Marchionne's Grand Vision For FCA Faces Hard Financial Road To Success

by Cameron Aubernon

Published: May 8th, 2014

marchionne s grand vision for fca faces hard financial road to success

Though Fiat Chrysler Automobiles CEO Sergio Marchionne’s five-year plan announced this week may be ambitious, analysts are raising questions about how the plan will be funded — and how much will be needed — if it is to be successful, let alone live up to Marchionne’s vision.

Automotive News Europe reports a large part of the problem for the plan, according to Bernstein Research analyst Max Warburton, is debt:

Much as we admire the ambition and think elements are achievable… it is hard to find conviction on the financing of the plan. Fiat is weighed down with huge debt, burdened by financing costs and is only thinly profitable. It’s (sic) cost of capital is huge.

Warburton adds FCA’s grand plan and its potential capital expenditure and R&D appear to be unaffordable and not prudent for investors, stating the company would need “a capital raise” for any part of the plan to pan out.

Aside from its debt, FCA also faces sales challenges from markets that are peaking or slowing down, with the European market being the biggest drag upon the automaker. However, independent analyst Marianne Keller said that with the recovery now taking place in Europe, paired with North American profits and a strong Jeep brand, Marchionne could “pull it off”; Marchionne himself announced during the five-year plan’s unveiling that he was considering a mandatory convertible bond to bring the needed financing for the plan.

Finally, FCA’s Q1 2014 results — a net loss of 319 million euros compared to a net profit of 31 million euros the year before — serve as a sign for both the company and its investors that FCA has more hard road ahead, a view best summed up by Macquarie Group analyst Jens Schattner:

If it was so easy just to launch new products to be successful in this industry, why wouldn’t everybody do exactly the same.

#5YearPlan #CapitalInvestments #CorporateDebt #FiatChryslerAutomobiles #Investments #SergioMarchionne

Cameron Aubernon

Seattle-based writer, blogger, and photographer for many a publication. Born in Louisville. Raised in Kansas. Where I lay my head is home.

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4 of 49 comments

BklynPete on May 08, 2014

Is it nasty for me to say that I hope FCA succeeds if only because it will cause "Sweet Pete" DeLorenzo to choke on his own bile?

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- Lorenzo on May 09, 2014
  
  Nah, he's an ad man, he won't choke on anything. He'll just lay low about Sergio for awhile, and go back to criticizing Harvard MBA Mark Fields and maybe complain about Mary Barra if she doesn't take his advice. He's still smarting after losing prime target Akerson, so he'll go easy on her for awhile. He'll return to Sergio eventually because he realizes, if others have forgotten, that this is Sergio's fourth five-year plan in the last six years. He also realizes that when Chrysler merges with Fiat S.p.A., it'll add Chrysler's negligible $1 billion in debt to Fiat's accumulated $28 Billion. People don't seem to realize how much debt the Fiat holding company has, and it's the holding company that's merging with Chrysler, not the Fiat auto group owned by Fiat S.p.A.
  
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Snakebit on May 09, 2014

I'm onboard with Sergio. If you want a small insight into what his thought processes are, and his dedication and work ethic is, watch a 60 Minutes segment about him from about two years ago. I think I work hard, but Sergio would wear me out, even though I can't think of a boss who would be more exciting to help build a company with.

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- Lorenzo on May 09, 2014
  
  Well, okay, but guard against becoming a groupie. That's how cults get started, and if you're not careful, you'll be sipping the Koolaid. The last business cult leader was Steve Jobs, who turned out to have been an arrogant SOB. I gave up viewing anybody in business as a hero of any sort, or even a nice guy. I remember the comment of John F. Kennedy, whose father Joe knew business and finance inside and out. JFK's comment was, "My father told me they were all sons of bitches, but I never believed him until now."
  
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