FCA Investors Like Choice Of Manley As New CEO.
Will Miss Marchionne’s Panache Though.
Shares Crash After Legendary CEO’s Death, Manley Profit Warning.
Fiat Chrysler Automobiles (FCA) investors, reeling from the surprise news of Sergio Marchionne’s death, supported the appointment of Mike Manley as the new CEO because of his strong track record overseeing Jeep’s stellar performance and the fact he was a co-author of FCA’s ambitious 5-year plan.
There was some concern though that FCA would miss the audacious aspect of Marchionne’s reign.
“Mike Manley stands for continuity and the new 5-year plan,” said investment bank UBS.
Manley was called into action early, announcing FCA’s disappointing second quarter earnings and a profit warning for 2018.
FCA shares promptly took a big hit, diving 16 per cent to €13.85 and recovering a bit to around €14.5. In late January the shares were just over €20.
In June, Marchionne unveiled a plan to triple FCA profits by 2022, finally invest in electric vehicles, and refocus its major brands like Jeep, Ram trucks, Alfa Romeo and Maserati. The plan calls for profit margins of 11 per cent in 2022, up from last year’s 6.3 per cent. Jeep was charged with raising sales 50 per cent, Alfa Romeo over 150 per cent and Maserati by 100 per cent. Cash flow was to climb from about $4.1 to $4.7 billion near term, to $9.4 billion in 2022.
“We think Mr Manley was amongst the most likely candidates for Mr Marchionne’s succession anyway. As the head of the RAM and Jeep brands, which contribute about 80 per cent of FCA’s group EBIT (earnings before interest and tax) on our estimates he has been a key contributor to FCA’s success story over the past few years. Equally importantly, he was fully involved in the development of the new 5-year business plan,” UBS analyst Patrick Hummel said.
The new CEO can hit the ground running and won’t have to waste time compiling a new business plan.
Investment researcher Jefferies had its doubts though.
“We think the (Marchionne) news could cause significant share price volatility and test his cultural legacy sooner than expected,” Jefferies analyst Philippe Houchois said.
“We expect continuity but also note that part of FCA’s success has been the “cultural” ability to adjust course to meet targets,” Houchois said.
Marchionne was known for his bold initiatives, like the 2009 purchase of bankrupt Chrysler from the U.S. government when he acquired huge but risky access to the U.S. market for very little outlay.
Investment bank Morgan Stanley liked the Manley appointment.
“We hold Mike Manley in high regard. He has deep experience running FCA’s two most valuable businesses, Jeep and Ram. We have long valued these businesses at well over 100% of the total market capitalization of FCA. If Jeep’s commercial success is any indication, Mike Manley has extremely strong credentials to run a global automaker in technological and strategic transition,” Morgan Stanley analyst Adam Jonas said.
GM merger attempt failed
Jonas underlined two big challenges for Manley – finding industrial and technology partners.
This had eluded Marchionne who wanted to merge with General Motors a couple of years ago.
Investment researcher Evercore ISI said Manley was an extremely experienced auto executive.
“We don’t see the change in captain altering the course of the ship. The same team is accountable for delivering the plan. While Marchionne proved to be one of the automotive world’s greatest commander-in-chiefs, there is no reason the 2022 plan cannot be executed without him under a new leader,” Evercore ISI analyst George Galliers said.
Some investors had hoped that the long-mooted spin-off of Alfa Romeo/Maserati, or even Jeep, might soon be on the cards. Marchionne presided over the spinoff of Ferrari and CNH. The Magneti Marelli spinoff is currently under way.
FCA second quarter net income fell 35 per cent to $881.9 million compared with the same period last year.