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Fiat Chrysler Sees Profits Topping Ford's With New Truck Models

Fiat Chrysler Keeps 2018 Forecast as SUV, Pickup Rollouts Set

(Bloomberg) -- Fiat Chrysler Automobiles NV reaffirmed ambitious 2018 financial targets set by its outgoing CEO as a fruitful shift to pickups and SUVs may boost profits beyond those of bigger Ford Motor Co.

Fiat Chrysler Sees Profits Topping Ford's With New Truck Models

Adjusted earnings before interest and taxes will climb to at least 8.7 billion euros ($10.8 billion) this year, at the lower end of a profit range targeted in a five-year business plan. That would top Ford’s projected Ebit of as much as $9.2 billion.

Chief Executive Officer Sergio Marchionne has bolstered profit at Fiat Chrysler by converting car plants to manufacture more lucrative sport utility vehicles and trucks. It’s a playbook that Ford has signaled it will imitate after years of coming up short of earnings targets. For Fiat Chrysler, new versions of the Jeep Wrangler SUV and Ram 1500 pickup, plus a refreshed Jeep Cherokee, are slated to begin selling in the first few months of this year.

Fiat Chrysler Sees Profits Topping Ford's With New Truck Models

“There’s a very strong likelihood that we will outperform Ford in terms of operating earnings in 2018,” Marchionne told analysts on a conference call Thursday. “That’s something that if I told any of us in the room here that would’ve been doable five years ago, nobody would have believed it.”

Ford Vs. FCA

In fact, Marchionne was openly envious of Ford just a few years ago. In 2012, he told analysts that the Dearborn, Michigan-based automaker’s truck business made him “drool.”

“Everybody in this business has dreams at night,” he said at the time. “I dream of selling as many pickup trucks as Ford.”

While Ford refocuses on cost-containment as it retools its lineup, Chief Financial Officer Bob Shanks pointed out that the second-largest U.S. automaker, behind General Motors Co., is investing billions of dollars on an expanded offering of electric cars and autonomous-vehicle technology.

“We’re in a long term race and we believe we have a winning hand for the long term,” Shanks said Thursday in an interview. “We are where we are this year. It underscores again the importance of delivering on our fitness initiatives. But it also reflects the investments we are making around electrification, AVs and connectivity to win in a world that’s going to be quite different than it is today.”

Fiat Chrysler’s U.S.-listed shares jumped as much as 3.3 percent to $24.95 in New York. The stock is on track for a record close after gaining by more than a third already this year and almost doubling in 2017. Ford rose just 3 percent last year.

Margin Improvement

“Investors have recognized the margin improvement that developed in the fourth quarter and should continue in 2018,” Richard Hilgert, an analyst with Morningstar Inc., said in an email.

Marchionne, 65, dumped the Dodge Dart and Chrysler 200 from Fiat Chrysler’s U.S. lineup and has transitioned the factories that used to make those models into Jeep SUV and Ram truck plants. That bet has paid off: The company posted $8.8 billion in adjusted Ebit last year. In the fourth quarter, earnings on that basis jumped 22 percent, according to a statement.

Fiat Chrysler Sees Profits Topping Ford's With New Truck Models

Ford, which reported adjusted pretax profit fell to $8.4 billion in 2017, is now planning to pull its own struggling sedans from showrooms and sell more SUVs.

Improving margins in North America led to $5,500 profit-sharing checks on average for United Auto Workers union members, up from $5,000 a year earlier. Those payouts will be on top of a $2,000 bonus paid to all U.S. workers, except for top executives, related to the U.S. corporate tax cut that Marchionne has estimated will save the company $1 billion a year.

Fiat Chrysler cut its net industrial debt almost in half last year, to 2.39 billion euros from 4.59 billion. The company could have more industrial cash than debt by the end of the second quarter, the CEO said last week in Detroit.

Marchionne plans to retire early next year after seeing the business plan through 2018 to completion and setting out a new mid-term strategy in coming months. The CEO, who has run Fiat since 2004, has said he expects one of the carmaker’s top managers to succeed him.

To contact the reporters on this story: Jamie Butters in Southfield, Michigan, at jbutters@bloomberg.net, Tommaso Ebhardt in Milan at tebhardt@bloomberg.net, Keith Naughton in Southfield, Michigan at knaughton3@bloomberg.net.

To contact the editors responsible for this story: Craig Trudell at ctrudell1@bloomberg.net, Vidya Root at vroot@bloomberg.net, Anne Riley Moffat

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