Sergio Marchionne enters the final stretch of his career at Fiat Chrysler Automobiles NV with a daunting mission: prove wrong the doubters who question how he can make the carmaker’s $5.29 bn in debt disappear by the time he steps down in two years.
His strategy update will be a closely watched presentation next week at the Detroit motor show, particularly as Fiat Chrysler won’t be unveiling new models at the annual event. Marchionne knows his credibility is riding on his 2018 targets: the CEO is demanding signs of progress toward reaching them at every management meeting, according to people familiar with the sessions. And the pressure is showing results. Fiat Chrysler’s executives have expressed increasing confidence at recent investor meetings that they’ll reach their goals, according to the people, who asked not to be named citing private conversations.
Aiding Marchionne is a product shift to more profitable models such as Jeep sport utility vehicles and Dodge Ram pickup trucks instead of less popular sedans in the US. The line-up provides a buffer as industry conditions turn challenging, with growth in the US and China topping out or slowing.
Investors have taken note: the stock listed in Milan has surged 62 percent since the carmaker raised its full-year forecast in late October, and analysts’ average share-price estimate has jumped 11 percent to 8.26 euros a share. The stock, which has been trading higher than that this year, rose as much as 4 percent to 9.63 euros on yesterday, the highest intraday price since October 20, 2015, and was up 3.6 percent as of 10:14 a.m. in Milan.
“The mix shift in the US is huge and helps profits reach a level where they are able to start de-leveraging: that’s a game changer,” George Galliers, an analyst at Evercore ISI, said by phone. “There is a good chance that Fiat will be net cash break-even at the end of 2018, which is more than most investors expect, so that Marchionne could retire with a repaired balance sheet.” Galliers, who expects Fiat Chrysler to boost profit in North America through 2018 despite the weaker market, raised his recommendation on the stock to buy from sell in November.
The carmaker is likely to outline how it will reach the goals when it publishes last year’s figures at the end of this month, the people said. Fiat declined to comment. But even with Marchionne’s improved strategy, the vast majority of analysts still expect the manufacturer to fall short of the targets. Marchionne, who could discuss the carmaker’s progress as he meets reporters January 9 at the North American International Auto Show in Detroit, is looking to achieve the 2018 profit and debt targets with higher-margin vehicles after scrapping the car-sales goal. He’s also scheduled to meet investors at a Deutsche Bank AG conference in Detroit on January 11.
