Fiat Chrysler Coasts on Ram Pickup Growth Until PSA Merger
Fiat Chrysler Confirms 2020 Guidance as 4Q Profit Meets Estimate
(Bloomberg) -- Fiat Chrysler Automobiles NV is betting it can deliver even bigger profits in 2020 thanks to surging U.S. sales of its Ram pickup trucks, a critical source of cash to invest in electric vehicles until a planned merger with PSA Group.
The Italian-American manufacturer is forecasting adjusted earnings of more than 7 billion euros ($7.7 billion) this year compared with 6.7 billion euros in 2019, according to a statement Thursday. It posted a 16% rise in the fourth-quarter and a full-year record in North America, even as shipments fell.
Fiat is playing catch up in developing electric cars, chasing more advanced European rivals including Volkswagen AG and Renault SA. The company largely delayed investment and is now paying the price in the form of a multi-year, 1.8 billion-euro deal to buy emissions credits from Tesla Inc. so it can remain compliant with regulations in the U.S. and Europe.
In putting off spending on the shift to electric, Fiat was able to pay down debt and restore profitability. It also focused on shearing low-margin sedans from its lineup to invest in more lucrative truck and SUV models.
The company is now planning to roll out plug-in hybrid versions of its Jeep SUVs and an all new electric Fiat 500 city car this year. It’s also looking to electrify the struggling Maserati brand, which suffered a sharp drop in sales last year.
Need for Scale
“Clearly the merger with PSA also has a potential to accelerate this European transformation,” Chief Executive Officer Mike Manley said on a call with analysts. Gaining scale through the merger “will be paramount to ensure we deliver the cost competitiveness we need” for electric vehicles.
In addition to the need to pool investment resources, the latest results also indicate the tie up with PSA is necessary to help Fiat in regions outside North America. Its losses widened in Europe and shipments dropped off in Asia.
The coronavirus epidemic in China, which has shuttered car and parts factories, may not help. In an indication of the knock-on effect on global supply chains of parts, Fiat said there is risk it may have to temporarily close a European plant within the next two to four weeks if the outbreak worsens.
European Decline
In the company’s best performing region North America, shipments rose in the latest quarter to 649,000. Ram drove growth while sales of Jeep were more profitable after inventory adjustments. Combined with strong sales in Latin America, the carmaker was able to offset a decline in consolidated shipments in Europe, which remains the weak link.
Consolidated deliveries in the Apac region dropped, signaling Manley still has progress to make in turning around the area’s performance. He has worked to reduce losses in Asia after new products in China failed to gain traction with consumers and sales of the luxury Maserati brand plunged amid the first downturn in China’s market in a decade.
Fiat Chrysler also announced it had reached an agreement with Italian tax authorities over a claim that the company underestimated the value of its American business by 5.1 billion euros following its phased acquisition in 2014. The company said it recognized 2.5 billion euros in additional taxable gains from the merger, but dodged a hefty tax bill by offsetting that with other tax losses and adjustments.
Fiat said Thursday the PSA deal is expected to close at the end of the year or in early 2021 and generate 3.7 billion euros in annual synergies.
To contact the reporters on this story: Daniele Lepido in Milan at dlepido1@bloomberg.net;Gabrielle Coppola in New York at gcoppola@bloomberg.net
To contact the editors responsible for this story: Anthony Palazzo at apalazzo@bloomberg.net, ;Craig Trudell at ctrudell1@bloomberg.net, Tara Patel
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