Fiat Chrysler's new five-year plan: Sales target of 7 million units by 2018
Investments to expand Maserati, Alfa Romeo and Jeep brands
Fiat: acquires 100% ownership of Chrysler On January 29, 2014, Fiat completed its acquisition (100% stake) of Chrysler, making the U.S. automaker its wholly-owned subsidiary. The newly merged company, Fiat Chrysler Automobiles N.V. (FCA), will be registered in the Netherlands and will have its tax domicile in the U.K. Fiat S. p. A. (in Italy) and Chrysler Group LLC (in the U.S.) will continue to exist as legal entities while FCA will serve as their parent company. Although the location of the FCA headquarters has not been officially announced, it has been widely reported that it will be located in London with a small office focused on finance to be set up.
New five-year plan Fiat and Chrysler operated in accordance with the 2009-2013 five-year plan; however, since the companies have been fully merged now, a new five-year plan has been formulated from a new perspective. On May 6 and 7, 2014, FCA held an explanatory meeting, in which institutional investors, etc. were invited. In the meeting, the company unveiled its five-year plan, covering the years from 2014 to 2018. The following are some highlights. -Unit sales target: 7 million vehicles FCA aims to sell 7 million vehicles a year by 2018 increasing from 4.4 million in 2013. As for the sales by brand, the company plans to expand the sales of its premium brands, Maserati and Alfa Romeo, and to establish a global production and sales network for Jeep. -Sales by region： expandｓ sales in China and North America As for the sales by region, the company expects its sales in the Asia Pacific region to grow over fivefold from 200,000 units in 2013 to 1.1 million units in 2018. A large portion of the sales will be generated by the Jeep business of its joint venture in China. The company also aims to boost its North American sales by 50%.
-Financial target: net income of EUR 5 billion in 2018 FCA set its 2018 financial targets as follows: EUR 132 billion in revenue (actual revenue in 2013 was EUR 86.8 billion) and EUR 5 billion in net income (actual net income in 2013 was EUR 1.95 billion; net income excluding extraordinary factors was EUR 900 million). The company will invest EUR 48 billion over the next five years in new model development and plants.
Stock market evaluation: company's stock price falls more than 10% on skepticism of plan Many of the institutional investors and analysts view the new five-year plan negatively. They believe that the plan is pretty ambitious but risky and not feasible. The company's stock price fell more than 10% after the meeting. Marchionne, Fiat Chrysler's CEO, commented that even if the company misses the target, it will be considered a success if progress is made in a large part of its business expansion plan. The company has a proven record of growing its sales from 1.3 billion units in 2009 to 2.4 million units (wholesale volume: 2.6 million units) in 2013. The result was close to the 2.6 million unit target of the previous five-year plan, though some of its individual brands and projects did not make the expected progress.
Sales target by brand
|2013 (in millions of units)||2018 (in millions of units)||CAGR (Annual Growth)||2018/2013 comparison|
|Ram/Fiat Commercial Vehicles||0.9||1.2||~6％||133%|
Big investments in Maserati and Alfa Romeo
|To expand the segment coverage of high-class luxury market from 50% to 100%||The global market size of the high-class luxury market that Maserati belongs is 1 million units. The Masarati brand is currently able to cover only 50% of the market with its four models that are available as of 2013. Maserai will enter the luxury SUV segment as well, and aims to achieve the 100% segment coverage with its six models.|
|Sales target: 75,000 units in 2018; Sales expansion possible but achievement of the target is doubtful.||The company aims to expand its sales to 75,000 units in 2018 from 15,000 units in 2013. The luxury Levante SUV will be developed to double the market coverage, and will be introduced in 2015. It will take some time to establish a global sales network and entrench the brand in the global market.|
|To invest EUR 2 billion||The amount of investment in Maserati is announced to be EUR 2 billion.|
(Note) Ferrari sticks to its policy to cap its production to 7,000 units per year to preserve the brand's uniqueness and exclusivity.
Maserati model plan
|Luxury Full-size Sedan||Ghibli||→||→||→||→|
|Luxury Large-size Sedan||Quatto Porte||→||→||→||→|
|Luxury Sport Coupe & Spider||Alfieri Coupe||→||→|
|Granturismo||→||→||→||To be fully redesigned|
|To launch eight new models as key brand; Amount of investment: EUR 5 billion||Another key brand in FCA's luxury car strategy is Alfa Romeo. Alfa Romeo will introduce eight new models into the market by 2018. The amount of investment in the new model development and plants is announced to be EUR 5 billion.|
|To redefine brand||The company will redefine the Alfa Romeo brand. It will also unify the drive system of Alpha Romeo into a new rear-wheel drive (RWD) or all-wheel drive (AWD) and narrow down its target segments to the C-segment or higher. It will discontinue the B-segment Mito from the three models that are currently being sold.|
|Sales target: 400,000 units; It will be difficult to achieve the sales target in 2018, as the full-scaled introduction of new models will not start until 2016.||The company plans to sell 400,000 units in 2018 from 73,000 units in 2013. The mid-size Giulia will be launched in late 2015 and the remaining seven models are scheduled to be launched between 2016 and 2018. To expand the business globally, launching new models is essential; therefore, it is expected that achieving its sales target of 400,000 units a year in 2018 will be extremely difficult.|
Alfa Romeo model plan
|Subcompact||Mito||→End in 4Q|
Jeep: to achieve 1.9 million unit sales through production in Europe, China, Brazil, and India
|Jeep is also a key brand; Sales target:1.9 million units||Jeep is an important brand that has the second highest annual growth rate of 22%, following FCA's luxury brands. The company expects that Jeep's annual sales will increase from 798,000 units in 2013 to 1.9 million by 2018, an increase of 1.1 million units.|
|Jeep model plan:
all-new Cherokee and Renegade
|Playing major roles in the five-year plan are the Cherokee D-segment SUV, which was launched in late 2013, and the B-segment SUV, the Renegade, which will be launched in late 2014. The addition of the E-segment SUV, Grand Wagoneer, to the lineup will take place in 2018; contribution to the sales by the end of 2018 is not likely to be expected.|
|to build Jeep in Europe, China and South America in addition to North America||The sales expansion of Jeep depends on the production and sales network to be established, avoiding tariff barriers through local production. The company was manufacturing five Jeep models at four plants in North America in 2013. But it will manufacture six models at 10 plants in six countries by 2018. Following the start of the Renegade production in Europe in late 2014, local production of Jeep models will be promoted in China, India and South America as well. With these local productions, the sales network for Jeep also needs to be established. Especially in the Asian regions, the number of Jeep dealers will be increased to 1,270 in 2018 from 396 in 2013.|
Differentiating Chrysler and Dodge brands
|Redefines Chrysler brand; to expand market coverage from 25% to 65%; to add three new models||There was a criticism that the difference between the Chrysler and Dodge brands was not clear from the customer's viewpoint. In the new five-year plan, Chrysler is positioned as a mainstream brand to complete with the Chevrolet, Ford and Toyota brands, and a lineup similar to its competitors will be in place. Specifically, Chrysler will expand its market coverage from 25% with three models in 2013 to 65% with six models by 2018, which will be done by newly adding three models.|
|Redefines the Dodge brand as the performance brand||The Dodge brand is clearly positioned as a performance car brand and absorbs the SRT (Street Racing Technology) that similarly appeals high performance. With this redefinition of brands, the SRT Viper will be changed to the Dodge Viper.|
|Risks associated with the avoidance of brand overlap between Chrysler and Dodge.||Ninety-two percent of the Chrysler group dealers sell both Chrysler and Dodge brands. They have a risk of not being able to encourage all the customers of Dodge's mass-market minivan, the Grand Caravan, to buy Chrysler's Town & Country. Similarly, they also have a risk of not being able to encourage all the customers of Dodge's mass-market mid-size sedan, the Avenger, to buy Chrysler brand's 200.|
|Sales target for 2018: Chrysler 800,000 units and Dodge 700,000 units||Dodge is the only brand with a decreased sales target. Its sales target will decrease from 800,000 units in 2013 to 700,000 units in 2018 since its mass-market models, the Grand Caravan and Avenger will be discontinued to avoid brand overlap. Accordingly, Chrysler is expected to double its sales from 400,000 units in 2013 to 800,000 units in 2018 by expanding its segment coverage in the market with its new products, in addition to absorbing Dodge's customers.|
Fiat and Lancia
|Fiat is emotional and also rational.||Fiat is positioned as the Zipper brand that has both emotional and rational sides. The emotional side is represented by its 500 series while the rational side is represented by the Panda and Punto.|
|Sales target for Fiat: 1.9 million units||The Fiat brand has an edge in the B-segment cars. It has been expanding business globally to South America, China, India, North America, etc. Sales for the Fiat brand is expected to grow to 1.9 million units in 2018 from 1.5 million in 2013. Fiat does not expect the growth to come from Europe. It estimates that its sales will be flat there. It spots the greatest growth potential in Asia Pacific and North America.|
|Lancia to have only one model, available for the Italian market only.||Lancia, which used to be a famous luxury car brand, will have only one B-segment car, the Ypsilon. It will be a brand for the Italian market only and is close to be discontinued.|
Sales target by region
By region, the largest growth is expected in North America, which is projected to grow by 1 million units from 2013 to 2018, followed by the Asia Pacific. Growth is also expected in Latin America and Europe, but not as much as in North America and Asia Pacific.
(in millions of unit)
(in millions of units)
Aiming at significant market share increase in North America
|To increase market share from 11.5% to 15.5%, up 4% in North America||While the demand in the North American market is anticipated to increase consistently at an annual rate of 1.4% over the next five years, FCA expects its sales to increase by an annual rate of 8%. The company also plans to increase its market share from 11.5% in 2013 to 15.5% by 2018. The plan, however, was severely criticized by analysts who argued that increasing FCA's market share as much as 4.0% in five years in the competitive North American market is impossible. FCA intends to increase its market share by expanding the sales of the Jeep, Ram and Chrysler brands.|
Sales in the North American region
(in thousands of units)
(in thousands of units)
Expanding sales in China and Asia Pacific
|To expand sales fivefold to 1.1 million units in Asia Pacific;
China as the core of its strategy
|FCA aims to expand its sales over fivefold from 200,000 units in 2013 to 1.1 million units in 2018. At the core of the plan is its China strategy which is designed to increase its China sales from 130,000 units in 2013 to 850,000 units in 2018.|
|Large-scaled investment in production; to increase locally-built models from two to eight||To achieve this goal, the company will increase the number of locally-built models and avoid the heavy tariff imposed on imported automobiles. The company was producing two Fiat-brand models in 2013. By adding the Jeep brand, it will increase the number of its local-production models to eight. To this end, the company will have three assembly plants and three transmission plants, and will raise its production capacity up to a 775,000 unit level in 2018.|
Investment in plants in China
(in thousand units)
|Number of production models||2||8|
|Local production models||Ottimo, Viaggio||Ottimo, Viaggio Crossroad,
500X, D Sedan,
Model plan for Chinese market
As for the China model plan, FCA will introduce 13 models into the Chinese market, including new models and facelifted models, by 2018. At the core of the introduction of new models is the Jeep brand. Although Jeep has so far been only importing and selling finished automobiles, the company will locally build a mid-size SUV, the Cherokee, in 2015 and the Renegade subcompact SUV as well as a new compact-class SUV in 2016.
FCA falls far behind in moving into the Chinese market compared with other major automakers. It is still possible for the company to reproduce the performance of Ford Motor Company which similarly fell behind in entering the market but continues to grow its business there at a rapid pace. However, as the local production and full-scale selling of new Jeep models will be in 2015 and beyond, the achievement of the sales target is likely to be delayed.
Model plan for China
|C||Ottimo||→||Add. Crossroad||→||Ottimo MC||→|
|E-UV||G. Cherokee||→||→||→||G. Cherokee||→|
Note) Models in bolded letters are produced in China. Fiat's Freemont is a rebadged version of Dodge's Journey.
Financial targets for 2018
FCA set the revenue target for 2018 at EUR 132 billion, a 52% increase from the EUR 86.8 billion in 2013. The company expects 50% of the revenue to come from North America, but it also plans to generate revenues in Asia Pacific, Latin American and European regions by expanding the sales of Jeep and Alfa Romeo.
The company aims to improve Earnings Before Interest and Tax (EBIT) from 4.1% in 2013 to 6.6 to 7.4％ through sales expansion and standardization of platforms and powertrains. It expects net income to increase from EUR 900 million in 2013 (EUR 0.1 per share) to EUR 4.7 to 5.5 billion (EUR 3.9 to 4.4 per share) in 2018.
This income target set by FCA raised questions for its feasibility among many people concerned.
|Revenues (in billions EUR)||86.8||132.0|
|EBIT (in billions EUR)||3.5||9.0|
|After Tax Profit (in billions EUR)||0.9||5|
|EPS (in EUR)||0.1||4|
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