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Howes: FCA’s churn to profitability gaining credibility

Daniel Howes
The Detroit News

Sergio Marchionne is finding the virtuous circle, finally.

On the same day Fiat Chrysler Automobiles NV said first-quarter earnings surged 34 percent on encouraging profits from Europe and luxury marque Maserati, President Donald Trump issued a long-awaited tax reform proposal that’s making markets giddy.

Again, with the Dow Jones Industrial Average back above 21,000 before settling at 20,975. And that’s likely to be nothing but good for FCA and crosstown rivals General Motors Co. and Ford Motor Co., each of which will be issuing first-quarter results over the next two days.

That’s what Detroit’s automotive brass has been betting on since Trump’s improbable Electoral College win over Hillary Clinton delivered him to the White House — tax cuts and regulatory reform aimed at turbo-charging tepid economic growth and extending the bull market for cars, trucks, SUVs and the emerging mobility space.

“Low fuel prices and a pro-industry Trump administration have helped buoy autos,” David Kudla, CEO at Mainstay Capital Management LLC in Grand Blanc, wrote in a note. “Trump’s plan to roll back emission standards could be a huge boon for the auto industry, but like many of Trump’s policies, we haven’t heard a definitive word on his proposals.”

This much is increasingly clear: Marchionne & Co. are making discernible progress toward their 2018 plan of less debt, more earnings and a global product portfolio poised to credibly challenge American rivals in trucks and SUVs. And, with Alfa Romeo and Maserati, to annoy the Germans in volume luxury segments.

Just ask investors, who pushed shares in FCA more than 10.5 percent higher on the day. That’s validation ol’ Sergio’s long-detailed plan to retire debt, boost earnings and shift the product portfolio into higher gear is delivering results — and gaining credibility.

Killing car production in the United States appears to be hurting FCA less than many probably expected, vindicating Marchionne’s decision to accept the obvious: because comparatively cheap gas is expected to remain so, at least for the mid-term, and because the lineup is weighted toward Ram trucks and Jeep SUVs, why not play to the company’s historic strength?

It did. And, for now, the combination is making a difference. After years of false starts and missed deadlines, Alfa and Maserati are gaining traction and generally winning rave reviews. When Alfas start gracing American showrooms in volume, their contribution is only likely to increase — and ease pressure on Jeep and Ram to carry pretty much the whole load.

Cases in point: In North America, Ram sales surged 4 percent even as Jeep slowed amid model changeovers. In Latin America, Jeep claims market share of more than 24 percent. In China, higher volumes of Jeep sales are helping the Italian-American automaker slowly gain share in the world’s largest market.

Jeep and Ram continue to prove their mettle as FCA’s cash cows, especially Jeep, arguably the automaker’s leading global brand. No wonder, then, that Marchionne answered with one word — “yes” — when asked by an analyst Wednesday if Jeep and Ram could ever be spun off from the group.

What would you expect from the global industry’s straightest of shooters, from the guy who’s made no secret of his desire to marry FCA to a global rival? His charge from FCA’s controlling Agnelli family is to increase the value of its automotive holdings — or find a way out.

For the short term, at least, Marchionne’s emphasis looks to be on building value for as long as a business cycle, continuing to defy gravity, will allow it. Evidence is accumulating that the surging market is plateauing, but doing so at historically high levels.

With the nation’s average fleet age still more than a decade old, and interest rates still comparatively cheap, a Trump tax proposal that becomes law could be the right medicine at the right time — even if the president, at the same time, moves to pull the United States out of the North American Free Trade Agreement.

Nothing comes easily, not in the Detroit-based industry trying to prove it’s different than the sad-sack heap that begged Congress and two successive administrations for bailouts. And not in Trump-era Washington, where the promise of tax and regulatory reform is complicated by a conflicting trade agenda it may not like.

But it has to deal with it, nonetheless.

Daniel.Howes@detroitnews.com

(313) 222-2106

Daniel Howes’ column runs Tuesdays, Thursdays and Fridays. Follow him on Twitter @DanielHowes_TDN, listen to his Saturday podcasts, or catch him at 3 and 10 p.m. Thursdays on Michigan Radio’s “Stateside,” 91.7 FM.