LUCA CIFERRI

Marchionne asks for 3 more years of patience

Luca Ciferri is Editor of Automotive News Europe.Luca Ciferri is Editor of Automotive News Europe.
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Fiat Chrysler Automobiles CEO Sergio Marchionne’s new five-year plan for the automaker won’t start rewarding shareholders until 2017 at the earliest. Some wonder if there will ever be a payout.

What we do know is that there will be no dividends for at least the next three years. Not while Fiat Chrysler makes massive investments to globalize Jeep and to relaunch Alfa Romeo. Those expenses, as well as other costs, will keep Fiat Chrysler’s net industrial debt at about 10 billion euros, which is an auto industry record. It will cost about 2 billion euros a year just to cover the finance charges on that debt.

According to Marchionne’s blue-sky scenario, the big investments will result in an annual payoff of about 4.5 billion euros in net cash starting in 2017. The era of high cash generation will continue for at least seven years, he says, adding that by the end of 2018 the company’s net debt will be 500 million to 1 billion euros.

Financial analysts are skeptical that the debt-reduction and cash-generation targets will be met. They also doubt Marchionne’s new plan will boost global vehicle sales to 7 million units by 2018 from 4.4 million planned this year.

We should not forget, however, that Marchionne has delivered exactly what his shareholders asked him when he arrived at Fiat Group 10 years ago. They wanted him to rescue Fiat Group by transforming it from a weak Europe-centric automaker into formidable global player. Fiat Chrysler is the world’s seventh-largest automaker. Marchionne wants to rise to No. 6 – ahead of Ford Motor – by 2028.

In addition, Marchionne restructured Fiat and the acquired Chrysler without asking for a capital increase. He says his new plan will not require a capital hike, but he said "mandatory convertible bond is not off the radar screen" for this year.

If a bond is needed, shareholders might have to put in more money and still not see any dividends for the duration of the plan. Is that good or bad? That’s difficult to say. Let’s look at what happened in France to the Peugeot family. After losing control of the company they founded, the Peugeots have had to pour additional cash into PSA/Peugeot-Citroen to keep the family’s share from falling below 14 percent.

The Agnelli and Elkann families surely are grateful to Marchionne for what he accomplished so far: they still control Fiat, they also control Chrysler and it didn’t require any additional cash outlays.

They also were not forced to sell the company's crown jewel, Ferrari. And Marchionne vowed on Tuesday that the supercar maker will remain part of the Fiat family.

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