Fiat Chrysler Q1 adjusted earnings rise 5% to $1.96 billion
Marchionne concerned about 'challenging' launch of 2019 Ram 1500 pickup
Editor's note: An earlier version of this story misstated FCA's market share drop in Europe. It fell from 7.1 percent down to 6.8 percent.
Fixing a "challenging" launch of the next-generation Ram 1500 pickup has cost Fiat Chrysler Automobiles $300 million and counting, but it didn't keep the automaker from posting a first-quarter record adjusted earnings of 1.61 billion euros ($1.96 billion) while cutting its debt in the quarter by $1.6 billion.
The company on Thursday said its earnings before interest and taxes (EBIT) in the North American Free Trade Agreement market fell 2 percent to 1.22 billion euros, despite vehicle shipments increasing 6 percent to 646,000. FCA said the EBIT decrease was due to the costs of launching new products and negative foreign exchange effects.
FCA said its EBIT in its Europe, Middle East and Africa region rose 2 percent to 182 million euros despite its market share falling to 6.8 percent from 7.1 percent a year ago, according to ACEA. The slight increase in EBIT was due to lower industrial costs and positive foreign exchange effects.
The automaker's Latin America operations swung to a 74 million euro profit as new models such as the Fiat Argo and Cronos helped shipments jump 31 percent to 132,000.
FCA's Maserati unit posted a 20 percent fall in EBIT to 86 million euros as vehicle shipments plunged 21 percent on lower sales of the Levante crossover.
The company's components units -- Magneti Marelli, Comau and Teksid -- posted flat EBIT at 118 million euros.
FCA also said net debt fell to 1.3 billion euros ($1.6 billion) from 2.39 billion euros by the end of March. This put the group on course to become cash positive by the end of this year.
Despite record results, CEO Sergio Marchionne said the company has been struggling this year with a "challenging" launch of the redesigned 2019 Ram 1500 pickup. Marchionne said the pickup, which is being manufactured at the retooled Sterling Heights Assembly Plant north of Detroit, is "probably running today at 60 percent of cycle. That's not where we need to be. We allowed enough time in 2017 to get that installation up, but it's proven to be challenging."
Marchionne said the problematic launch has resulted in at least $300 million in additional costs because of a global response by FCA to try to correct the issues, which he did not identify.
"The important thing to remember is that these are temporary costs," Marchionne said. The CEO later said production of the previous-generation Ram 1500 would continue at the nearby Warren Truck Assembly Plant at least through 2018 and could stretch into 2019, which may require a modification to the older Ram 1500 to comply with new regulations.
"We're watching the market very carefully," Marchionne said. "We've preserved the ability to sell [the previous-generation Ram 1500] well into 2019. One of the benefits of having the old truck is, it allows us to play in a portion of the market that is price sensitive, which we were unable to do before."
However, Marchionne cautioned, the plan for the older-generation Ram could change.
"We've never done this, so I think we're learning in the process. We need a much better gauge to determine if it can stay in the market well into 2019."
Other key topics
In other comments, Marchionne said:
• The next-generation Jeep Grand Cherokee will now arrive in 2020, when it will be redesigned onto a platform it will share with Alfa Romeo. "The depth of knowledge we've had in developing Alfa has weaved itself into the development of the Grand Cherokee. We extract the highest level of utilization from these investments."
• The Wrangler-based pickup should go into production late in 2018 and be available in dealerships in early 2019. He said that, along with production increases gained from moving the redesigned Wrangler onto a different line in FCA's Toledo Assembly complex, Jeep could see an additional 100,000 units annually from the combination of the Wrangler and Wrangler-based pickup at full-speed production.
• The 2017 launch of the Maserati Levante was "very poor execution. I think we sucked at the launch of the Levante." Maserati's global sales were down about 20 percent from the first quarter of 2017. In February, the company replaced Reid Bigland with Tim Kuniskis as global head of Alfa Romeo and Maserati.
• FCA had begun moves to reposition Jeep in China, a key portion of its global volume goals. "We overestimated the value of the American DNA of Jeep onto the Chinese market," Marchionne said. The brand launched a new three-row vehicle in the market this week, the Jeep Grand Commander, known internally as the K8. "The K8 is the first embodiment of the portfolio for the Chinese market. I think that will be the litmus test in terms of our position in China."
• Europe remains "an incredibly complex jigsaw puzzle" for FCA, especially given difficult carbon dioxide regulations. He said the penalties for missing the pollution targets "should be avoided like the black plague." He also said FCA's management team has devoted countless hours to developing a coherent strategy going forward for its Europe, Middle East and Africa region, which would be revealed at a planned investor day June 1. "If you look at the return on invested time and the effort that is required to make EMEA reasonably profitable, one would have to wonder why one is doing it."
• He has no intention of remaining CEO beyond his planned retirement at the end of this year. "I think the likelihood of me staying around beyond what we've announced is between zero and nothing." He said his planned successor, whose identity is to be revealed this year, will take over in a good starting point with a seasoned team in place to assist. "The house is knee-deep in talent. We just need to give them space."
• FCA should be able to best both Ford Motor Co. and General Motors in terms of margin, either this year under his watch or next year under his successor. "If it doesn’t happen on my watch, I have no doubt my successor will be able to whack the crap out of both of them."
• Despite facing "challenging" problems in the launch of the next-generation Ram, he'll leave sleeping on the factory floor to younger men such as Tesla boss Elon Musk. "I'm too old for that crap."
FCA shares were essentially unchanged on Thursday, rising 2 cents to close at $23.50 in New York.
Reuters and Automotive News Europe contributed to this report
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