Despite production delays for the new 2019 Ram pickup truck, Fiat Chrysler Automobiles N.V. reported record profits of 1 billion euros for the first quarter of 2018 thanks to stronger sales in North and South America and a drop in capital spending as the company completed the launch of three new vehicles.
“Overall the business is in good shape,” said FCA CEO Sergio Marchionne during a conference call with analysts, noting the company had eliminated 1.3 billion euros worth of debt out of the company’s cash flow.
“Obviously I’m pleased by the debt reduction,” Marchionne said.
Marchionne acknowledged that the launch of the new Ram pickup truck had fallen behind schedule, raising the overall cost of the launch.
In addition, FCA now plans to continue building the old Ram pickup truck at an assembly plant in Warren, Michigan, well into 2019.
(Earnings down, GM still beats Q1 forecast. Click Here for the story.)
“The ramp-up curve will run for the rest of 2018,” Marchionne said. “One of the benefits of having the old truck (is that it) will allow us to play in a price sensitive part of the market. We have never done this before. We can test the depth of demand for old to see if it can stay,” he added.
FCA also is re-calibrating its approach to the Chinese market, which it is attempting to correct, starting with the launch of the new Jeep Grand Commander, which made its debut this week at the Beijing Auto Show, Marchionne said. “We over estimated the value of the American DNA in the Chinese market.
Marchionne also said FCA had bungled the introduction of the Maserati Levante, an excellent product with a strong potential in the market. “The Levante is a great (vehicle) but the product launch was very poor,” Marchionne said, adding that sales should begin to recover quickly.
Marchionne also confirmed that FCA will start production of the Jeep pickup truck in its plant in Toledo, Ohio by the end of 2018.
The FCA CEO also dismissed suggestions that he stay on as the company’s top executive beyond his planned retirement later this year. “The starting point for my successor will be good. We don’t need me to get this done,” Marchionne said. “It’s a much better starting point than I’ve seen in 14 years,” added Marchionne, who accepted the job as head of head of Fiat when the company appeared headed for financial ruin.
The biggest challenge facing his successor will be in European market, where the margins are small and regulatory framework is very restrictive. “When I look at the economics and the efforts to make (Europe) reasonably profitable, one wonders why you’re doing it. it’s an incredibly complicated jigsaw puzzle,” he said.
If the company misses the regulatory requirements in Europe the “financial fines which are very onerous and need to be avoided like the black plague,” he noted.
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Richard Palmer, FCA’s chief financial officer and a possible Marchionne successor, said the Italian-American carmaker was re-affirming its financial guidance for the full year as it expects to make 5 billion-euro profit and 8.5 billion euros in earnings before interest and taxes or EBIT on revenues of 125 billion euros.
FCA’s debt, once heavily discounted, was upgraded twice during the first quarter and the company expects to retire another 600 million in debt out of cash flow during the second quarter as the company moves in on the goal Marchionne set down five years ago of being debt free by the end of 2018.
During the first quarter, FCA net income increased 55% and the company 1.3 billion euros.
“(We) launched the Ram 1500 in the first quarter and we’ll start to see how it’s received by consumers,” Palmer said. FCA operations in Latin America also were profitable in the first quarter.
Worldwide combined shipments increased 5%, primarily due to growth in NAFTA and LATAM and worldwide Jeep shipments up 37%. Net revenues of 27 billion euros were down 2% due to negative foreign exchange translation, but up 9% at constant exchange rates, or CER Adjusted EBIT of 1,611 million euros, up 19% at CER, and the group margin improved 50 bps at 6%
Adjusted net profit of €1,038 million, up 55% up 78% at CER; Net profit of €1,021 million, up 59% up 83% at CER with lower financial charges and income tax expense.
(To see more about FCA’s ongoing talks with DOJ, CARB on diesel settlement, Click Here.)
FCA’s Board of Directors authorized management to develop and implement a plan to spin off the Magneti Marelli business.