FCA marks new global journey for Fiat, Chrysler
Columbus Day will mark the beginning of a new chapter for Chrysler Group LLC, now part of Italian automaker Fiat.
Fiat Chrysler Automobiles NV is scheduled to be listed and traded, under the stock symbol FCAU, for the first time Monday on the New York Stock Exchange. It will be the first time Chrysler, in any form, has been included on the exchange since 2007, when it was owned by Germany's Daimler AG. Chrysler, as a free-standing company, has not been traded publicly since 1998.
"Columbus Day, for us, will be the beginning of a new world, a new era," FCA CEO Sergio Marchionne told employees during a recent gathering at Chrysler's headquarters in Auburn Hills.
Fiat SpA announced Tuesday that all hurdles were cleared for the listing and for the company to merge into FCA. The merger is expected to become effective Sunday.
Marchionne and Fiat Chairman John Elkann, whose great-great-grandfather founded the company, are expected to be in New York Monday to ring the closing bell of FCA's first trading day on the NYSE. The celebration is expected to be similar to General Motors Co.'s initial public stock offering (IPO) four years ago that included banners, vehicles on display and then-CEO Dan Akerson ringing the opening bell.
FCA's listing is different than when GM became a publicly traded company after emerging from bankruptcy. FCA's listing is not an IPO. There will be no new shares initially offered — just shares of Fiat SpA transferred from the Italian stock market that can be traded and purchased in New York. Still, it represents a significant milestone in a company that several years ago was on life support, its existence very much in doubt.
The company, according to Chicago-based Morningstar Inc.'s Richard Hilgert, could execute an IPO or secondary offering in the future. Fiat owns 88.5 million shares that it could release to the public.
The NYSE price of FCA shares will be the converted closing price of Fiat shares Friday on the Mercato Telematico Azionario, the Italian stock exchange in Milan. At the closing on Thursday, Fiat shares were down 5 percent to $8.98 a share in U.S. currency.
"There's going to be plenty of volatility in the stock," Hilgert predicted. The volatility, he said, is going to come from misperceptions of management and lack of "understanding on this side of the Atlantic" because FCA executives did not travel to promote the listing, like most companies — including GM four years ago — customarily do before going public.
Adding to possible volatility and investor confusion is FCA's business structure: The company is incorporated in the Netherlands with an official headquarters in London and major operations in Metro Detroit and Italy. It also will have a secondary listing on the Mercato Telematico Azionario.
"It's kind of confusing to investors, to say the least," said Hilgert, adding that an average investor could be confused by the merger of Fiat and Chrysler into FCA.
Despite short-term volatility, Hilgert expects FCA investors' risks to "be well-rewarded" in the long term.
Plans are ambitious
The listing is expected to help fuel a $60 billion-plus, five-year growth plan Marchionne and other executives outlined in May. The plan includes exporting Jeeps globally, growing net profit five-fold and increasing sales 60 percent by 2018. Meanwhile, Fiat intends to expand its other brands in the U.S.: Alfa Romeo, Maserati and Fiat.
The intention is to make a global automotive powerhouse from what essentially were two regional companies. FCA will be the seventh-largest automaker in the world.
Some analysts have argued that the five-year plan is too ambitious. They say that even with the listing in New York, FCA will not have the capital or products to achieve its goals.
Bank of America-Merrill Lynch automotive analyst John Murphy, in the company's annual "Car Wars" report, said FCA especially is not expected to meet its goal of a 4-percentage-point market share increase in the U.S. by 2018.
Murphy, when speaking with reporters earlier this year, called the goal a "pie-in-the-sky target." He said the industry has reached a plateau when it comes to major market-share shifts.
Marchionne, however, takes pride in defying skeptics — from turning around Fiat as an automotive outsider a decade ago, to taking minority ownership in Chrysler in 2009.
Hilgert advised that while the five-year plan is extremely ambitious, Wall Street is being "aggressively negative" about the new company and overlooking the potential benefits from the Fiat-Chrysler tie-up.
"The five-year plan is meant to substantially change a culture on both sides of the Atlantic that was regional in its perspective," he said. "That's what this plan is for. It's not for Wall Street to put a yardstick against it."
Marchionne announced plans for FCA in January, after Chrysler became a fully owned subsidiary of Fiat through a $4.35 billion deal with the United Auto Workers union trust fund that pays health care bills for retirees. The UAW fund owned 41.5 percent of Chrysler as part of the automotive bailout, which forced Chrysler and GM into government-backed bankruptcies in 2009.
Fiat gained a minority stake in Chrysler in June 2009, following the U.S. government's declaration that Chrysler was not viable as a standalone company. Fiat was one of the only suitors for the Auburn Hills automaker and was given a 20 percent stake in the company as part of a non-cash deal, because the U.S. was willing to finance — but not manage — the ailing automaker. And Fiat was willing to manage but not finance it.
Instead of cash, Fiat provided management experience and technology that helped Chrysler meet performance milestones set by the U.S. government that gradually enabled Fiat to increase its ownership stake.
Patrick O'Keefe, CEO of Bloomfield Hills turnaround firm O'Keefe & Associates, said the deal allowed Fiat to analyze Chrysler from the inside to determine if it would be a good decision to fully acquire the company. "Fiat had the opportunity to run it, make the changes that were necessary and then decide," he said. "It's the best position to be at if you're Fiat. It kind of takes the guesswork out of it."
Market better now
FCA is entering a much better overall financial climate than GM faced four years ago in its IPO. And investors are optimistic about the automotive industry.
"Back in 2010, when GM went through their IPO, the industry had a bit different of a footing," said Mike Wall, IHS Automotive analyst. "The industry was still very much in the early recovery phase. You fast-forward to 2014, and the industry is doing much better."
The U.S. automotive industry this year is expected to sell 16.4 million to 16.6 million cars and trucks, up at least 5 percent from a year ago and 57 percent from 2009.
Wall pointed out that investors are more bullish on automakers than in recent years, mentioning high-profile companies such as Tesla Motors Inc. and tech companies bringing attention to the industry.
"Going into the downturn was very ugly," said Wall. "Coming out of it now, as the investor community is looking for returns on their investments, they are looking at automotive."
Fiat and Chrysler merging into Fiat Chrysler Automobiles creates the world's seventh-largest automaker, with sales last year of 4.4 million vehicles. Here's more on the new company and its global reach:
¦Ticker symbol: FCA
¦CEO: Sergio Marchionne
¦Car brands: Alfa Romeo, Chrysler, Dodge, Ferrari, Fiat, Jeep, Lancia, Maserati, Ram Trucks
¦Global operations: 40 countries, selling vehicles in approximately 150 countries.
¦Manufacturing: 159 manufacturing facilities and 78 R&D centers in Europe, North America, South American and other regions.
Source: Detroit News research