Fiat Chrysler Q3 adjusted earnings rise 29 percent, recall costs weigh
DETROIT -- Fiat Chrysler Automobiles today reported adjusted earnings before interest and taxes of 1.5 billion euros ($1.63 billion) for the third quarter, up 29 percent, on flat revenues and despite some headwinds in North America, its largest market.
The company said its net income improved to $659 million this year after a surprise loss during a same quarter a year ago that was the result of a $667 million charge for regulatory and recall costs.
Sales were largely flat in the quarter at $29.1 billion.
The world’s seventh-largest automaker -- and the only major automaker with more outstanding debt than cash -- saw what its leaders said was a “seasonal” increase in its net debt position in the quarter to $7.07 billion. But both CFO Richard Palmer and CEO Sergio Marchionne predicted net debt would fall below $6.5 billion by year’s end on plans to use $1.63 billion in cash to pay down outstanding debt by the end of the year.
FCA said its overall profit margin had grown to 5.6 percent, while its North American profit margin rose to 7.6 percent, both of which still lag behind its two competitors in Detroit.
In extended comments to analysts, Palmer and Marchionne said the company’s sales in Canada were being hurt by the falling Canadian dollar, while the same currency devaluation was helping make its operations there more competitive. FCA said its Canadian market share has plummeted to 12.6 percent from 15 percent a year ago.
“The alarming situation is Canada,” Marchionne said. “We were market leader up to the first half, in terms of share. But we’re not out to chase volumes just to get numbers into the fold here.”
Marchionne said FCA’s now-ratified four-year labor agreement with Unifor, the union representing FCA’s hourly workers in Canada, was constrained by the bargaining pattern set by General Motors. However, he said that FCA’s operations there were “competitive,” despite higher labor costs, because of the falling Canadian dollar.
In terms of products and the company’s ongoing changeover of its North American manufacturing capacity, Marchionne said that:
- FCA’s pickup truck plants in Warren, Mich., and Saltillo, Mexico were running “flat out,” and that the lack of additional truck capacity had kept FCA for more aggressively pursuing profitable commercial fleet sales.
- The new Giorgio rear-wheel and all-wheel-drive platform which underpins the Alfa Romeo Giulia sedan and the coming Stelvio crossover was proving even more adaptable than anticipated. Marchionne said the platform would be spread to other brands and “may spill over into Jeep.” The Giulia is expected to go on sale in North America by the end of the year, while the Stelvio will be shown at the Los Angeles Auto Show next month, Marchionne said.
- He had nothing to announce on replacing the Dodge Dart and Chrysler 200 in FCA’s product lineup with cars from other manufacturers “because we haven’t finalized anything.” He warned that consumer shifts away from passenger cars is “structural,” and that FCA dealers would have something to sell in those segments. “It’s a matter of time. We will find somebody.”
- Technologies enabling further electrification are available from suppliers, and that FCA would adopt them as necessary, and reminded analysts that FCA had “the only minivan in the marketplace (Pacifica) that is fully hybrid.”
- The changeover of FCA’s North American manufacturing footprint is continuing, and won't be completed until 2018. However, he said, once completed, the switch from passenger cars to pickups and utility vehicles would result in “double digit” margins.
- "Best-in-class margins” from North America “remains a key objective,” he said. Third-quarter profit in North America rose to 7.6 percent of sales from a margin of 6.7 percent a year ago.
Asked about growing pickup incentives, Marchionne said FCA’s forays since August have been targeted as specific segments of existing dealer pickup inventories, and that FCA needed “to sharpen the focus of the intervention.”
Marchionne also said that there would be no sale of the company’s components subsidiaries, Comau or Magnetti Morelli, in the fourth quarter, but declined to comment on whether such a sale could occur after that.
Bloomberg and Reuters contributed to this report.
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