Sergio: The reward is down the road

Sergio Marchionne, center, with Fiat Chairman John Elkann, predicts Fiat Chrysler Automobiles' big investments will result in an annual payoff of about $6.19 billion in net cash starting in 2017. Photo credit: BLOOMBERG

Sergio Marchionne's new five-year plan for Fiat Chrysler Automobiles won't start rewarding shareholders until 2017 at the earliest. Some wonder if there will ever be a payout.

One thing is clear: There will be no dividend for the plan's duration as Fiat Chrysler makes massive investments to globalize Jeep and relaunch Alfa Romeo. Those expenses, as well as other costs, will keep Fiat Chrysler's net industrial debt for at least three years at about 10 billion euros, or $13.77 billion at the current exchange rate, which is an auto industry record. It will cost about 2 billion euros ($2.75 billion) 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 ($6.19 billion) in net cash starting in 2017. The era of big cash generation will continue for at least seven years, and he adds that by the end of 2018 net debt will fall to 500 million to 1 billion euros ($688.2 million to $1.38 billion).

Some financial analysts are skeptical that those targets can be met, and that global vehicle sales can be boosted to 7 million units in 2018 from 4.5 million to 4.6 million planned this year.

But Marchionne has delivered exactly what shareholders asked when he arrived at Fiat Group 10 years ago. He transformed Fiat Group from a weak Eurocentric automaker into a formidable global player. Fiat Chrysler is the world's seventh-largest automaker.

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

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