEO Sees Room to Double Profit by 2022

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  • Marchionne plans to hand over to new ‘top dog’ in 2019
  • CEO sees U.S. tax changes giving profit an added jolt

Fiat Chrysler Automobiles NV Chief Executive Officer Sergio Marchionne, one of the longest-serving bosses in the auto industry, said the company can double profit within five years by exploiting the potential of the Jeep brand. The shares climbed to a record high.

With the offroad nameplate in position to grab as much as 20 percent of the global SUV market and coffers padded by lower U.S. taxes, it will be his successor who carries out the strategy. Marchionne was steadfast in his commitment to retire from Fiat in early 2019 after 15 years, succeeded by one of his lieutenants, he said in an exclusive sit-down interview in Detroit ahead of the North American International Auto Show.

Sergio Marchionne

Photographer: Chris Ratcliffe/Bloomberg

Marchionne has transformed Fiat from a near-bankrupt European manufacturer into a global carmaker with the 2014 merger with Chrysler, giving the group brands including Jeep, Alfa Romeo and Maserati. While it’s small compared with giants like Volkswagen AG and Toyota Motor Corp., Marchionne has given Fiat a new lease on life by streamlining expenses and shifting from unfashionable sedans to higher-margin sport utility vehicles. His growth strategy is focused on a global expansion of Jeep.

“There’s nothing which can tell me that Jeep could not own one in five SUVs,” equivalent to about 5 million deliveries a year, Marchionne said. “If that’s true, the upside for FCA -- we are just beginning to skim the surface.” 

Read more: Adapt or die is Marchionne’s farewell message

If Jeep can reach these targets, it would mean “the profitability of this house is going to be multiples on what it makes now” and doubling profit by 2022 is “possible,” he said. U.S. President Donald Trump’s tax cuts could further boost profit by about $1 billion a year, he added. The carmaker targets at least 7 billion euros ($8.5 billion) in adjusted earnings before interest and taxes in 2017.

The stock advanced as much as 2.7 percent to 19.65 euros on Monday, and was up 1.7 percent as of 1:55 p.m. in Milan. Martino De Ambroggi, an analyst with Equita in Milan, raised his price target on the stock to 18.20 euros. Andrea Balloni, an analyst with Fidentiis, expects Fiat’s next business plan to be “very aggressive.”

Stretched by the demands of day-to-day competition, regulatory issues and disruptive technological change, “this business, if you really want to do it well, is all-consuming,” Marchionne, 65, said. “I am tired. I want to do something else.”

Marchionne’s successor will have to live up to these expectations in a rapidly changing auto industry that risks diluting the edge of traditional carmakers. He says there’s an evolving list of internal candidates under review. All of these executives are working on Fiat’s strategic plan through 2022, and one of them will end up being “the top dog,” he said, adding that he has no indication the company would look to make an external hire.

Chief Financial Officer Richard Palmer is seen by investors as the leading candidate for the job. Jeep chief Mike Manley and Alfredo Altavilla, who returned Fiat’s embattled European operations to profit, are seen as Palmer’s main contenders. While Marchionne declined to identify any people on the shortlist, he said it includes potential candidates reported about in the press as well as someone else, who is not in the media’s spotlight.

Marchionne’s Future

  • Fiat Chrysler CEO closed the door on prospects of extending his tenure and will hand over the reins in early 2019
  • Open to role at Fiat shareholder Exor: “If my presence is required, I will stay”
  • At Ferrari NV, where he’s also CEO, his job of transforming the supercar maker into a luxury brand needs to be completed: “I need to finish what’s started”

Fiat’s new five-year strategy will be presented June 1, the same day he was hired as CEO in 2004 in the dramatic hours after Umberto Agnelli passed away. John Elkann, the young heir of the Italian billionaire Agnelli family, was looking for new leadership at Fiat and made a gamble on Marchionne, at the time CEO of testing company SGS, who had no experience in the auto industry.

The move paid off. Fiat’s value has climbed to a record 29.4 billion euros after soaring 31 percent since the start of 2018.

The iconoclastic executive, who favors black sweaters over suits and ties, plans to leave Fiat after erasing debt, accumulating at least 4 billion euros of net cash and boosting adjusted net income to about 5 billion euros. “I don’t know a reason not to confirm 2017 guidance and 2018 targets,” the Fiat CEO said.

The CEO is open to staying connected with the Italian-American carmaker through a role at the billionaire Agnelli family’s Exor SpA, Fiat Chrysler’s dominant shareholder and the main beneficiary of Marchionne’s wheeling and dealing, which also saw the spinoffs of Ferrari NV and CNH Industrial. During his tenure, he increased the former conglomerate’s value by more than 10 times to about $80 billion.

Forced ‘Celibacy’

Still, the challenges for Fiat and other mass-market carmakers will intensify in the coming years amid a shift to an era of self-driving electric cars. For now, Fiat is planning to tackle the disruption on its own. After Marchionne’s push to merge with General Motors Co. fizzled, an alternative isn’t around the corner amid a lack of interest from potential partners, according to the executive.

“If nobody wants you, then celibacy may be the only option,” said Marchionne. “I adjusted to the notion of celibacy,” and he sees Fiat now in a stronger position after GM spurned his approach.

— With assistance by Chiara Remondini

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