North America leads Fiat Chrysler to 69% profit surge

Michael Wayland
The Detroit News

In the wake of unprecedented government fines and sanctions, Fiat Chrysler Automobiles NV on Thursday beat Wall Street expectations and reported second-quarter earnings of 333 million euros ($372.6 million).

The 69 percent increase from a year ago is despite an 81 million euro ($90.6 million) charge related to a record $105 million agreement in connection to a government investigation into safety problems in 23 recall campaigns involving more than 11 million vehicles.

North America led Fiat Chrysler’s results for the second quarter, with an operating profit of 1.3 billion euros ($1.5 billion).

“There’s no doubt that we’re pleased with the results of our NAFTA operations,” Fiat Chrysler CEO Sergio Marchionne said during a conference call Thursday. “We are in execution mode.”

The automaker’s profit margin in North America for the quarter was 7.7 percent. That’s up from 4.9 percent a year ago, but far below crosstown rivals General Motors Co. and Ford Motor Co., which reported 10.5 percent and 11.1 percent, respectively, for the second quarter.

“We’re still far away from where our other two competitors are,” Marchionne said. “We have a long way to go, but I’m encouraged in the direction it has taken.”

Fiat Chrysler was the last of the Detroit automakers to report second-quarter results. Ford reported a $1.9 billion profit on Tuesday, which followed GM last week reporting earnings of $1.1 billion. Each of the automakers beat Wall Street expectations.

2015 outlook

Fiat Chrysler shipped 1.2 million vehicles from April through June, in line with the same time period in 2014. However it lowered its 2015 shipment range from 4.8-5 million to 4.8 million.

The automaker also changed other outlooks for the year: It increased net revenues to about 110 billion euros (from 108 billion euro); and upped adjusted EBIT to equal to or in excess of 4.5 billion euros (from 4.1 to 4.5 billion euro range). It also confirmed its adjusted net profit of 1 billion to 1.2 billion euro range, and industrial debt of 7.5 billion to 8 billion euros.

Following North America, Fiat Chrysler reported second-quarter earnings of 57 million euros ($63.8 million) in Europe; 47 million euros ($52.6 million) in Asia-Pacific; and a loss of 79 million euros ($88.4 million) in Latin America.

“(Asia-Pacific) has probably been the one concerning us the most in the sense that we have seen a deterioration in the pricing arrangements, especially in China, for imported vehicles,” Marchionne said.

Latin America, he said, is expected to return to profitability “in short order.” He said the loss was due to startup production costs of the Jeep Renegade at its all-new plant in Brazil.

Addressing issues

Marchionne addressed a number of topics, from Ferrari to UAW negotiations.

The Ferrari IPO (which will include 10 percent of the company) is on track for the fourth quarter, with the distribution of shares to shareholders (80 percent) expected in January 2016. Piero Ferrari, the son of Ferrari founder Enzo Ferrari, owns the other 10 percent.

Ferrari earned 124 million euros ($138.8 million) in the second quarter, up 19 million euros ($21.3 million) from a year ago.

Marchionne also said the company’s Magneti Marelli components business is not for sale in the near future, as some had speculated.

Regarding reports of delayed products, Marchionne said there are “things the company continues to tweak,” but besides the previously announced redesign of the Jeep Grand Cherokee, the company “has not postponed anything else ... of substance.”

When asked about progress on efforts to find a merger partner, Marchionne said his view on industry consolidation remains “unchanged.”

“I’ve done and I’ve said all I can in terms of the ‘Capital Junkie’ presentation,” he said. “I think we need to let market participants deal with this issue over time.”

For months, Marchionne has been touting the need for the industry to consolidate to save billions on research and development of new vehicles and powertrain technologies. He spent a majority of a three-hour first-quarter earnings call discussing his consolidation manifesto, “Confessions of a Capital Junkie.”

Marchionne said he believes the automaker can agree on a new contract with the United Auto Workers union by the time the current contract expires Sept. 14 — something the company did not succeed in doing in the last negotiations four years ago. “I don’t think we’re going to get past the September deadline and fail,” he said.

Fiat Chrysler stock was up 7 percent mid-afternoon Thursday at $15.53 per share.

Standard & Poor’s Ratings Services on Thursday improved its outlook of Fiat Chrysler from stable to positive.

Note: All U.S. dollar amounts are based on the exchange rate as of June 30 — the end of the second quarter.

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