FCA 2019 Results: making short-termism attractive

Handsome is not enough
FCA's results are nothing new: North America and the two flagship brands, RAM and Jeep, are doing well.
The rest is just about surviving and is tending to deteriorate without any serious attempt to stop this. Everything has been going on since 2014 as if the roadmap were that of keeping the cash machine running in the United States and waiting for the future ally to either clean up the mess, or reinvest or offer solutions to revive brands and business in the regions that have been neglected.
 
The case of Europe is emblematic in this respect. A.-G. Verdevoye sums up the situation well in the French weekly newspaper Challenges:
"Europe (and the Middle East attached to it) is once again showing a loss. The loss has been reduced from 470 million in 2018 to only 6 million last year. Nevertheless. The region accounts for only 20% of FCA's turnover. The group is now only the eighth largest player in Europe (passenger cars alone) with a 6% market share in 2019. A long descent into hell. Aging products, over-capacity plants, the track record is weak. "Sergio Marchionne didn't like Fiat because it didn't earn enough money with its small cars," says a senior executive of the Turin-based firm, who blames it for chronic under-investment. The best-seller 500 dates from 2007, and Fiat has not replaced its old little Punto (2005)".
 
One could add that the same was true of Lancia and that the hopes that the same Marchione had pretended to put in the renewal of Alfa-Romeo in his 2014 plan, so far from what he finally did, have been dashed.
He then spoke of a target of 400,000 cars sold in 2018. In 2019, fewer than 80,000 were sold. It is not the 167,000 Jeeps that FCA sold in Europe last year that can make up for the shortcomings of the historic brands: FCA is losing ground in Europe where its market share of passenger cars has fallen from 6.5% to 6% and loading the Italian factories will remain a long-term problem, even if the new PSA-FCA package is decided in the coming year.
 
As Florence Lagarde indicated when presenting the results of the work carried out by PA Consulting to position the various manufacturers in relation to the CAFE standards that apply to each one, FCA is also, with Volkswagen, the manufacturer that seems to be the furthest from the mark today: between 2016 and 2018, CO2 emissions of registered vehicles went from 120g to 125.4g, while PSA went from 110.4 to 113.9; FCA's 2021 target is 92.8g, that of PSA 91.6g.
PA Consulting considers that FCA will find it difficult to go below 120g while PSA would be able to reach 95.6g. Of course, FCA claims the opposite and presents an electrification "plan" which should enable it to be "compliant" not only thanks to Tesla but also thanks to the launch of rechargeable hybrid and battery electric vehicles. As things stand at present, there are some doubts about this and fears that the next two years will mean that FCA in Europe will have to reduce its volumes and profitability even further.
 
In South America, FCA still has some nice leftovers and, despite the Argentinean problem, 2019 allowed the group to generate a positive operating result (500 million euros) and a significant increase compared to 2018. However, in Brazil, where the Fiat brand has had very strong positions for decades, it is now below 9% market share (where GM is at 19% and Renault at 9.6%) and must rely on Jeep to provide the balance. Only LCVs now ensure Fiat's place: with 40% of the market share held by Strada and Toro, Fiat continues to weigh almost as heavily as GM and VW. Here again, it is not so much investment and a dynamic product policy that ensures results, but rather a rentier profit strategy.
 
Left over is North America, where RAM accounts for 100% of its sales and Jeep for two-thirds of its sales. FCA achieves 100% of its results there since the low profits in Latin America barely cover the losses in the other regions of the world. Profitability is 9% and since the group makes 68% of its turnover there and does not generate profits elsewhere, the group's result is only 6.2%.
 
In FCA financial arithmetic, this seems to mean disengaging from other regions and probably less "contributory" brands to bring the value delivered to shareholders closer to the good US results of Jeep and RAM. And, in fact, the management of the "country portfolio", which consisted in doing nothing in Europe, China, India or Russia, like the management of the brand portfolio, which consisted in depriving Fiat, Lancia or Alfa-Romeo products, is reproduced identically for the "sedans" and the brands that carry them in North America: Chrysler very clearly and Dodge to a slightly lesser extent are out of stock.
 
Should Trump not win the next election and/or the major US states decide to do something about the drift of the US market towards products that are increasingly out of step with those being promoted in Europe and elsewhere, FCA and its "profit cows" would be in very bad shape. FCA's directors know this and have organised themselves so that an ally attracted by the profitability of the group with its unsustainable strategy is found before the obvious becomes obvious.
 
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Translated with www.DeepL.com/Translator, corrections by Géry Deffontaines

La chronique de Bernard Jullien est aussi sur www.autoactu.com.

The weekly column by Bernard Jullien is also on www.autoactu.com.

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