It was a quite challenging year for the global car industry and its players. The trade tensions among the biggest economies, the political changes occurring in key markets, and the new threats to the status quo, had a big effect on the position of many carmakers. The world is now heading to an unknown scenario where multilateralism is set to become a souvenir. Last year could be considered as the beginning of a new era for the automotive industry, and Fiat Chrysler was not ready.
In addition to this, FCA also had to deal with an abrupt change of leadership after Sergio Marchionne, a mad who led the company for 14 years, passed away. The transformation of Fiat into one of the world’s biggest automakers was the biggest contribution of Mr. Marchionne. FCA meant Marchionne and Marchionne meant FCA. This is why his death represented a big challenge to the group.
Last year the company shipped 4.84 million vehicles all over the world. The official results presented in early February 2019 indicate that the volume increased by 2% compared to the previous year. Both revenue and profits also posted increases confirming that the financial results are still under control. Even if the EBIT margin fell by 0.1 percentage point to 6.3%, FCA continues to improve its position.
Nevertheless, the structural problems of the group continue and show no sign of improvement at all. This is the case of its global sales and the increasing gap between NAFTA and the rest of regions. The data collected in 70 countries indicate that sales remained stable at 4.65 million units, or 2,000 units more than in 2017. This is certainly not a good thing considering that the world’s biggest automakers posted increases becoming even bigger despite the difficulties they encountered. In other words, FCA continues to walk and its competitors run.
The issue with the volume sales wouldn’t be a problem if it wasn’t because of the way it is distributed. The company keeps depending more on its North American operations with a diminishing contribution of the Asian markets. Although there have been several announcements concerning the improvement of FCA’s position in China and India, the reality is quite different from the objectives. These markets along with the lack of consistency of the Alfa Romeo and Maserati plans explain why the company did not meet the target of 7 million units in 2018.
NAFTA represented 55% of the group’s total sales in 2018. It was also the main source of the revenue, counting for 63% of total. This is partially good because the strong demand in USA and Canada is boosting the operations of Jeep and Ram, which became the main drivers of growth in FCA. But at the same time it is worrying to see how the group relies on one market that is not growing anymore. As the US vehicle market peaks, the focus is likely to change in the coming years: any growth will be driven by alternative fueled vehicles.
If the US market stops growing then FCA won’t have the energy enough to fuel its expansion plans; also because it is also the main source of profits: the margin there was almost 5 times higher than in Europe, the second largest region by volume. In the meantime, the Chinese operations get worse and India needs more products. Asia counted for only 4.7% of global sales. Even if The drop posted by EMEA region (-5.8%) was absorbed by the increase in NAFTA (+5.0%), it was not the case for LATAM and APAC, where the increase of the former (+10.2%) was offset by the big drop in the latter (-29.1%).
In terms of the brands performance (I’ll be writing some pieces in the coming weeks), it is more clear than ever than Jeep is the cornerstone of the group. As expected, it was the first time since the creation of Fiat Chrysler Automobiles that Jeep outsold Fiat (cars and LCV), becoming its top selling and most important brand. In 2018 one in three of the vehicles sold by FCA was a Jeep. Of course the key position of this brand is the result of the good results it posted last year, with its global sales up by 11% to 1.56 million units. Despite the good result, the total is quite far from the 1.9 million units target set some years ago. The reason? China.
It was not the only brand to drive growth. Sales of Ram trucks and LCVs totaled 724,000 units, up 4% or 30,000 more vehicles than in 2017. This brand is gaining more importance as it becomes not only more popular in USA, where 82% of its sales take place, but also abroad. Ram is now being used as the commercial brand for the small and midsize LCVs and pickups of Fiat in Latin America and some Middle East markets. Jeep and Ram sales combined counted for half of FCA global sales.
In contrast to these two brands, Fiat is facing very difficult times. In addition to the problems in Europe and the tougher emissions targets, the brand has to deal with a very aged range, lack of interest in USA and with the fact that FCA finally pulled the plug on Fiat’s presence in India and China. The situation is so bad that it is even losing ground in Brazil, one of the last markets where driving a Fiat is still a cool thing. Global sales of Fiat and Fiat Professional fell by 8% last year to 1.4 million units.
The rest of brands posted mixed results. Dodge and Chrysler continued to lose traction due to their aged and small ranges, respectively (the last time Dodge presented an all-new model was in 2013; Chrysler range is currently composed by two models). Their sales fell by 4% and 13% respectively. Alfa Romeo was the other bright spot but at the same it disappointed because the good impact of the Stelvio were offset by the big drops recorded by the rest of products (Giulia included). Maserati tumbles with 36,400 units, or less than half of the target for 2018 (75,000).
A serious situation
FCA is fighting against time, but it is certainly losing the battle. Jeep and Ram are strong brands but they cannot do everything, and as long as the premium pole does not take off, the company will not grow anymore. The EBIT margin fell one percentage point in 2018 and this drop could accelerate if the group continues to lose market share in its key markets. Jeep should be growing faster and should have a bigger range of products. Fiat needs a repositioning and SUVs in its range. Electrification is a must but is taking longer than expected. The premium brands are burning cash as they wait for more products.
What to do? It is my belief that the company will be sold in the short term. There is no other way to inject money to all the brands without a new owner. The company improved its profits and liquidity in 2018 but as the products get old, it is going to be more expensive to regain the market share lost until now. Aged products lose ground, and lower sales affect the revenue, which at the same time reduces the profitability as the company must continue running its big plants.