Will FCA's dividend shortchange needed investments?

Next year Fiat Chrysler Automobiles will earn 6 billion euros ($6.8 billion) from its sale of supplier Magneti Marelli to U.S. investor KKR & Co.

FCA has said it will use part of the sum to pay shareholders a one-time dividend of 2 billion euros ($2.3 billion). It also plans to pay a regular dividend of 20 percent of its net profit — the first such dividend since the company was created in 2014. So if the net profit reaches the company target of 5 billion euros ($5.7 billion) this year, the regular dividend will be 1 billion euros ($1.1 billion). That would bring the 2019 total payout to 3 billion euros ($3.4 billion).

The big payout comes at a crossroads in the life of FCA. With the late CEO Sergio Marchionne at the helm, the company reduced net debt to zero, thanks to cost cuts, the recovery of the U.S. market and the strong growth of the Jeep and Ram brands.

However, cost cutting has come in part at the expense of investments in new products and technologies.

Those cuts have hit FCA brands Fiat, Chrysler and Dodge the hardest. In Europe, for example, Fiat launched only five of eight planned new models in the 2014-18 business plan. A replacement of the Punto small car and a compact crossover have been canceled, and the new Panda minicar has been postponed until at least 2020.

In the United States, Chrysler and Dodge suffered from the market’s shift from sedans. Production of the Chrysler 200 and Dodge Dart was terminated; the Chrysler 100 and its Dodge sibling were canceled from plans. Also canceled were two Chrysler crossovers.

Delays and cancellations also affected Alfa Romeo and Maserati. Alfa so far has launched only two models out of the eight included in the 2014-18 business plan. For Maserati, three nameplates out of six are missing.

For both brands, some models have been shifted to the 2018-22 plan.

Fiat unions expect the company soon to commit to producing new models in Italy to fill underutilized plants and lift profit margins in Europe

The plans under consideration include Jeep Compass production at Fiat's Melfi plant in southern Italy, which already produces the Jeep Renegade, to replace the discontinued Fiat Punto. The Pomigliano factory near Naples will get the new "baby" Jeep, smaller than the Renegade.

The Mirafiori plant in Fiat's hometown of Turin may be chosen to assemble the new electric Fiat 500 and a Fiat 500 Giardiniera wagon, union sources told Reuters.

A new SUV is planned for Alfa Romeo, bigger than the Stelvio and based on the Maserati Levante. It could be built in Mirafori on the Levante line. Maserati's sporty Alfieri model will likely be made in the brand's hometown of Modena, the sources said.

Too little, too late?

But the new vehicles could be too few and too late for the Fiat, Alfa Romeo and Maserati brands, whose sales and profits have been badly hit by a lack of fresh products.

FCA also trails competitors in new technologies and electrification. The company sells the battery electric Fiat 500 in California but still has only one hybrid model in the range — the Chrysler Pacifica plug-in hybrid, sold just in North America. Mild-hybrid versions of the Ram 1500 pickup have been launched this year, but no other electrified vehicle is coming to the market before 2020.

The 2018-22 plan envisions “over 30 nameplates to utilize one or more EV systems by 2022.”

Despite the need to catch up, just as other rivals are stepping on the gas, FCA has slammed on the brakes. Capital expenditures were cut to 4.2 billion euros ($4.8 billion) in the first nine months of 2018 from 6.5 billion ($7.4 billion) in the same period of 2017.

Finance chief Richard Palmer said FCA “has had some timing changes in the program, but in Q4 we’ll be back to a sort of a normal run rate going into 2019.” CEO Mike Manley tried to reassure analysts, saying that the more than 9 billion euros ($10.3 billion) of investments in electrification included in the 2018-22 plan “are nonnegotiable.”

Some analysts are convinced that FCA needs to keep most of the Marelli money in its coffers.

“What’s the rush to push that kind of cash out? There’s a lot of uncertainty on the cycle and on investment,” John Murphy of Bank of America Merrill Lynch said during the conference call to discuss FCA’s third-quarter financial results. Palmer and Manley made it clear that shareholders expected to get value from Magneti Marelli in case of a spinoff, and they are getting value from the dividend.

Is the commitment to remunerate shareholders a sign that FCA executives are more interested in cash now than a solid company in the future? Does it mean FCA will be sold — in pieces or as a whole?

To a question from a financial analyst about possible mergers, Manley said that once the Magneti Marelli sale closes, FCA “is in a much stronger position than it has been in the past. Our aim is to complete our five-year plan and deliver our commitments as an independent carmaker.”

After many years during which Marchionne tried unsuccessfully to find a partner for FCA, the automaker might now have chosen the opposite strategy: downplay the need to find a partner in order to finally find one.