Selling Jeep is only one of several ideas for lifting car maker
out of also-ran status
By Chester Dawson
This article is being republished as part of our daily
reproduction of WSJ.com articles that also appeared in the U.S.
print edition of The Wall Street Journal (August 25, 2017).
A Chinese auto maker's expressed interest in Fiat Chrysler
Automobiles NV's Jeep division has given a boost to the
Italian-U.S. car company's stock price, but has yet to materialize
on the desk of Sergio Marchionne.
Fiat Chrysler's boss, the longest-tenured of Detroit's chief
executives, doesn't have much time to wait around.
Mr. Marchionne, 65 years old, is planning to step down in early
2019. He is scrambling to craft a survival plan -- to be disclosed
early next year -- for an auto maker that is at its most profitable
point since Chrysler emerged from a 2009 bankruptcy but doesn't
have the resources to develop electric cars or keep up in the
autonomous-vehicle race.
Mr. Marchionne has been pessimistic about traditional car
makers' ability to survive the transition to fully electric and
autonomously driven vehicles. He has been looking for a larger
rival to acquire Fiat Chrysler, and in recent months has taken
steps to adapt to the rapid pace of change facing the industry,
including joining a BMW AG-led consortium on self-driving cars.
If Mr. Marchionne's survival plan fails, analysts say the
company and its biggest shareholder -- a Netherlands-based holding
company for Italy's wealthy Agnelli family called Exor NV -- might
be forced to break FCA into pieces. In a note on Wednesday,
Jefferies Group said exiting the mass-market auto segment should be
"a strategic priority for Exor," which holds 42.6% of Fiat
Chrysler's voting rights.
Through a spokesman, Exor said it isn't pushing for an exit.
"FCA has the means and is investing in developing its future," a
strategy that Exor supports, he said.
Goldman Sachs Group Inc. estimates the "equity value" of Fiat
Chrysler's sprawling business units, which include Maserati and an
auto-parts division, is almost three times higher than its current
market capitalization, which is valued at $22 billion by
shareholders holding publicly available stock. Mr. Marchionne spun
off Ferrari NV last year, and said last month that other units --
including Maserati or Alfa Romeo -- could conceivably be lopped
off.
Great Wall Motor Co., a Chinese maker of sport-utility vehicles,
said Monday that it is considering an offer for Jeep. Fiat
Chrysler's stock is up sharply since, but the disclosure retrained
the spotlight on the challenges facing the company. Selling Jeep,
however, would mean shedding Fiat Chrysler's most-lucrative
division, which along with the Ram truck unit delivers the bulk of
the company's EUR6.1 billion ($7.2 billion) in annual operating
profit.
Great Wall is one of several Chinese auto makers that analysts
say may ultimately bid for some or all of Fiat Chrysler. "The
Chinese are hungry for global brands," said Michael Dunne,
president of Dunne Automotive, an advisory firm.
Mr. Marchionne has long preferred a marriage for the bulk of
Fiat Chrysler rather than a breakup. The company declined to make
him available for an interview.
An outspoken executive, Mr. Marchionne outlined in recent years
a plan to be absorbed by a bigger partner with deeper pockets. He
publicly courted General Motors Co. to form a company with enough
scale and capital to outrun industry rivals and Silicon Valley tech
giants, but was spurned by the larger rival. For the smallest of
the Detroit Big Three auto makers, the appeal was enormous: A
combined GM and FCA would sell far more vehicles than Toyota Motor
Co. or Volkswagen AG, and have more than 50% share of the U.S.
pickup-truck market.
Volkswagen also has been considered a potential suitor by
analysts, and the German company's CEO didn't rule out an eventual
merger when asked about it in March.
Fiat and Volkswagen have held talks over joint production of
some light-utility vehicles, according to people familiar with the
situation. Volkswagen isn't considering a takeover bid for Fiat,
the people said. They said Volkswagen believes a takeover of Fiat
would be complicated and difficult to complete while the German
auto maker is still embroiled in a diesel emissions-cheating
scandal that has cost it nearly $25 billion.
Having come up empty-handed, Mr. Marchionne has begun retooling
the product portfolio to boost profit, moved toward offering more
electric-engine options, and forged partnerships with companies to
accelerate self-driving car efforts. He is now working on a new
five-year business plan for release early next year, and he aims to
eliminate Fiat Chrysler's hulking debt load before leaving the
company to an as-yet unnamed successor.
Even with a healthier balance sheet and revised targets,
analysts doubt Fiat Chrysler has a big-enough war chest to pay the
tens of billions needed to update its lineup to meet the
technological and regulatory changes expected within the next
decade. Asset sales, including a deal with Great Wall, could help,
but also won't bridge the gap.
"The incoming cash would help, but we still believe the group
has to step up investments to meet forthcoming [emissions]
targets," Citigroup said Wednesday. It said Fiat Chrysler and Great
Wall rank among the worst in fuel-economy ratings, creating the
potential for substantial financial penalties on top of the
investment needed to catch up to the industry.
Fiat Chrysler is likely to first boost cash on hand by selling
noncore business, such as components divisions Magneti Marelli or
Comau, which Mr. Marchionne recently told analysts were more
valuable as stand-alone units than as part of Fiat Chrysler. As for
spinning off Maserati, a niche maker of luxury vehicles, or Alfa
Romeo, he left the door open.
"There are no structural, industrial or engineering restrictions
for the separation of Alfa and Maserati," he said last month. But,
he said, "we do need to worry about the stump that's left
behind."
For instance, Ferrari's spinoff helped raise money but it
resulted in the loss of cash flow from a division that represented
11% of Fiat Chrysler's 2015 operating earnings.
--William Boston contributed to this article.
Write to Chester Dawson at chester.dawson@wsj.com
(END) Dow Jones Newswires
August 25, 2017 02:47 ET (06:47 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
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