By Kevin Smith
We couldn’t help but draw comparisons between two big industry events staged this week; the NFL Draft and FIAT/Chrysler’s highly anticipated presentation of their global business plan to analysts.
In both cases, we saw prospects polished up and presented to the media with high hopes and lots riding on their futures. There were bold proclamations, swagger and hype, and no shortage of criticism leveled from expert analysts.
Just 5 years ago, FIAT stepped in to clean up the mess left by Daimler and later Cerberus Capital. And now, with an IPO coming soon, we will see the companies come together as FCA (Fiat Chrysler Automotive) and enter the global car league with a unified front. Chrysler is setting the stage for that moment and their analyst presentation this week was a seminal event to build momentum toward the public offering on the NYSE in October.
Looking back over the past few years, Sergio and the Turin crew have done an admirable job to create a new culture and operational turnaround. The true believers in Auburn Hills, echoing the line in the Chrysler 200 Super Bowl spot, have truly “been to hell and back”. Still, this comeback has mostly been led by highly profitable Ram pick-ups (U.S. market share rise to 21.7 percent) and the Jeep brand (solid Grand Cherokee launch, Cherokee late but gaining good traction). Make no mistake, it’s still easier to score with trucks and SUV’s; passenger car success and FIAT’s struggles remain ever-present challenges in Auburn Hills. What’s more, platform and manufacturing integration, keys to creating more efficiency, still trail industry leaders significantly and the company has little participation in the booming expansion in China and a home EU market that remains in comeback mode. In sum, they are due a tip of the hat, but there’s still a lot of work to do before end zone celebrations commence.
So it took many by surprise when Chrysler campaigned this week that they would soon be nipping at the heels of industry leaders like Ford and Toyota in the next few years. And there’s a lot to like here. The brand portfolio, long an overlapping mash-up fueled by badge engineering dating back to the ‘60’s, is finally getting sorted out with some solid thinking. Chrysler will play “down” as the volume car/crossover brand with new products and as the sole bearer of the minivan flag. Ram does trucks. Jeep meantime will step on the gas with an eye to a million units and a bigger global footprint while Dodge will go niche as a focused performance brand. On the luxury front, Alfa Romeo will fight tier one premium players like BMW and Audi, with eyes on big volume, while Maserati and Ferrari play the halo role. All good. And overdue. And hey, not a bad little brand portfolio they’ve assembled here. Where it starts to get a little loose are the shock and awe volumes and profits and the pace of investment and growth between now and 2018.
• It expects overall sales to jump to 7 million worldwide from 4.4 million last year.
• Grow profits of $7 billion a year by 2018.
• Grow North American sales to 3.1 million up from 2.1 million in 2013
• Chrysler brand sales increase from 350,000 in 2013 to 800,000 in 2018
• Spend nearly $10 billion on its luxury brands
• Doubling Jeep production by 2018 to 1.9 million vehicles as it plans to build its iconic SUV in six countries, up from just the United States.
• Worldwide revenues to jump from 86 billion euros ($121 billion) to 132 billion euros ($184 billion) with 9 percent annual growth.
• Expanding Jeep production from four United States plants to 10 plants in six countries by 2018.
• Will build 900,000 Jeeps annually outside North America
Nobody likes perseverance, a comeback story and calling a shot like Americans. Joe Namath cemented his reputation that way. Tom Brady was passed over in the draft, played with a chip on his shoulder and went on to be an all-world QB. Even Rudy persevered and finally saw the field at Notre Dame.
But Wall Street analysts are a different bunch. They like numbers. They like them justified. And they like consensus. They look at things like the external factors environment, the capital required for R&D, platform alignment, commonality and brand equity. To them, it’s less about a moving PowerPoint presentation, Super Bowl spots and untapped brand DNA and more about how you deliver the numbers. So here’s the rub.
The Chrysler business plan looks good in a war room at Chrysler HQ. But like a football draft war room with tons of film clips, you don’t get a sense of how a recruit will do until the pads go on and the scrimmage goes live against the seasoned vets. Chrysler is just figuring out the global car game against a lot of blue chippers with big time reps. Toyota, VW, Ford and GM have been there and done that. They too have been building plans and there won’t be any red jerseys when that rookie drops back and steps into the pocket.
We think the new FCA will be more than all right over the next five years. Indeed, many analysts laughed at the projections of Chrysler’s last five year plan and Chrysler actually hit many of those targets; but we don’t see the sweeping growth laid out in the business plan. Jeep has big global volume and profit upside for sure. And Ram has shown the ability to punch above its weight (although it won’t be refreshed for a while now). Alfa has loads of untapped potential but the bar is high and moving higher fast in the global luxury game. However, it remains to be seen how core volume FIAT brand will fare longer term not to mention a trailing environmental playbook for the corporation.
With a 12% stock decline after the investor meeting it’s clear that analysts aren’t buying into the numbers. One analyst pointed out that the company is seeking a 56% increase in an industry expected to grow 15-16% over the same period. Still, we like the moxie of the crew in Turin and Auburn Hills. If Chrysler can deliver half of what they’re calling for in the business plan it will be a stronger concern for years to come; in other words, FCA could be a nice pick-up in the draft at the right price. As always, for footballers and brands, it’s less about what you say, and more about what you do on the field that counts.