Jeep Seen As Prime Mover For FCA Progress.
No Takers Yet For Marchionne Merger Offer.
“Jeep may be the world’s best positioned auto brand over the next three to five years”
No serious merger contenders have responded so far to FCA CEO Sergio Marchionne’s thinly disguised plea for partners, but investment bank Morgan Stanley likes what the company is doing and reckons its Jeep subsidiary is the jewel in the crown.
Marchionne has called for a new round of mergers in the global auto industry emailed GM suggesting a merger. General Motors went on the record in late May to make it clear it has intention of merging with FCA.
In a report, Morgan Stanley analyst Adam Jonas praised Marchionne’s upfront views on the challenges facing the auto business as being “different and refreshing”. Jonas believes Marchionne and Chairman John Elkann are in earnest about industry consolidation.
“We think they seriously want to be a part of the process. We think they may be successful in enticing other players to at least come to the table,” Jonas said.
“The real story is Jeep. Jeep may be the world’s best positioned auto brand over the next three to five years,” Jonas said.
The opportunity to expand the model range from three main lines – Grand Cherokee, Cherokee and Wrangler to six – Renegade, Jeepster and Wagoneer – increases the addressable market size significantly at both the high and low end, he said.
“Our Jeep brand volume forecast of 1.73 million units by 2018 implies a 15 per cent (annualized growth rate) for the brand, roughly four to five times the growth we could anticipate for the broader market,” Jonas said.
Jeep is FCA’s biggest business with more than $30 billion in revenues this year.
According to the Wall Street Journal’s Heard on the Street column, Volkswagen in theory could be interested in FCA because of its need for Jeep-style SUVs to boost failing market share in the U.S., and to boost efforts in China.
“But Jeep probably won’t be enough to entice Volkswagen. Any merger would involve huge labour and regulatory headaches in Europe, as well as presenting challenges to integrate about two dozen brands globally,” said the Street’s Thao Hua.
Despite FCA’s huge debts, uneconomic size, and fact that the Chrysler subsidiary is making only small profits while the U.S. booms, Jonas is a fan, and it’s all down to Marchionne.
“Fiat Chrysler is our top pick in U.S. autos. Our positive view on the stock is clearly not based on a cash-rich balance sheet, strong near-term free cash flow and share buybacks – FCA offers none of these attributes. It’s the company’s strategic and moves, driven by the sense of urgency at the very top of one of the flattest, fastest-moving auto companies on the world today,” Jonas said.