LEX No one can accuse Sergio Marchionne, now boss of both Fiat and Chrysler, of lacking ambition. His Chrysler turnround plan involves stretching targets: more than doubling this year’s sales, paying back US government debt and reaching solid profitability, all by 2014. But Mr Marchionne’s goals for Fiat five years ago seemed similarly demanding. The fact he achieved them has given him some credibility. Investors, who have pushed up Fiat’s share price by about a quarter since September, are starting to agree.
Mr Marchionne’s targets, while challenging, are not off the scale. The assumption the US car market will rebound from 10.5m vehicles this year to 14.5m in 2014 is plausible; increasing Chrysler’s market share from 10 to 14 per cent is more testing, but reasonable if – as Fiat has done – it can get its range right. The group plans, meanwhile, to spend $23bn on new models, many using Fiat platforms. Mr Marchionne says the success of Chrysler’s previous owners, Cerberus, in cutting costs, has been underestimated. Take the slimmed-down Chrysler, mix in US and Canadian state funding, and Fiat’s refound panache, and the recipe might just work.
Investors can take some immediate comfort from the fact Chrysler has increased its cash from $4bn in June to $5.7bn, in spite of continuing sales declines. Yet the market is still placing minimal worth on Fiat’s 20 per cent Chrysler stake. Given the improving prospects of a turnround, it should be accorded some value; Morgan Stanley – at the bullish end – suggests Chrysler could be worth €8.50 per Fiat share. In spite of the run-up in Fiat’s shares to about €11, the possibility of further gains – as investors price in a Chrysler recovery and Fiat increasing its stake – probably outstrip those of its European peers.
BACKGROUND NEWS | |
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Fiat on Wednesday unveiled a sweeping five-year overhaul of Chrysler centred on collaboration between the Turin and Detroit carmakers on everything from car and engine designs to procurement and international distribution. Under the strategy, more than half of Chrysler, Dodge and Jeep vehicles will be built on Fiat platforms by 2014. The share of small and midsize vehicles in Chrysler’s portfolio will grow from 45 per cent to 58 per cent. Sergio Marchionne, chief executive of both companies, said at the end of a six-hour briefing to analysts, dealers and the media that ”no stone has been left unturned. We have started the painful and difficult job of rebuilding the equity in each of [Chrysler’s brands].“ Fiat has cut a swathe through Chrysler since gaining day-to-day control and a 20 per cent equity stake under a court-supervised restructuring in June. Fiat has the option of increasing its stake to a majority once Chrysler repays loans from the US and Canadian governments. |
