Fiat Chrysler pushes to boost margins as CEO calls for deal
Fiat Chrysler Automobiles Chief Executive Officer Sergio Marchionne made a plea for reducing players in the global auto industry as the firm reported lower-than-expected first-quarter results and outlined new plans to boost North American profit margins. He told analysts that “largescale integrations are required” in the auto industry.
MILAN/DETROIT — Fiat Chrysler Automobiles (FCA) Chief Executive Officer Sergio Marchionne on Wednesday made a plea for shrinking the number of players in the global auto industry as the company reported lower-than-expected first-quarter results and outlined new plans to boost North American profit margins.
Mr. Marchionne delivered a detailed presentation during a 2- ½ - hour call with analysts to argue that “large- scale integrations are required” in the auto industry to sustain the heavy capital investments needed to meet demands for cleaner, safer vehicles.
“The capital consumption of this industry is unsustainable,” he said.
Mr. Marchionne’s campaign for automakers to combine comes as the industry’s global rivals face mounting costs to engineer vehicles that emit little or no carbon dioxide, and can avoid collisions using complex robotic driving systems.
Analysts say FCA, the seventh largest of the global car makers, doesn’t have the financial heft to compete long-term with larger rivals such as Volkswagen AG, Toyota Motor Corp., General Motors Co. (GM) or Ford Motor Co. But Mr. Marchionne conceded in answer to questions that there are barriers to combining big auto companies, including unions and political leaders that view car makers as national economic champions.
Mr. Marchionne alluded to the Red Queen in Lewis Carroll’s
Through the Looking Glass who bemoans that “it takes all the running you can do to keep in the same place.”
If traditional automakers ignore his call, Mr. Marchionne said “it’s possible” he would discuss a deal with Silicon Valley companies, including Google, Inc. or Apple, Inc., that are looking at ways to offer alternatives to traditional cars or car ownership. Analysts have speculated Google or Apple could turn to an existing automaker or supplier to assemble vehicles as a contractor.
“I have always been intrigued by the notion of having technology disruptors in the marketplace to change the paradigm,” Mr. Marchionne said.
PAST CALLS
Mr. Marchionne has called for industry consolidation in the past, and he didn’t outline specific ways in which FCA could participate in shrinking the number of competing global automakers.
Mr. Marchionne got into a heated exchange with Bernstein analyst Max Warburton, who asked whether part of the problem is that Mr. Marchionne, as head of the former Fiat S.p.A, saved the former Chrysler Group LLC from going out of business during the financial crisis.
“It’s incredibly naïve to assume the extinction of Chrysler would have changed the behavior” of the remaining competitors, Mr. Marchionne said.
So far there has been no sign of interest from Mr. Marchionne’s major rivals.
FCA’s latest results illustrated Mr. Marchionne’s problem. The company lost money in Latin America, which accounted for nearly a third of FCA’s overall profits three years ago.
FCA boosted North American profits by 60% in the quarter. But the company’s 5% operating margins for the first quarter lagged behind rivals GM and Ford, which reported margins of 8.8% and 6.7%, respectively. Ford has targeted North American margins of 8.5% to 9.5% for the year.
FCA said on Wednesday it is launching a push to increase North American margins to GM and Ford’s levels by 2018, starting with moves this year to increase margins to 5.5% to 6% by the end of the year. The automaker said it expected higher sales volumes would add one percentage point to its North American margins, and higher prices at the consumer and wholesale level would add another percentage point.
However, FCA’s rivals have a vote in whether the company’s Ram, Jeep, Dodge and Chrysler brands can make price increases stick. —