It wasn’t an easy quarter for FCA. As the global economic uncertainty rises, the big challenges the car industry had some months ago are becoming a real threat to growth. FCA is not in a good position to deal with the changes that are likely to affect its financial results during the third quarter.
It will be the first fully quarter under Mike Manley as CEO. He didn’t have a good start after the unexpected dead of Sergio Marchionne and the bad results of the second quarter. With the recent events in Europe, North America and China, it seems that the bad times will continue for Manley.
The group results will be published on Tuesday but this is a quick forecast of the main numbers:
1. Sales: global sales are expected to post a tiny growth to something between 1,13 and 1,135 million units, or up by 0,8% compared to the same quarter last year. The positive result is driven by two regions, NAFTA and LATAM, where the latest products launched and stable economic situation boosted the numbers. In contrast, the group is expected to show a decline in EMEA, following the lack of fresh products, and a strong fall in APAC, due to the big drop of Jeep in China.
2. Revenue: the increasing sales and more favorable vehicle mix are likely to increase total revenues to something between 26,6 and 26,8 billion euros. The company sold more expensive vehicles like the Ram Pickup, Jeep Wrangler and Compass. Nevertheless, the result is likely to be hit by lower Maserati and Alfa Romeo deliveries.
3. Adjusted EBIT: it is expected to fall by 12%-14% to around 1.500 million euros. The estimation is based on higher volumes and better mix in NAFTA, LATAM, offset by higher costs of Jeep and Ram new product launches. Their improvement won’t be enough to offset the lower volumes/mix in EMEA and APAC, accelerated by higher incentives in EMEA. Maserati will also continue to be one of the biggest drivers of the drop. The margin will fall from 6,7% in Q3-17 to 5,6% in Q3-18.
Despite the big drop in profits, the sale of Magneti Marelli is due to have a positive effect on the liquidity. The company might be considering paying dividends but nothing is granted especially now that the company is facing very difficult times. As long as there isn’t a better situation in China and more clear plans for Europe, the company will continue to see deteriorating financial results.
Why do I keep investing in FCA? even if Jeep and Ram continue to gain traction, that is not enough to improve the global position of the group. It has wasted valuable time in Europe and China, just when their car markets recorded strong growth rates. Meanwhile, the relaunch of Alfa Romeo and Maserati has proven to be more difficult than expected, and Fiat doesn’t have a clear plan for the coming years. Based on this, it seems that the only remaining alternative to Manley is to sell the company. And hopefully, it will be a good deal for the investors.