“Until we learn more about who is actually going to run this thing, it’s rather hard to judge the plan or give a view on the stock,”
News FCA CEO Sergio Marchionne suddenly quit might have the seemingly perverse effect of boosting the share price when trading on stock markets resumes Monday, but investors will be pleased the uncertainty is over and an impressive replacement has been found.
Fiat Chrysler Automobiles announced Saturday that Marchionne, who rescued Fiat from bankruptcy in 2004 and acquired Chrysler after the financial crisis in 2009, had to quit his job because of ill health. He had been scheduled to retire in April 2019, and speculation about his successor had worried investors.
Marchionne’s successor Mike Manley has presided over a stunning revival at FCA’s Jeep and RAM subsidiaries.
FCA shares have been on the slide since they dived almost 10% after the June 6 meeting in Turin which outlined the 5-year plan. The strength of the plan was proving hard for investors to evaluate without knowing who Marchionne’s replacement might be. Since falling to 17.83 euros after the meeting the shares have slipped to a close of 16.42 euros Friday, according to Reuters’ data. The year 12-month high was 20.20 euros.
At the meeting, FCA said it would triple profits by 2022, 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% in 2022, up from last year’s 6.3%.
Investors and analysts had been expecting news about who would take over from Marchionne when he retires next year. Some also hoped that the long-expected spin-off of Alfa Romeo/Maserati, or even Jeep, might soon be on the cards.
“Until we learn more about who is actually going to run this thing, it’s rather hard to judge the plan or give a view on the stock,” Bernstein Research analyst Max Warburton said in a report then.
Long term plan
“The aim is to boost margins in every region – in some cases massively; to grow Jeep by over 50%, to grow Alfa over 150% to 400,000, to grow Maserati 100% to 100,000, to electrify big chunks of the product range, to close the gap in other technology and to generate huge cash-flow – about 3.5 to 4 billion euros ($4.1 to $4.7 billion) near term, climbing to 8 billion euros ($9.4 billion) in 2022 and building a near 20 billion euro ($23.4 billion) cash pile,” Warburton said then.
Critics said FCA’s sudden embrace of electric cars was too late, and Fiat’s lack of SUVs would together cripple any plans to succeed in China, the world’s biggest market. They also said if the plan failed, FCA would be ripe for a takeover.
A couple of years ago, Marchionne was keen on merging with General Motors but that petered out. China automaker Great Wall Motors’ interest last year in acquiring the iconic Jeep brand apparently cooled. In the background, Volkswagen is said to covet Jeep because the German company lacks the broad range of big SUVs required in the U.S. market.
Marchionne presided over the spinoff of Ferrari and CNH. The Magneti Marelli spinoff is currently under way.
One of Manley’s first jobs will be to meet 2018’s profit target. FCA’s EBIT (earnings before interest and tax) target for 2018 is at least 8.7 billion euros ($10 billion) and the first quarter delivered failed to reach 20% of that.