Fiat Chrysler's latest plan: Realistic or unreal?
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DETROIT -- When Chrysler Group, just months after a federal bailout spared it from liquidation, unveiled plans to radically grow sales five years ago, it had plenty of doubters.
"A lot of people thought we were on some serious hallucinogenic drugs," said Reid Bigland, the head of U.S. sales operations.
Even though the company hit most of its targets, the new five-year plan laid out last week by Fiat Chrysler Automobiles left many analysts and investors wondering whether the executive team was tripping again.
Fiat shares fell so sharply in Italy after the plan, which involves capital investments totaling more than $65 billion, was announced that trading had to be halted briefly the next day. The skepticism prompted Chairman John Elkann and CEO Sergio Marchionne to each buy more than 130,000 shares in a show of confidence.
Analysts generally reacted favorably to the direction of the plan but labeled the financial and sales projections too optimistic.
"Conceptually, the things that they want to do and the risks that they want to take all make sense to me," said Jeff Schuster, senior vice president of forecasting for LMC Automotive. "But when you put the numbers with it, that's where I have trouble. It's a lot to try to bite off and rework in a short period. I just think this is too ambitious."
Even Marchionne acknowledged that portions of the plan, which calls for Fiat Chrysler's annual global sales to increase 59 percent to 7 million by 2018, depend on "near-perfect execution."
That statement concerned analysts from IHS Automotive, who wrote in a report last week that the company's recent product launches "have been anything but 'near perfect.'"
Marchionne said the company can ramp down some investments if vehicles are not received as well as expected.
While that would keep Fiat Chrysler from getting itself into trouble financially, the IHS analysts wrote that "it also means that this aggressive plan could see delays in execution and may not meet aggressive sales targets as quickly as outlined."
They concluded: "There are plenty of obstacles for FCA to drive over on their way to 7 million."
Bigland: Sales chief thinks big.
The plan shows Fiat Chrysler increasing its U.S. market share to 15.8 percent in 2018 from 11.4 percent in 2013.
That would roughly match Ford Motor Co.'s 2013 share of 15.9 percent and presumably make it a bigger player than Toyota Motor Sales U.S.A., whose Toyota, Lexus and Scion brands had 14.3 percent of the market last year.
Since 1957, Chrysler has posted U.S. share of at least 15.8 percent only twice: 16.2 percent in 1996 and 16.1 percent in 1998. The increase that Fiat Chrysler projects is equal to the size of the Hyundai brand in the United States.
A large part of that target depends on the Alfa Romeo luxury brand going from nonexistent in North America to annual sales of 150,000 units in 2018.
"You have to have time to prove yourself, and four and a half years isn't enough time to do so," Schuster said. "I think they can get on the right track, but this is too tight to hit that."
In contrast, it took Lexus 10 years to reach that volume from the time it was introduced. BMW needed 25 years, Audi needed 41 years, and Mercedes-Benz needed 47 years. Infiniti and Volvo still haven't gotten there.
The plan calls for global sales of Alfa Romeo to more than quadruple, and for sales of the Jeep and Chrysler brands to more than double. Jeep, which the plan shows growing from 732,000 sales last year to 1.9 million in 2018, accounts for nearly half of the volume increase that the company projects.
Financially, the company said global revenue would rise an average of 9 percent annually through 2018, to $183 billion.
If Fiat Chrysler achieves that goal in 2018, that would be more than Ford Motor or General Motors posted in 2013.
Because unit sales are projected to increase 10 percent annually on average, the plan calls for revenue per vehicle to decline by $1,275, to $26,243. The company plans to significantly boost sales in low-sticker, emerging markets such as China and India.
At the same time, efforts to save money by standardizing parts and using common vehicle platforms around the world will help increase profit margins, according to the company's forecasts.
Margins are projected to rise from 4.1 percent last year to about 7 percent in 2018. Margins are defined as earnings before interest income and taxes as a percentage of revenues.
That margin increase would triple the company's earnings before interest and taxes to about 9 billion euros, or about $12.53 billion at current exchange rates.
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