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Fiat CEO Predicts Record Profit in 2020 Even Without PSA Tie-Up

Fiat Chrysler Confirms Full-Year Guidance Ahead of PSA Merger

(Bloomberg) --

Fiat Chrysler Automobiles NV predicted record operating profit next year, possibly its last as an independent company before a planned merger with France’s PSA Group.

The Italian-American automaker expects to generate 7 billion euros ($7.8 billion) of earnings before interest and taxes in 2020, largely from steady pickup truck sales in North America, Chief Executive Officer Mike Manley told analysts on a call Thursday.

Manley said money-losing businesses in Europe and Asia will return to profitability next year independent of a merger with PSA. Even as those businesses improve, Fiat Chrysler won’t be able to meet some financial goals set out last year in its mid-term plan as growth in some brands and markets has failed to meet earlier expectations.

“The 2020 targets are really not reflective of where the business is today,” he said.

The company plans to scale back product plans for its money-losing Alfa Romeo and Fiat brands, and plow more investment dollars into refreshing an aging vehicle lineup with more electrified options. “You will see us restructure our product portfolio to refocus on these higher volume, higher margin segments,” said Manley, who would be replaced by PSA CEO Carlos Tavares after a merger.

Shares of Fiat Chrysler rose 4% to a five-month high of $15.59 as of 12:30 p.m. in New York.

PSA and Fiat Chrysler mapped out an accord Thursday for a 50-50 Netherlands-based holding company, saying a deal would lead to 3.7 billion euros in annual synergies without factory closures. The combination would create a global powerhouse and leave Tavares, who has successfully turned around PSA and the loss-making Opel brand it acquired, to integrate a large stable of brands.

Manley’s unusual move to provide 2020 guidance before the end of the year may be designed to woo stakeholders mulling the terms of the proposed deal between PSA and Fiat Chrysler, known as FCA, said Bernstein analyst Max Warburton. “It was clear that FCA viewed today’s call as almost an extension of the M&A negotiation with PSA,” he wrote Thusday in a note to clients. “This was all aimed at those listening in Paris, the morning after what was probably a bruising night of negotiation on price.”

Fiat Chrysler reported earnings Thursday that showed widening losses in Europe. Record operating income in North America, which accounts for almost all of its profit, offset red ink in Asia and at its luxury Maserati brand. Manley said the automaker plans to revive Maserati by refreshing its entire lineup by 2023.

He also said he’s “encouraged’ by demand and pricing for electric vehicles in Europe, noting the company could become compliant with tightening emissions regulations in Europe by 2021. Fiat Chrysler plans to spend 1.8 billion euros over the next three years to secure emissions-related regulatory credits, a portion of which will be paid to Tesla Inc. as a hedge, Manley said.

Manley, who’s been in the CEO role for just 15 months, conceded he would not meet some regional targets set at the company’s capital markets day last year because of expectations for continued weakness in markets such as China, Turkey and Argentina.

“Some of the underperforming areas will require a longer period of time to achieve the performance we expect,” he said.

--With assistance from Daniele Lepido.

To contact the reporter on this story: Gabrielle Coppola in New York at gcoppola@bloomberg.net

To contact the editors responsible for this story: Chester Dawson at cdawson54@bloomberg.net, Cécile Daurat

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