Marchionne cannot deliver 6m sales with EU slump

Sergio Marchionne’s plans to propel car sales at Fiat SpA and Chrysler Group LLC to the 6 million mark he says is needed to guarantee survival may take longer to realize than the chief executive officer has predicted.

Sales will total about 4.9 million autos in 2014, 1 million less than Marchionne’s target for the year, based on the average estimate of 10 analysts surveyed by Bloomberg News, none of whom expects him to attain the goal as a slowing European economy crimps demand.

The CEO plans to combine Turin-based Fiat with the No 3 US carmaker before the end of 2014 to attain what he says is the “critical mass” required to secure long-term viability, with a forecast for €104 billion ($136 billion) in annual revenue then. The analysts forecast he’ll miss that goal by almost 16 billion euros, and that earnings will also fall short.

“Marchionne’s ambition for 2014 is unrealistic without an acquisition, which Fiat can’t afford as it completes the Chrysler deal,” said Hans-Peter Wodniok at Fairesearch GmbH in Kronberg, Germany, ranked No 1 by Bloomberg among analysts who cover Fiat based on the stock’s one-year return.

The Italian company, which owns 53.5 per cent of Chrysler, is seeking to be one of the five or six global carmakers that Marchionne predicts will remain in coming years, according to a presentation on December 9 that ended on the Bruce Springsteen lyric: “Halfway to heaven and just a mile out of hell.”

Fiat-Chrysler together ranked as the world’s seventh- largest automaker in 2010, the last year for which annual figures are available, with 3.6 million sales, putting them just ahead of Peugeot SA, Honda Motor Co and Saic Motor Corp of China, according to data compiled by Bloomberg.

Four groups - Toyota Motor Corp, General Motors Co, Volkswagen AG and the Renault SA-Nissan Motor Co alliance - had sales in excess of 6 million cars, while Hyundai Motor Co and Ford Motor Co were within 500,000 of that figure.

Fiat’s 6 million sales goal “seems more a slogan than a real target,” said Giuseppe Berta, economic history professor at Milan’s Bocconi University. “The only chance to get there in 2014 is by combining Fiat and Chrysler with a player in Asia, a region where the group is extremely weak.”

While Renault has succeeded in its alliance with Nissan, European carmakers generally have not done well when linking with Asian automakers. A planned VW partnership with Suzuki Motor Corp unraveled this year, with both sides accusing the other of not adhering to the deal. Daimler AG, then DaimlerChrysler AG, abandoned a five-year partnership with Mitsubishi Motors Corp in 2005, after the Japanese carmaker’s losses rose following a series of recalls.

Fiat is pinning its 2014 goals on expansion in faster- growing markets and isn’t planning any acquisitions to meet its target, said a person familiar with the company’s strategy who declined to be identified because it hasn’t been openly discussed. The automaker, which will begin offering its first car built in China with joint venture partner Guangzhou Automobile Group Co in the second half of this year, may also build a Jeep model at the plant too, the person said.

Fiat led a decline in European car sales in 2011, with deliveries through November falling 12 per cent to 886,178, reducing its market share to 7 per cent, European Automobile Manufacturers Association figures show. Analysts estimate that Fiat, which also owns Alfa Romeo and Ferrari, is losing €800 million a year in the region.

Marchionne said last month that the sovereign-debt crisis may prompt Fiat to revise its operating profit targets for 2012, though any new target should overlap with part of the existing range of €1.6bn to €2bn, excluding Chrysler. Fiat will present forecasts next month with its 2011 results. Marchionne expects Chrysler to post $3bn in operating profit in 2012.

Fiat will also struggle to reach longer-term targets and may limit investment amid a possible recession in Europe, said Stuart Pearson, an analyst at Morgan Stanley in London.

The carmaker “needs a new plan to raise competitiveness,” Pearson said in a Nov. 30 note to clients, cutting his forecast for 2014 operating profit to 5.2 per cent of sales, compared with a range of 7.2 per cent to 8 per cent given by Fiat in a four-year plan in 2010.

Jeff Schuster, senior vice president of global forecasting at LMC Automotive, said the group will sell 5.4 million vehicles in 2014, adding that a total of 5.9 million is seen only in the “outer years” of the consulting company’s predictions.

“Fiat went through a rebirth and now they’re treading water,” Schuster said. Chrysler, where eleven-month sales are up 25 per cent in the US, “actually is the part of the group that is doing better than the industry gave them credit for.” The American carmaker also owns the Dodge and Jeep brands.

Marchionne is struggling to boost the Fiat brand’s sales in North America, where its revival of the 500 subcompact in the market achieved 21,380 sales through October, less than half the 50,000 target. The model, the first Fiat has sold in the region since 1983, went on sale in the US in March.

“I just don’t see the Fiat products being the be-all and the end-all,” said Alan Baum, principal of Baum & Associates, a consulting company in West Bloomfield, Michigan. “The 500 is cute, it’s fun, but that doesn’t sell you volume.”

Still, Marchionne reiterated the overall 2014 targets on Dec. 14 at a presentation of the new Panda subcompact near Naples, adding that the group will sell about 4.6 million vehicles in 2012, with Fiat sales “flat” at around 2.2 million cars and Chrysler’s deliveries increasing to 2.4 million from a forecast of 2 million for 2011.

The CEO hasn’t excluded the addition of another partner and said in September at the Frankfurt Motor Show that “you need to create big car groups,” adding that there is “no imminent” plan for another tie-up.

Marchionne said in April that Fiat will have to “fight for China,” where it is “showing up in the last quarter of the game,” while adding there’s still room to grow.

Already the market leader in Brazil, Fiat plans to sell 300,000 cars in China and 130,000 in India by 2014, and is also developing a new plan for investment in Russia, after OAO Sollers last year backed out of a €2.3bn deal with the Italian carmaker to partner with Ford instead.

Emanuele Oggioni, a fund manager at Saint George Capital Management in Lugano, Switzerland, said it’s too tough to accurately forecast Fiat’s performance in 2014 given that “visibility is really low.” Marchionne has been decisive in his response to the economic slowdown so far, he added.

The CEO signed a more flexible labor contract for Fiat’s Italian workers as it attempts to increase productivity and cut costs. Fiat at the end of last year also shut down an Italian plant, the first European automaker to close a production plant in its home country since the 2008 financial crisis.

“Marchionne has proven to be very strong and to act quickly during crisis,” Oggioni said.