FIAT CHRYSLER 5-YEAR PLAN

Fiat Chrysler will 'write a completely new book,' Marchionne says

A new Fiat Chrysler Automobiles sign is pictured after being unveiled at Chrysler's headquarters in Auburn Hills.

Photo credit: Reuters
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DETROIT -- Fiat Chrysler CEO Sergio Marchionne today said the company will move forward as a single global automaker.

He started Fiat Chrysler Automobile’s all-day presentation of its five-year product and business plan at Chrysler's headquarters in Auburn Hills, Michigan. "Today we stand before you as a global carmaker," Marchionne said. "Today is much than a new chapter. We are beginning to write a completely new book."

Cultural integration of Fiat and Chrysler is a crucial part of the plan, he said. Many auto mergers in the past have failed due to mistrust, he added.

In the past five years, Chrysler and Fiat executives have learned to trust each other, Marchionne said. Both companies are survivors, which helps them relate to each other. "The leadership team is diverse," he said. "It’s made up of a team of survivors who have been to hell and back. They know what it feels like to be lost and beyond hope."

But the focus for the combined company will be on execution. The group has repeatedly missed sales targets as it delayed investments, made some bad design choices and has seen its main European business lose share and plunge into losses during a six-year market slump.

Apart from repeating its overall goal of growing sales by more than a third to over 6 million vehicles by 2018, investors want Marchionne to provide specifics on how and when he plans to compete with much larger rivals such as Toyota Motor Corp., General Motors Co. and Volkswagen Group. "Fiat Chrysler has got to stop saying they will do it and just do it," said Stephanie Brinley, a senior analyst at researchers IHS Automotive. "We are waiting for the execution."

Marchionne will cover the billions of euros in investments planned for new Alfa Romeos, Maseratis and Jeeps out of existing funds, without selling or spinning off any of the automaker's brands, people familiar with the matter said. Analysts have been speculating whether Ferrari would be partially spun off to raise cash.

Highlights of Fiat Chrysler's five-year plan
Newly merged Fiat Chrysler unveiled its long-awaited five-year plan today. Here are some highlights:
Jeep
"China and Brazil are forecast to represent 32 percent of the global (SUV) market, and today we're a niche player because we are an import-only brand," said Jeep brand boss Mike Manley. "Now, with the full merger of Fiat Chrysler and the investment that Fiat has already made, we are in a position to rapidly eradicate that," he said on plans to expand production outside of the United States.
Chrysler
The company expects the Chrysler brand "to grow from 350,000 units sold in 2013 to over 800,000 units by 2018, effectively returning the Chrysler brand to the volumes and share it has achieved in the past," said Chrysler brand boss Al Gardner.
Fiat
European sales of Fiat brand are expected to stay about flat between 2013 and 2018 at around 700,000 vehicles."In Europe the mass market brands are challenged. No margins so no margins for error," said Fiat brand chief Olivier Francois. "There is no easy fix. We are all realizing that notwithstanding Fiat's great European history, things have changed," he said. "The volumes in EMEA clearly reflect our cautious approach," he said.
On Latin America sales: "In Latam, there is one objective: Stay on top in Brazil."
Alfa Romeo
Alfa Romeo brand head Harald Wester said Alfa Romeo often won on the track in Grand Prix races, but failed to execute the old automaker adage of "Win on Sunday, sell on Monday."
Alfa must "institute the rigor, the discipline and the measurements to meet the target of the first start of (new model) production in the second half of 2015 and launch eight products," he said. "We will invest and spend approximately 5 billion euros by 2018 for research and development, manufacturing and product-related investments. We plan to sell 400,000 cars by 2018, more than fivefold what we sell today."
--Reuters

Big bet on Alfa, Jeep

Fiat Chrysler will build Jeeps in China and Brazil and revamp its battered Alfa Romeo brand in a bid to convince investors it can turn the newly merged automaker into a thriving global business.

The new business plan likely will include a revised corporate structure and investing up to 9 billion euros ($12.5 billion) to end losses in Europe. It will be focused on expanding Alfa Romeo, Maserati and Jeep into global nameplates, people familiar have said in recent months.

"Key points of the investor day will be the strategy for Alfa Romeo and whether it can be funded with existing resources," Philippe Houchois, a London-based analyst at UBS, wrote in a report to investors.

Alfa Romeo will develop a new line of rear-wheel-drive sedans and SUVs, sources have said. The models will begin hitting the market in 2016, and high-end versions will be equipped with engines developed by Ferrari, the sources said. The relaunch will be boosted by selling cars through Jeep's international dealer network, widening Alfa's reach, they said.

The revival of Alfa Romeo is key to Marchionne's plans for the merged carmaker. The CEO believes Alfa has the potential to help drive profit for the group, in the same way that Audi does at VW Group, by commanding higher prices than mass-market models bearing the Chrysler, Dodge or Fiat badges.

Analysts, however, say considerable time and billions of euros will be needed to erase the weak quality reputation for Alfa, a brand that has been kept on life support for years.

The success, or otherwise, of an Alfa Romeo renaissance will be central to whether Fiat survives a difficult European market, allowing the group to fill idled plants in Italy and reinstate thousands of workers placed on temporary layoff schemes.

More Jeeps & Maseratis

Jeep, with ready products and a globally recognized brand in the fast-growing SUV segment, is Marchionne's best bet to grow sales, boost margins and to gain a global manufacturing footprint in Fiat's home turf in Europe and in fast-growing markets such as Brazil and China.

A subcompact Jeep called the Renegade will go into production in Italy later this year -- the brand's first model to be built exclusively outside the United States -- and that same model will also be built in Brazil as of next year.

The Renegade is critical for the brand's overall sales target of 1 million vehicles this year, a jump of 37 percent over 2013.

While most analysts call the target ambitious, they agree Jeep is the only truly global brand currently in Fiat Chrysler's portfolio and its best opportunity to expand in Asia, the fastest-growing global car market but also the group's blind spot.

Fiat Chrysler's joint venture in China, Jeep's largest market outside the United States, also plans to manufacture three Jeep models locally, with the first due in late 2015.

Marchionne also plans to further revamp Maserati through a likely boost in production and the addition of a sports car based on the Alfieri concept that was  at the Geneva auto show in March. The Alfieri would be part of an expansion already under way at that brand, people familiar with the matter said last month.

Maserati's performance last year was encouraging, with trading profit tripling and deliveries doubling.

Increased debt

Marchionne's challenges are huge, from finding the money to fund the plan to implementing it in a cut-throat industry where demand is still subdued in Europe and is now flagging in some major emerging markets such as Brazil.

The CEO, who will lay out his plans through 2018 today, is keeping open the possibility of raising funds with an equity-linked loan at a later date following a planned listing in New York, three of the people said.

Fiat, which had 22.7 billion euros of available liquidity at the end of 2013, expects its debt to increase to as much as 10.3 billion euros at the end of the year after the acquisition of Chrysler.

Marchionne, 61, targets completing the merger of the Italian and U.S. carmakers by the end of 2014, he said in March. The new entity, named Fiat Chrysler Automobiles, will have its main stock listing in New York while it will be registered in the Netherlands with a fiscal domicile in the UK for tax purposes.

'Beyond ambitious'

Fiat started accumulating Chrysler stock in 2009 as part of a rescue of the U.S. carmaker following the global recession. Without the division, Fiat would have been unprofitable in 2012 and 2013 because of losses in Europe.

Marchionne has said previously that annual deliveries may exceed 6 million cars by 2018, compared with the 4.5 million to 4.6 million vehicles Fiat and Chrysler plan to sell in 2014.

VW, which overtook GM as the world's second-biggest auto manufacturer last year, is targeting sales of more than 10 million cars and trucks in 2014. Toyota, the global car-industry leader, is forecasting deliveries of 10.32 million vehicles this year.

Marchionne's latest strategic program "will be beyond ambitious and accompanied by huge volume and profit targets, most notably the rebirth of Alfa Romeo but also a growth plan for Chrysler, a China plan for Jeep, a Brazil strategy and probably" a competitor to Renault's budget Dacia cars, Max Warburton, a Sanford C. Bernstein analyst, wrote in a report to clients on May 2. "But will the market buy it?"

Charles Child, Reuters and Bloomberg contributed to this report

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