Adjusting to Life After Marchionne

(Bloomberg Opinion) -- Fiat Chrysler Automobiles NV shareholders are making a sudden and painful adjustment to a world without Sergio Marchionne.

Wednesday’s 16 percent slump in the carmaker’s stock price felt like an unworthy bookend to a career that created enormous value for shareholders.

The proximate cause of the sell-off wasn’t news of Marchionne’s death — he had been due to step down as CEO next year. Instead, a disappointing second-quarter earnings update (by coincidence published the same day) erased almost 4 billion euros ($4.5 billion) of market value. Given the company now expects full-year operating profit to be lower by only 1 billion euros, that reaction looks excessive.

The disparity underscores how Fiat investors may be much more skittish without Marchionne’s soothing voice and vision to reassure them. It also suggests they lack confidence in the company’s longer-term cash flow potential.

That isn’t to say successor Mike Manley’s first earnings call with analysts lacked poise or clarity — it was an impressive performance under trying circumstances.

A big part of the expected profit shortfall relates to China’s recent decision to cut auto import tariffs — and thus should be temporary. In the U.S., the company has been grappling with production troubles affecting its latest Ram truck, but it should eventually help to fatten Fiat’s already decent North American margins.

So why weren’t investors convinced?      

Firstly, Fiat would be hard hit if U.S. President Donald Trump imposes tariffs on foreign autos — the company imports roughly half of its U.S. sales, according to UBS analysts, mostly from Mexico and Canada. In contrast, roughly 80 percent of the vehicles Ford Motor Co. sells in the U.S. are built locally.

It’s clear, too, that Manley faces a big task to boost Fiat’s still very modest market share in China, where competition from local automakers is intensifying. Europe remains a problem area for the company: Fiat’s 3 percent margins there are well below those reported this week by rival Peugeot SA. The carmaker will also face some pain next year from rising steel costs — something that’s already hurting rival General Motors Co.

Perhaps Marchionne, a showman with a keen sense of what investors wanted to hear, would have deflected some of those concerns by dropping hints of another spin-off or merger opportunity.

While careful not to rule out any deals, Manley says Fiat is now strong enough to remain an independent company. He’s also sticking by the ambitious five-year targets his predecessor unveiled in June. After Wednesday’s warning, investors will likely to treat those with more scepticism. Delivering on them will require profit to double by 2022. Ever the hard taskmaster, Marchionne’s parting gift may have been a rod for Manley’s back.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Chris Bryant is a Bloomberg Opinion columnist covering industrial companies. He previously worked for the Financial Times.

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