Fiat Chrysler reports Q3 earnings decline in anticipation of diesel fines

Keith Laing
The Detroit News

In the financial period that included the death of legendary former Fiat Chrysler Automobiles NV CEO Sergio Marchionne, the automaker reported third-quarter earnings fell 38 percent in anticipation of a large financial hit related to a U.S. diesel investigation. The Italian-American carmaker also said it would pay its first dividend since its creation in 2014.

The 2017 Ram 2500 Laramie Longhorn Crew Cab 4x4 Heavy Duty was offered with a Cummins Diesel engine. FCA said its posted  third quarters earnings loss reflected an estimated $794 million charge related to a U.S. Department of Justice investigation that alleges the automaker failed to disclose software on about 104,000 diesel-powered pickups and SUVs that regulators said could be similar to the “defeat devices” Volkswagen AG used to cheat emissions-testing.

FCA said Tuesday that its third-quarter earnings fell to $640 million (564 million euros), down from nearly $1.1 billion (910 million euros) in the same period last year. It said the decline reflected an estimated $794-million (700-million euro) charge related to a U.S. Department of Justice investigation that alleges the automaker failed to disclose software on about 104,000 diesel-powered pickups and SUVs that regulators said could be similar to the “defeat devices” Volkswagen AG used to cheat emissions-testing on millions of its diesel-powered vehicles.

The company has denied its diesel engines have any kind of illegal software or defeat devices, but included an estimated charge in preparation for any penalties it might have to pay as a result of the federal inquiry. 

CEO Mike Manley, who took over in late July after Marchionne fell fatally, said the estimated charge for the diesel investigation "does not represent a settlement outcome, or any admission on our part. 

"It reflects a prudent level of provision given our assessment of the status of ongoing negotiations with the regulatory agents and their counterparties," Manley said. "And given the progress of discussions on these matters, we thought it was appropriate under our accounting rules to record this charge at this time." 

FCA posted a 10.2-percent adjusted pre-tax margin in North America, which continues to deliver the bulk of the automaker's rising profits. The company reported its U.S. market share was up to 12.9 percent, up 160 basis points year-over-year, which FCA attributed to an increase in shipments of the all-new Ram 1500 and Jeep Wrangler, as well as new Jeep Cherokee.

The automaker said its $7 billion (6.2 billion euros) sale of components division Magneti Marelli to CK Holdings Co. Ltd. will enable a payment of an extraordinary dividend of $2.2 billion (2 billion euros) dividend at closing, which will be offered in addition to an annual dividend equal to 20 percent of the company's earnings that were presented at 2018 Capital Markets Day in May. It is the first dividend paid to shareholders since Fiat SpA and Chrysler Group LLC merged nearly five years ago.

"We will continue to maintain our historical discipline with capital allocation, whilst maintaining the appropriate liquidity to support capital investment requirements for products, technologies and to ensure these investments sustain through the economic cycles," Manley said. 

"The expected proceeds from the Magneti Marelli transaction will leave FCA in the strongest position that we've been since our formation in 2014, giving us for the first time a balance-sheet liquidity position that will be comparable to our peers," he continued. 

FCA in September sold more vehicles than rival Ford Motor Co. for the first time since January 2007. Driven by Jeep and Ram sales, FCA has been in the middle of a truck and SUV sales battle for most of 2018 with General Motors Co. and Ford.

David Kudla, CEO of Grand Blanc-based Mainstay Capital Management LLC, said FCA's divestiture of Magneti Marelli will allow it to pay an "overdue" dividend payment to stockholders. 

He said FCA's sales numbers in the third quarter looked strong otherwise, especially in North America.  

"Compared to GM and Ford, Fiat Chrysler was the only auto manufacturer to post a positive volume increase in year-over-year quarterly sales," Kudla said. "Jeep brand was up 16 percent and Ram was up 12 percent. Fiat Chrysler's Ram Pick-up had an outstanding third quarter, outpacing the Chevy Silverado (and taking advantage of a new launch short supply issue), and year-over-year quarterly sales were up a whopping 14 percent." 

Kudla added that FCA "continues to struggle in Europe with an aging product line, overcapacity and low profitability."

Shares of the company ended trading Tuesday down 3.9 percent to $15.38, on a day that broader market indexes were up.


Twitter: @Keith_Laing, @Ian_Thibodeau