Fiat Chrysler nearly doubles profit in 2017

Keith Laing
Detroit News Washington Bureau

Fiat Chrysler Automobiles NV CEO Sergio Marchionne took a victory lap as he kicked off his final full year at the helm with an announcement Thursday that the company’s net profit nearly doubled for 2017 – and a prediction that it will top Ford Motor Co.’s earnings before he retires in April 2019.

The Italian-American automaker said Thursday that high-margin trucks and SUVs helped push its net profit up by 93 percent from the previous year to nearly $4.35 billion (3.5 billion euros), even as overall sales dropped 8 percent. It reported adjusted pre-tax earnings for last year of more than $8.7 billion (7 billion euros).

FCA is forecasting a project net revenue of $155 billion (125 billion euros) for 2018. That’s down from an earlier forecast of about $169 billion (136 billion euros). The company projects an adjustment pre-tax earnings figure of nearly $10.8 billion (8.7 billion euros).

Marchionne said he expects FCA to earn more than one of its chief Detroit rivals this year.

“I think there’s a very strong likelihood that we will outperform Ford in terms of operating earnings in 2018,” he said on a conference call with investors Thursday. “That’s something that if I told any of us in the room here that would’ve been doable five years ago, nobody would have believed it.”

Ford on Wednesday posted a 65 percent bump in annual profit, saying its 2017 net income totaled $7.6 billion. The Blue Oval said its automotive segment reported a $7.3-billion pre-tax profit on $145.7 billion in revenue. Overall, pre-tax profit for Ford dropped $1.9 billion from a year ago to $8.4 billion.

The FCA chief, entering his final full year, recalled the skepticism he faced when launched a five-year plan to turn around FCA’s finances in 2014.

“This is the fourth year in a five-year plan that we launched back in ’14,” he said. “As a management team, I think we feel relatively good about the fact that we haven’t missed a year since the plan was launched…Overall we feel pretty good about what we’ve been able to achieve for the first four years of the plan.”

Some investors appeared to like what they heard.

“Back in 2004 when you were first introduced to the auto industry, a lot of people were thinking ‘Who the hell is this guy’,” Adam Jonas, auto analyst at Morgan Stanley, said Thursday on the conference call. “I was one of them frankly. We hadn’t seen anything like you. You took $2 billion roughly, and you turned into I think around $72 billion. And more important than that, there are many hundreds of thousands of families across many nations that are better off because of you and your team.”

Auto industry analysts said Marchionne may be able to back up his big talk in 2018.

“As one the first CEOs to make significant cuts to their car lineup in favor of more profitable and top-selling trucks and SUVs, Sergio Marchionne set the tone” for Ford Motor Co. and General Motors Co., David Kudla, CEO of Grand Blanc-based Mainstay Capital Management, said in a statement.

“Much will be riding on the 2019 Ram 1500 as Fiat Chrysler bets big on trucks and SUVs. The Jeep product line is also expanding with a new Jeep Wagoneer and Grand Wagoneer,” Kudla continued. “Investors are expecting some big action steps by” Marchionne “in his final year in this current role, although stepping into an executive chairman position may still be a possibility after 2018.”

Shares of FCA were up 1.1 percent early Thursday afternoon to $24.42.

Jessica Caldwell, executive director of industry analysis at Edmunds, said FCA’s financial prospects appear to be brightening, thanks in large part to its SUV-heavy product lineup.

“Considering the strength of the Jeep brand and the incessant consumer demand for SUVs, FCA does have some of the right building blocks for success,” she said. “The new Ram 1500 and Jeep Wrangler are both getting positive initial reviews, so if FCA can nail the launches of their bread-and-butter products, it will give the company a needed bright spot in 2018.”

But getting there could take a few months. The company has been forecast to sell 129,127 cars in January 2018, which would be a 15.2 percent drop from the 152,218 cars is sold in January 2017. Sales are expected be down in January across the board, with a 1.4 percent industry-wide decrease from January 2017 being projected.

“In January, automakers are expected to pull the reins in on the more generous incentive programs that we saw at the end of 2017,” Caldwell said. “However, it’s typical to see a slowdown at dealerships in January following the high-selling holiday months. This isn’t necessarily a solid indicator of the direction that the year is headed in terms of overall sales.”

The Italian-American automaker has reported 2017 sales of 2,059,376 cars, trucks and SUVs, an 8 percent drop from its sales of 2,244,315 units the year before. FCA’s sales drop for 2017 was greater than an industry-wide decrease of 1.8 percent reported by Autodata Corp.

Marchionne said Thursday that FCA is hoping in 2018 to eliminate its debt, which it reported was $22.3 billion (17.9 billion euros) in 2017. FCA said its 2017 debt levels were down $7.54 billion (6.077 billion euros) from 2016.

“We’re looking forward to finally walking into this meeting in Q2 and telling you that we no longer have debts,” the FCA chief executive said. “It’s going to be a big day here when we get there.”

In North America, FCA reported Thursday that 2017 revenue fell by about 4 percent to $81.9 billion (66 billion euros) on 186,000 fewer vehicle shipments than 2016. FCA said profitability for the region was aided by “purchasing efficiencies, lower warranty and advertising costs, partially offset by lower volumes, higher product costs for content enhancements, higher industrial costs due to capacity realignment plan and negative foreign exchange effects.”

In Latin America, 2017 revenue rose by about 29 percent to $9.9 billion (8 billion euros) on 65,000 more vehicle shipments than 2016. FCA said the increase in shipments in Latin America was driven by sales of its Fiat Mobi and new Fiat Argo and Jeep Compass, and partially offset by the discontinued Fiat Palio family.

In Asia-Pacific, 2017 revenue fell by about 11 percent to $4.032 billion (3.25 billion euros), despite an increase of 57,000 vehicle shipments. FCA attributed its net revenues decrease in the Asian region to “lower consolidated shipments and negative foreign exchange effects.”

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Twitter: @Keith_Laing