FCA discusses Trump, EPA allegations amid $1.9B profit
Fiat Chrysler Automobiles NV CEO Sergio Marchionne on Thursday addressed several pressing issues facing the automaker, as the company reported a $1.9 billion net profit for 2016.
Topics ranged from Marchionne’s Tuesday meeting with President Donald Trump to Fiat Chrysler’s progress on its 2014-2018 master plan and ongoing discussion with federal officials over the automaker’s compliance with fuel emissions regulations.
Fiat Chrysler, Marchionne said, has been in “pretty intense discussions” with the U.S. Environmental Protection Agency as well as the California Air Resources Board (CARB) over claims that the company has been using emissions-cheating devices in its diesel-powered Ram 1500 pickup and Jeep Grand Cherokee models.
He said the talks are progressing, and the company hopes that officials will certify the vehicles for the 2017 model year “relatively quickly.”
“I think discussions are proceeding well, and I think they are a confirmation of certainly the goodwill that’s been established with the regulatory agencies now for a number of years,” he said during a Thursday morning conference call with financial analysts and news media.
The EPA on Jan. 12 issued a “notice of violation” accusing the automaker of failing to disclose software in about 104,000 of the pickups and SUVs from the 2014-16 model years that it said could be similar to the so-called “defeat devices” Volkswagen AG used to cheat emissions testing on millions of its diesel cars.
Marchionne and the company have adamantly denied the vehicles have any kind of illegal software or defeat devices. He has said drawing comparisons between Fiat Chrysler’s software and the Volkswagen software that purposely deceives testing equipment is “absolute nonsense.”
Marchionne on Thursday said he believes the ongoing discussions should allow the company and officials to come to an agreement on how to fix the software discrepancies “in an efficient way.” He mentioned “simply” re-flashing, or resetting, the engine control units, in the vehicles.
Fiat Chrysler shares Thursday on the New York Stock Exchange were slightly up midday to more than $11 per share.
Trump and trade
Marchionne had several positive things to say regarding Trump’s economic plans for the country; however, cautioned that dismantling the North American Free Trade Agreement could have “monumental consequences” for the industry.
“The question about repatriation of all of the manufacturing footprint into the United States has got monumental consequences to the industry overall,” he said. “I think there are repercussions that go well-beyond FCA.”
Marchionne also raised concerns about the potential “asymmetrical treatment” of some of Trump’s proposals — especially on the “border tax side.”
Trump, who has repeatedly attacked automakers for investing in Mexico, made promises during his campaign and after to renegotiate or leave NAFTA and slap a tariff of up to 35 percent on vehicles imported to the U.S. from south of the border.
Fiat Chrysler Chief Financial Officer Richard Palmer on Thursday said the company’s globalization of the Jeep brand, which includes producing its all-new Compass for the U.S. in Mexico, would likely help offset any sort of increased tariff.
“We are making Jeeps for global distribution out of the U.S. ... I think we have possibilities to continue to improve that position and help our overall impact on any border-tax impact,” he said.
The comments came two days after Marchionne attended a meeting at the White House with Trump that also included General Motors Co. CEO and Chairman Mary Barra and Ford Motor Co. CEO and President Mark Fields to discuss domestic industry growth.
Overall, Marchionne said the company has “run the numbers,” and if all of Trump’s economic parameters were instituted, they would have a “positive” impact on the automaker.
“There’s no doubt that the full delivery of the set of financial — the set of economic parameters that President Trump has raised are overall positive for FCA,” he said.
He also cautioned it’s unclear how many, if any, of Trump’s economic and campaign promises can come to fruition in the next two years, when the automaker’s five-year master plan comes to an end.
Marchionne said the company has completed about 60 percent of its 2018 plan, with 2017 being a lynchpin to keeping it on track.
“Our object here is to execute flawlessly on decisions that have been made now in the last three years, and to effectively deliver the earnings in the ’18 plan,” he said.
The 2018 targets include 9-billion euro ($9.63 billion) operating profit; 5 billion ($5.35 billion) euro net income and 5 billion euro net cash.
The company’s 2016 operating profit was 6.1 billion euros (about $6.5 billion), a 26 percent increase over 2015’s 4.8 billion euros ($5.2 billion). Its net profit nearly doubled from 93 million euro ($99.8 million) in 2015 to 1.8 billion euros ($1.9 billion), while debt decreased 500 million euro ($535 million) to 4.6 billion euro ($4.92 billion).
“This has been a record year for FCA,” Marchionne said, adding the 2018 targets “don’t look as undoable” as they did in May 2014. “We have made all the industrial decisions that need to be made to make the ’18 numbers.”
Those industrial choices included shifting all U.S. production away from passenger cars to more-profitable pickups and SUVs. The moves, which include shifting Ram 1500 production and several Jeep vehicles, are expected to be completed by early-2018, according officials.
The company over the last several months announced it is investing about $2.5 billion into three assembly plants in Michigan, Illinois and Ohio to optimize output of the utility vehicles that will help drive its North American profits up from the 7.4 percent achieved in 2016 — up 1 percentage point from the previous year.
As a result of the profit margin, about 40,000 United Auto Workers with the automaker next month will receive average profit-sharing payments of $5,000.
Overall, the company’s earnings last year were driven by its strong performance in North America as well as improvements in all other segments, in particular European and Maserati operations. Maserati margins more than doubled to 9.7 percent, with a second‐half margin of 12 percent.
The company’s financial outlook for 2017 includes adjusted EBIT of more than 7 billion euros ($7.5 billion); operating profit or more than 3 billion euros ($3.21 billion); revenue between 115 billion euros ($123 billion) -120 billion euros ($128.4 billion) ; and net industrial debt of less than 2.5 billion euros ($2.7 billion).