Category: Fiat
Posted by Neil Winton on Tue, Nov 17, 2009 at 5:24 AMAs dust settles on Fiat's Chrysler plan, "ambitious" is the watchword
Fiat's aggressive and ambitious plan for Chrysler was delivered with panache, brio and at some length by CEO Sergio Marchionne by all accounts, but investors think he might have bitten off more than he can chew.
The main points of the five-year plan were ΓΆβ,¬"
*More than double Chrysler global sales to 2.8 million.
*Raise Chrysler's U.S. market share to 13.7 per cent from 2009's 8.5 per cent.
*Roll out a dozen new Chryslers built on Fiat platforms.
*Pay back debt to U.S. taxpayers.
*Break-even in 2010 on operating basis, make net income in 2011. Reach EBIT margin of seven percent by 2014.
*Raise foreign sales to 18 per cent by 2014 from eight per cent in 2008.
Marchionne conceded that the plan look difficult to achieve.
"Some of you are going to walk out of here skeptical and some of you are going to be downright incredulous," Marchionne said.
Deutsche Bank seems to be in the incredulous group.
"Fiat management certainly sees more potential upside in Chrysler than us or the (Wall) street," the bank said in a report.
Morgan Stanley analyst Adam Jonas was impressed, although Chrysler's profit targets for 2014 outstripped his projection ΓΆβ,¬" 4.7 per cent versus seven per cent, by more than 30 per cent. Jonas believes Chrysler will be a big asset to Fiat.
"We believe the market grossly under-estimates the value of Chrysler to Fiat," Jonas said.
Bruce Clark, Senior Vice President at U.S. ratings agency Moody's described Marchionne's projections as perhaps the most ambitious business plan in automotive history, anticipating an unprecedented pace of change. The plan needed time.
"(Fiat-Chrysler) is being asked to implement change and reach extremely demanding objectives at a breakneck pace ΓΆβ,¬" accomplishing in 12 months what would normally take two or more years. We also note that the automotive industry's track record for harvesting the hoped-for synergies associated with international tie-ups, even under favorable market conditions, is not encouraging," Clark said.
Citigroup Global Markets analyst John Lawson expressed surprise at the extent of Fiat's plan to involve its vehicles in Chrysler's new products, wondering whether they would be up to scratch for the job.
"We have never regarded Fiat as one of Europe's best-placed groups in this regard," Lawson said.
But Lawson saw a big payoff if this plan worked.
"We can see a significant revenue opportunity in this for Fiat if it works. However, there are plenty of wrecks in a history of failed attempts to take European engineering into the U.S. in the past," Lawson said.
Moody's Clark liked the plan's ambition, but pointed to the big challenges ahead for Team Chrysler.
"Coach Marchionne has put together a great game plan. And every member of the Chrysler team knows their assignment. But Chrysler has to cover more ground in less time than almost any other auto company has ever attempted. Execution on every play will have to be flawless, and the company must begin showing clear signs of progress quickly ΓΆβ,¬" particularly in the areas of market share, consumer perception of the company, and effective cooperation with Fiat," Clark said.
Perhaps the biggest question mark in the plan is the credibility of Fiat products, no matter how well disguised by Chrysler badges.
"Customers need to be convinced of the Fiat/Chrysler vehicles which will hit the market from 2012 and Chrysler needs to win back lost customers," Deutsche Bank said.
