FCA open to tie-up, but record Q2 results show it’s OK alone

DETROIT β€” Fiat Chrysler says it’s fine going solo, but it wouldn’t mind having a dance partner.

With its Ram trucks flourishing and its Jeep brand continuing to excite enthusiasts with offerings such as the new Gladiator pickup, FCA turned in record second-quarter profit that shows it has plenty to bring to a potential merger.

The topic continues to intrigue curious analysts, who brought it up several times last week during FCA’s quarterly earnings call, its first since the company in June pulled back its proposal to merge with Renault.

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CEO Mike Manley, instead of shying away from questions, fanned the flames with an honest response: FCA is still open to opportunities.

Although the Renault deal didn’t happen, Manley sang the praises of the shelved tie-up, saying it “clearly added very, very significant synergies.” But he made clear that FCA has “a relatively robust business plan that survives with or without that type of merger.”

Immediately after withdrawing the proposal, Manley said, he held a global town hall meeting with FCA employees. He told them the merger was a great opportunity for both companies. But Manley said it was not a “necessary step for us in terms of how we develop our business going forward.”

Michelle Krebs, executive analyst at Autotrader, agrees with Manley’s thinking. She said FCA isn’t in a position where “they’ve just got to hook up with anyone.”

“They’re certainly going to look for a partner that is complementary and can provide things that they don’t have,” Krebs told Automotive News.

The FCA-Renault tandem would have expanded the French automaker’s global alliance with Nissan and Mitsubishi that outsold any single automaker in the world.

Before sales chief Reid Bigland sued FCA over withheld incentive compensation, he said the merger would create a world leader from electric vehicle technologies to premium brands, SUVs, pickups and light commercial vehicles.

Dealers, when a merger seemed imminent, were optimistic about the prospect of a more efficient FCA that could work with Renault on electrification.

One analyst asked if the merger talk had been a distraction, but Manley rebuffed that possibility.

“We have said and we’ll continue to say that we are open to opportunity, and that remains true. But I think our people β€” and hopefully our shareholders and stakeholders β€” recognize that if we do something, we will only do it in their interests and a strong belief that we’re creating value for everybody,” Manley said during the call. He added: “I don’t think it necessarily causes a day-to-day distraction in the business.”

Manley argued that tie-ups will be necessary for companies that have a lot of exposure to Europe.

“In Europe, particular partnerships, cooperations and even mergers are going to be necessary going forward to maintain some people’s profitability in the marketplace, particularly if you’re very, very heavily exposed to the European market,” Manley said. “And you’ve seen a number of companies announce different cooperations or announced that they’re open to cooperations or partnerships or platform sharing.”

The merger talk didn’t hamper operations in North America. FCA said it achieved record second-quarter North American adjusted earnings, which rose 12 percent to $ 1.74 billion. Revenue was flat at $ 19.66 billion.

Wholesale deliveries fell 12 percent to 596,000 vehicles, but the product mix shifted further toward light trucks, and profit margins rose nearly a percentage point to 8.9 percent.

Ram, with U.S. sales up 28 percent through June, led the way as its new heavy-duty pickups joined the lineup with luxurious interiors, an upgraded infotainment system and segment-leading power with the 6.7-liter Cummins turbodiesel engine. The redesigned 1500 is providing sturdy competition for the Ford F-150 and Chevrolet Silverado, and FCA continues to build the previous-generation Classic model that some dealers think will remain a viable option through year end.

FCA said the launch of the heavy-duty line was the last piece of its “three-pronged truck selling strategy.”

FCA also attributed some of its success to the debut of the Gladiator, which had a hot start with an April 4 promotion that allowed for 4,190 preorders of a special-edition model priced above $ 60,000. The Gladiator had 4,231 deliveries in June, lifting its total U.S. sales to 7,252 since its spring launch. The Gladiator captured an estimated 7.7 percent of the midsize pickup market after just one full month on dealership lots, according to the Automotive News Data Center.

Karl Brauer, executive publisher of Kelley Blue Book, said FCA is highly profitable and appears well positioned in the near term with Ram and Jeep, which he called a “powerful global brand with broad appeal.”

Even with the success, Brauer said Manley is smart to keep an eye on the future.

“Even Volkswagen, the world’s largest automaker, is looking at when and where it makes sense to align with other automakers,” Brauer wrote in an email. “And while FCA is profitable, it doesn’t have the global reach or resources to remain independent forever. Mike Manley is smart to maintain the automaker’s positive momentum in the short term as he simultaneously explores opportunities to ensure its survival over the next 20-plus years.”

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Section Page News – Automotive News

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