Fiat Chrysler posts record North America earnings, margins in Q3
Fiat Chrysler Automobiles NV delivered record third-quarter pre-tax earnings in North America and a best-ever 10.6% margin, the automaker said Thursday, a sign to its would-be French partner, Groupe PSA, that it could be a strong ally on the continent.
The earnings come after Fiat Chrysler and Peugeot's PSA early Thursday confirmed they have agreed to merge. The 50-50 combination would create the world's fourth-largest automaker with the twin goals of helping PSA re-enter North America and Fiat Chrysler turn around its European business. Their combination also could create the economies of scale needed to invest into innovations in electrification as well as automation and other mobility systems.
"What's clear is the opportunity this represents for both companies is very compelling," FCA CEO Mike Manley said Thursday on an earnings call. "Now a merger would bring together two strong, complementary businesses to produce a genuine global mobility leader. Having explored this combination is absolutely consistent with everything we've been saying for the need for smart industry consolidation."
A similar deal with Renault SA, another French automaker, however, fell through in May after the proposal lacked the support of the French government, which also is a shareholder in PSA, and with Renault's Japanese partner, Nissan Motor Corp.
With or without a deal with PSA, Fiat Chrysler shared its 2020 guidance of a record $7.8 billion in pre-tax earnings, up from the $7.5 billion it expects from this year. The automaker maintained its guidance for 2019, even as the company reported $200 million in global net losses in the third quarter, a 135% year-over-year decrease, because of expenses related to changes in plants in Europe and at the luxury Alfa Romeo brand. Without the $1.6 billion impairment, pre-tax earnings were a record $2.2 billion, up 5% for the same period of 2018.
In North America, the record quarter of $2.3 billion in adjusted earnings before interest and taxes, despite shipments falling 11% to reduce dealer stock inventory, resulted from a greater mix of pricier trims and accessories and maintaining production costs.
All truck sales, including the new Jeep Gladiator pickup, increased 25% in the quarter, according to auto resource website Edmunds.com Inc. That raised average transaction prices nearly 7% to $40,555 year-over-year above the $37,242 industry average.
The Ram pickup maintained its spot as the No. 2-selling truck in the United States in the third quarter after surpassing the Chevrolet Silverado in the first nine months of the year. The United Auto Workers' six-week national strike against General Motors Co. nearly guarantees Ram will hold its position for the full year for the first time ever. It, however, still trails the Ford F-Series, though the gap is shrinking.
Despite efforts to reduce stock to 71 days of supply in North America, Fiat Chrysler still appeared to continue having challenges moving older inventory. It took vehicles on average 101 days to come off dealer lots, 24 more days than the industry average, according to Edmunds. Additionally, after years of explosive growth, the Jeep brand is showing some vulnerability, noted Jeremy Acevedo, Edmunds' senior manager of insights. Sales were down 6% in the first nine months of the year.
"While shoppers are still clamoring for Wranglers and Grand Cherokees, small SUVs appear to be Jeep's Achilles' heel as the segment grows increasingly more saturated," Acevedo wrote.
Manley said the company has made "significant progress" on transforming its former Mack Engine Complex on Detroit's east side into a $1.6 billion assembly plant for a three-row, full-size Jeep SUV and the new Jeep Grand Cherokee SUV to be built there starting late next year. Additionally, the company will retool its truck assembly plant in Warren for 14 weeks in the first quarter of 2020 to build the Jeep Wagoneer and Grand Wagoneer SUVs.
The automaker reported $30.5 billion in revenue for July, August and September. Its second-quarter results were down 1% from the same period of 2018.
Europe lost $61 million in the third quarter before taxes. Restructuring on the continent that began earlier this year is expected to be finished by the end of December, Manley said, in efforts that he expects will bring the division to profitability next year. Ninety percent of a 5,000-person reduction in headcount is complete there, and the company is looking to focus its efforts on higher-margin passenger cars, reduce its average portfolio age there by four years by 2024 and reduce Alfa Romeo's global reach and overlap with other FCA brands.
A partnership with PSA also has the potential to leverage its strengths in Europe to refine FCA's operations there as PSA has with the Opel and Vauxhall brands it bought from General Motors Co. in 2017.
"The restructuring actions we started at the beginning of this year remain a constant focus for the (European) team with or without a merger," Manley said. "The resolution would considerably be enhanced in speed and expenditure with the proposed merger."
The Maserati luxury brand lost $57 million in the third quarter before taxes. The company last month outlined details of its plants for new models with automated features and electrified versions starting in 2020. Stock reductions continuing through the rest of the year and new leadership seek to return the brand to profitability next year.
FCA lost $11.2 million in Asia in the third quarter. Latin America posted earnings of $170 million.