2016 results: good but not enough

Taken from my personal blog: www.fiatgroupworld.com

FCA has finally communicated its financial results for the year 2016. The first impression is that the group met most of its targets and overall financial situation is better. Sergio Marchionne has certainly made used of the American good momentum, while his counterpart in Europe, Alfredo Altavilla, has brought Fiat back to life. Brazilian and Asian operations continue to struggle, but they don’t burn money anymore. Growth is still associated to Jeep brand, and the luxury hub, composed by Maserati and Alfa Romeo, may have finally taken off. Margins improved, but the company’s corporate goals for 2018 are still far away.

The best of 2016 is that even if sales and revenue did not grow, profitability improved thanks to a better product mix, fewer fleet sales and lower warranty costs. FCA sold more high-ended cars like, boosted by the new Maserati Levante SUV and the Alfa Romeo Giulia. It also sold more Jeeps and RAMs, which is usually a strong profit generator. At the same time the company refocused its sales target in order to reduce the fleets’ penetration. All of this is certainly good news as the group became more efficient with the same structure.

Even Brazil performed well considering the country’s current economic situation. Fiat was able to gain money again (positive EBIT) despite the 18% drop on its shipments (-100k units). Costs reductions helped the company to adapt to the new conditions, and new and more expensive products (compact pickup Fiat Toro, and SUVs Jeep Renegade and Compass) contributed to the result. China was other source of profits. While demand for the locally produced Fiat Viaggio and Ottimo shrunk, the company was certainly right by producing Jeeps in this market. It took a while but it was worth it.

The question now is how good all of that is. FCA is now more profitable because it is making more SUVs, Trucks and luxury cars, in line with global trends. However, this won’t be enough to achieve the ambitious goals of 2018, even if the company just confirmed them. FCA sold 4,72 million cars last year, consistent with prior year. That is two thirds of 2018’s goal of 7 million units. This means that the car maker must increase its deliveries by 2,3 million in only two years. That is impossible based on the following facts:

1. Jeep’s growth started to slow down. The brand of the SUVs will be boosted by Chinese increasing demand, but its volume should stabilize this year in the US and Europe.
2. In the short-term there is not any big launch of a popular model. Fiat launched the Mobi in Brazil last year, and the Tipo in Europe, but this year there won’t be any Punto successor nor a new 500.
3. Maserati and Alfa Romeo’s success will depend mostly on how the new Levante and Stelvio are received by the market. Even if the forecast is quite promising for both SUVs, the truth is that they won’t be enough to generate the increasing volume expected to meet the targets (especially in the case of Alfa Romeo).
4. Chrysler continues to lose ground without a big product offensive coming in the short-term. Dodge has only two SUVs in its current range and there is no evidence there will be more in the coming months.

Whether this personal prediction becomes true or not, FCA needs to move faster. Sergio Marchionne is good at that, but not the company he manages. Time will tell us.