FCA to achieve significant increase in profits for 2016 with high margin SUVs
Globalizing Jeep vehicles; producing more SUVs and pickups in North America
Five-year business plan for 2014-2018
In January 2016, the FCA Group updated its "Business Plan for 2014-2018" that it released in May 2014. As the plan has progressed faster than expected, the company raised its financial targets for 2018 in spite of the fact it spun-off Ferrari. FCA's financial results for 2016 are expected to improve with strong sales of Jeep brand SUVs and recovery in the European market. Its net revenues for 2016 are projected to increase by 1.3% year-over-year (y/y) to EUR 112 billion and adjusted earnings before interest and tax (EBIT) is expected to grow 21% to EUR 5.8 billion. However, its global unit sales are failing to climb due to a stagnant economy in Latin America and lower demand for passenger cars in North America. Most analysts for the automotive industry are of the opinion that it would be difficult for FCA to achieve its five-year plan sales volume target of seven million units for 2018.
Globalization of Jeep brand vehicles
One of the strategic initiatives outlined in the five-year business plan is to globalize Jeep brand vehicles. Jeep unit sales for the period January-September 2016 grew 11% y/y owing to increased production in North America and the start of local production in Brazil and China. FCA raised the Jeep volume target for 2018 to two million units.
Expansion of unit sales for the Alfa Romeo brand
FCA intends to expand unit sales of the Alfa Romeo brand vehicles as it launched the Giulia midsize sedan in 2016 and is expected to release its first SUV, the Stelvio, in 2017. Nevertheless, the brand's launches of the other models will be put off for about two years due to China's tough market conditions and reduced R&D investment.
Increasing production of SUVs and pickups at North American plants
In the North American market, demand for SUVs and pickups is growing with lower gasoline prices. FCA will end production of the Dodge Dart and Chrysler 200 passenger cars at its North American plants by the end of 2016, and manufacture more Jeep SUVs and Ram pickups to meet shifts in demand. The automaker is seeking a partner to build the passenger cars that will go out of production.
Collaboration with Google to develop self-driving cars
In May 2016, FCA and Google announced that they will collaborate to develop self-driving cars. They will integrate Google's self-driving system into the 2017 Chrysler Pacifica PHV minivan. The engineering teams from both companies will work together to design, test and manufacture the self-driving Pacifica.
Progress of FCA's 2014-2018 business plan
In January 2016, the FCA Group updated its "Business Plan for 2014-2018" that it released in May 2014. The company maintained the unit sales target for 2018 at seven million units, and revised financial targets upwards. Net revenues were increased from EUR 129 billion to EUR 136 billion, and adjusted EBIT from EUR 8.3-9.4 billion to EUR 8.7- 9.8 billion.
Outline and progress of FCA's 2014-2018 business plan (updated in January 2016)
|2018 targets and 2016 outlook
|2015 results||2016 outlook
(as of October 2016)
(as of January 2016)
(excluding Chinese JVs)
|－||7.0 million units
(including Chinese JVs)
|Net revenues||EUR 110.6 billion||EUR 112.0 billion||EUR 136.0 billion|
|Adjusted EBIT||EUR 4.8 billion||EUR 5.8 billion||EUR 8.7-9.8 billion|
|Adjusted net profit||EUR 1.7 billion||EUR 2.3 billion||EUR 4.7-5.5 billion|
|Net industrial cash(debt)||(EUR 5.0 billion)||(EUR 5.0 billion)||EUR 4.0-5.0 billion|
|Regional update||North America: Adjusted EBIT margin for 2015 rose to 6.4%, achieving the 2018 target (6-7%). Adjusted EBIT margin for January-September 2016 also increased.
Europe/others: The region recorded profitability in 2015 one year ahead of the schedule supported by strong sales of the Jeep vehicles and Fiat 500 family of vehicles.
Latin America: The region posted losses before interest and taxes for 2015, and the period January-September 2016 due to continued market slump in Brazil. Brazil will be used as an export hub.
Asia/Pacific: Demand for premium and imported vehicles is slowing down in China. Localization of Jeep production will improve FCA's competitiveness in the country.
|Jeep brand globalization||The 2018 sales volume target for Jeep brand vehicles was increased to two million units based on sales growth in all regions, increased production in North America, and expansion of production to Brazil and China. (Unit sales for 2015 totaled 1.3 million units. For the period January-September 2016, unit sales increased by 11% y/y.)|
|Alfa Romeo delays new vehicle launches||Alfa Romeo will delay new model launches except for the Giulia midsize sedan (launched in 2016) and the Stelvio midsize SUV (to be launched in 2017) due to uncertainties in China and reduced R&D and product investment. The automaker's planned product line-up, including other six models such as a full-size sedan and full-size SUV, will be completed by mid-2020, two years behind the initial plan.|
|Increased production of SUVs and pickups in North America||In North America, FCA will expand production capacities for RAM pickups and Jeep SUVs by the end of 2017 to meet increased demand for these vehicles. The company will accomplish this plan with existing plant infrastructure, without building new plants. Production of the Dodge Dart compact car and Chrysler 200 midsize sedan will end, and FCA will look into finding a partner to build these models.|
|GHG compliance plan||Each model will improve fuel efficiency through adoption of advanced powertrains, weight reduction, active aero systems to reduce drag, and advanced electronic systems. In addition, the following models will offer HV and PHV versions.
Chrysler Pacifica: The 2016 model offers FCA's first PHV version.
Jeep Wrangler: The model will be offered with a 48V mild hybrid system in 2018 and a full-hybrid system by around 2020.
Ram 1500: The next-generation model will be offered with a mild hybrid system.
Globalization of Jeep brand vehicles
One of the strategic initiatives in FCA's current five-year business plan is the globalization of Jeep brand vehicles. Since 2009, sales of all Jeep brand models have been growing in all regions. Annual unit sales increased from 338,000 units in 2009 to 1,238,000 units in 2015. The 2018 volume target was raised from 1.9 million units in the original plan to 2.0 million units.
FCA has been expanding production of Jeep brand vehicles to various regions. Production began in Europe in 2014 followed by Brazil and China in 2015. FCA will also start manufacturing Jeep vehicles in India in 2017. The 2018 Jeep volume target consists of 1.1 million units for North America, 200,000 units each for Europe and Latin America, and 500,000 units for Asia.
Jeep brand vehicles: unit sales and production plan by region
Jeep brand vehicles: sales growth by model (2009→2015)
|Growth rate||+144%||+284%||+371%||+162%||+288%||All-new model||Discontinued model|
Alfa Romeo Stelvio and new Jeep Wrangler SUVs to be launched in 2017
Alfa Romeo Stelvio, the brand's first SUV (Photo: FCA)
FCA is launching suitable models from various brands into each segment and region to achieve global volume growth. In 2015, the Alfa Romeo Giulia midsize luxury sedan and new Chrysler Pacifica minivan boosted the automaker's sales. The Maserati Levante attracted attention as the premium Maserati brand's first SUV.
In 2017, FCA plans to release the Alfa Romeo Stelvio, the brand's first SUV, and the new Jeep Wrangler compact SUV. A pickup truck based on the Wrangler is expected to be launched in 2018.
New models launched by FCA (2015- 2016)
|2015||Jeep Renegade||Jeep's first subcompact SUV. It was released in Europe in October 2014, followed by North America, China, and Brazil in 2015. The vehicle is manufactured at the Melfi plant in Italy as well as in China and Brazil.|
|Fiat 500X||A subcompact SUV and sibling of the Jeep Renegade. It was released in Europe and North America in February and June 2015, respectively. The vehicle is manufactured at the Melfi plant in Italy.|
|Ram ProMaster City||A FWD compact commercial van/wagon based on the Fiat Doblo. It was launched in North America in January 2015, and is produced at the Bursa plant in Turkey.|
|Fiat Tipo/Eage||A new compact sedan dubbed the Eage in Turkey. The sedan was designed by FCA's style center in Italy and developed by Tofas (a joint venture between FCA and Koc, a local company) in Turkey. It is manufactured at Tofas's Bursa plant. The model was launched in Italy in December 2015 and will be distributed in other European countries, the Middle East, and Africa. Hatchback and station wagon versions were added in March 2016.|
|2016||Fiat Toro||A midsize pickup truck. The model was released in Brazil in February 2016 and shares its platform with the Jeep Renegade SUV. The Toro features the same size and height as an SUV while also offering the durability of an off-road vehicle, and comfort of a passenger car. The pickup is produced at the Pernambuco plant in Brazil.|
|Alfa Romeo Giulia||A new RWD/AWD midsize sedan. It inherits the name of a premium compact car produced from 1962 to 1978. The vehicle's competitors are the BMW 3 Series and Audi A4. The Giulia is manufactured at the Cassino plant in Italy. It was launched in Europe and North America in the first quarter of 2016 and November of the same year, respectively.|
|Chrysler Pacifica||A new minivan. It replaces the Town & Country. Developed on a new platform, this minivan delivers the same ride and handling capabilities as a premium sedan. The Pacifica was released in spring 2016 and is produced at the Windsor plant in Ontario, Canada. It features gasoline engine and PHV versions. This is FCA's first mass-produced PHV.|
|Fiat Fullback||A new midsize pickup truck. The model was released in Europe in June 2016. It is supplied by Mitsubishi Motors and produced at Mitsubishi's Laemchabang plant in Thailand with the Triton/L200, on which the Fullback is based.|
|Fiat Mobi||An entry-class five-door hatchback. The vehicle weighs only 907 kg. It was launched in Brazil in April 2016 and is manufactured at the Betim plant in Minas Gerais, Brazil.|
|Maserati Levante||Maserati's first SUV. This model was launched in Europe in the second quarter of 2016 as well as in North America and Asia/Pacific in the third quarter of 2016. It is produced at the Mirafiori plant in Italy. Demand has been brisk, with 18,000 orders placed as of October 2016.|
|Fiat 124 Spider||This model was developed with Mazda as a sibling of the Mazda Roadster (MX-5). It is manufactured at Mazda's Hiroshima plant in Japan. Distribution in Europe and North America started from June and July 2016, respectively.|
|New Jeep Compass||A compact SUV integrating the Jeep Compass and Patriot. This SUV is produced at the Pernambuco plant in Brazil, and distribution in Latin America started in September 2016. Starting from early 2017 it will be produced at the Toluca plant in Mexico and distributed in North America. Afterward, the Jeep Compass will be manufactured in China and India, and eventually it will be sold in more than 100 countries around the world.|
FCA's new model launch plans (2017-2019)
|2017||Alfa Romeo Stelvio||A new RWD/AWD midsize SUV, a first for the Alfa Romeo brand. This model debuted at the Los Angeles Auto Show in November 2016. It is based on the same platform as the Giulia, and will be produced at the Cassino Plant in Italy. Its competitors are the Audi Q5 and BMW X3.|
|New Jeep Wrangler||A compact body-on-frame off-road SUV. It will be manufactured at the Toledo plant in Ohio. The SUV features a new 2.0-liter four-cylinder turbo engine, diesel engine, and 48V mild hybrid system in addition to a 3.6-liter V6 engine.|
|2018||Jeep Wrangler Pickup||A pickup truck based on the next-generation Wrangler, which It will be produced alongside at the Toledo Plant in Ohio.|
|New Ram 1500||A full-size light-duty pickup truck. It will be manufactured at the Sterling Heights Plant in Michigan.|
|New Ram Heavy Duty||A full-size heavy-duty pickup truck. It will be offered in 2500, 3500, and chassis cab versions.|
|New Jeep Grand Cherokee||A midsize SUV. This model will be produced at the Warren Plant in Michigan.|
|New Dodge Journey||A midsize crossover SUV. FCA planned to redesign the Journey in 2016 but postponed its plans to 2018. This new SUV will use the same platform as the Alfa Romeo Giulia. Production of the Journey will be transferred to Italy.|
|2019||Jeep Wagoneer||A two-row five-seat full-size SUV. It will be the Jeep's new flagship model. A three-row seven-seat version will be called the Grand Wagoneer. It shares a platform with the next-generation Grand Cherokee and will be produced at the Warren Plant in Michigan.|
FCA's Activities at North American plants
According to FCA, the U.S. industry sales mix has changed significantly. The market share of passenger cars and MPVs shrank from 56% in 2009 to 46% in 2015. In contrast, the share of UVs expanded from 29% in 2009 to 37% in 2015. This shift was driven by higher demand for SUVs and pickup trucks and reduced demand for passenger cars due to lower fuel prices.
FCA is retooling its existing plants in North America and increasing production capacities for SUVs and pickups to meet the shift in demand.
Activities at North American plants
|Sterling Heights Plant
|Production of the Chrysler 200 midsize sedan will end in December 2016. FCA plans to invest USD 1.48 billion to retool the plant for building the 2018 Ram 1500 full-size pickup truck. The state government approved a tax exemption valued at USD 11.38 million on FCA's investment. Moreover, the automaker will be granted a tax exemption valued at USD 4.56 million for creating 700 new jobs (news report in September 2016).|
|The Warren Plant, which is now producing the Ram 1500, is to manufacture the new Jeep Wagoneer and Grand Wagoneer full-size SUVs.|
|Production of the Dodge Dart compact car as well as Jeep Compass and Patriot compact SUVs will end in September and December 2016, respectively. FCA plans to invest USD 350 million to manufacture the Jeep Cherokee midsize SUV starting in 2017. The automaker is expected to create 300 new jobs.|
|FCA plans to invest USD 700 million in the Toledo Plant, which is now producing the Jeep Cherokee. The Toledo North Plant will be retooled to manufacture the next-generation Jeep Wrangler midsize SUV. Approximately 700 new jobs will be created. The Toledo South Plant is projected to build the Wrangler-based pickup.|
|Sterling Stamping Plant
|FCA invested USD 166 million to install three new press machines and started operations in August 2016. The three presses will increase the number of parts produced annually by 20 million units. The expanded production capacity will enable parts for the new Jeep Wrangler and new Ram 1500 to be manufactured.|
|Trenton Engine Plant
|FCA plans to invest USD 74.7 million in the Trenton North plant to manufacture next-generation four cylinder engines starting in the third quarter of 2017. Production of the 3.6-liter Pentastar V6 engine, which is currently assembled at the Trenton North Plant will continue at the Trenton South and Saltillo South plants (Mexico).|
|Warren Stamping Plant
|FCA invested USD 63 million and started operation of a new press line in January 2016. The new press line has an annual production capacity of 3.6 million parts.|
|FCA invested USD 2.6 billion to upgrade equipment and started production of the new Chrysler Pacifica minivan in May 2016. 1,200 new employees were added to build the Pacifica alongside the current Dodge Grand Caravan minivan and Pacifica PHV. The automaker is expected to receive grants of CAD 80 million from the state government.|
|The plant paint shop will be renovated in the summer of 2017 with an investment of CAD 325 million.|
|Etobicoke Casting Plant
|FCA plans to invest CAD 6.4 million to retool equipment.|
|Toluca plant||FCA plans to build the Jeep Compass compact SUV starting in 2017 for sale in North America. In addition to Mexico, the Compass will be manufactured in Brazil, China, and India.|
FCA's activities in China, India, Brazil, and Argentina.
China: starting production of Jeep brand vehicles
|Jeep Cherokee||In September 2015 GAC FCA, a joint venture between the GAC Group and FCA, started production of the Jeep Cherokee midsize SUV at its Changsha Plant in Hunan. The Jeep Cherokee is the first locally-produced SUV for GAC FCA.|
|Jeep Renegade||GAC FCA began building the Jeep Renegade compact SUV at its new plant in Guangzhou, Guangdong Province in April 2016. The new plant is located within a manufacturing facility for GAC Group passenger vehicles. It includes four cutting-edge workshops for stamping, welding, painting and general assembly as well as a quality assurance center, and has an annual production capacity of 160,000 units.|
India: introduction of Jeep brand vehicles
|In February 2016, FCA exhibited three Jeep vehicles at the 2016 Auto Expo held in New Delhi and announced that it would introduce the brand to India. After establishing a network of dealers in major cities, the automaker started distribution of the Jeep Wrangler Unlimited, Jeep Grand Cherokee, and high-performance Jeep Grand Cherokee SRT in August 2016. FCA plans to build the Jeep vehicles at its manufacturing joint venture with Tata Motors starting in 2017.|
Brazil: launching new Fiat Mobi, producing new fuel-efficient engine family
|Launching the Fiat Mobi||FCA launched the Fiat Mobi, an entry-level passenger car, in Brazil in April 2016. The Mobi is a five-door hatchback that weighs only 907 kg and is produced at the Betim plant in Minas Gerais. It comes with a Fire Evo Flex 1.0-liter engine combined with a five-speed manual transmission.|
|Starting production of new Firefly engines||In September 2016, FCA began production of the new Firefly engine family at the Betim Engine Plant in Minas Gerais. The new engines feature high torque and low fuel consumption. The plant was renovated with an investment of BRL 1 billion. It has an annual production capacity of 400,000 units of Firefly engines. FCA chose the face-lifted 2017 Fiat Uno for Latin America to introduce the 1.0-liter 3-cylinder and 1.3-liter 4-cylinder flex fuel engines.|
Argentina: investing USD 500 million in production facilities
|In April 2016, FCA announced that it will invest USD 500 million in its Cordoba Plant in Argentina. The automaker plans to update equipment and start production of a new model that adopts a modular platform in the second half of 2017. Its annual production capacity will be raised to more than 100,000 units. FCA regards its Cordoba Plant as one of its core production facilities in Latin America.|
Partnership with Google to develop self-driving vehicles
FCA was lagging behind other OEMs in developing autonomous driving vehicles, but it announced a partnership with Google for this field in May 2016. As the automaker's development investment has been reduced due to heavy debts, it was seeking partners to develop autonomous driving technologies.
Collaboration between FCA and Google in development of self-driving vehicles
|In May 2016, FCA and Google's Self-Driving Car Project announced that they will collaborate on development of self-driving vehicles. The two companies will integrate Google's self-driving technology into 100 2017 Chrysler Pacifica minivan PHV units. This marks the first time that Google has worked directly with an automaker. Their engineering teams will cooperate to design, test, and build the self-driving Pacifica.|
Global unit sales for January-September 2016 decrease by 2% to 3.33 million units
The FCA Group's global unit sales for the period January-September 2016 decreased by 2.0% y/y to 3.33 million units. In North America, unit sales fell slightly due to lower demand for the Chrysler 200 and Dodge Dart passenger cars. The automaker is manufacturing more SUVs as it cuts production of passenger cars in the region. Sales volume in Latin America fell owing to a stagnant economy in Brazil. Unit sales in Asia/Pacific also dropped due to localization of Jeep vehicle production in China. (Vehicles produced and sold by FCA's joint venture companies in China are not included in the FCA Group's consolidated unit sales.)
In contrast, Europe experienced sales growth supported by strong sales of the new Fiat Tipo family of vehicles, Fiat 500X, Jeep Renegade, and LCVs.
FCA Group's unit sales by region
|Source: Fiat Group Annual Report/FCA Full Year Results 2011-2015. FCA Interim Report Q3 2016
(Note) Luxury vehicles include Ferrari and Maserati sales until 2013 and only Maserati sales after 2014. (Ferrari was spun-off from FCA at the beginning of January 2016.)
January-September 2016 net revenues flat, adjusted EBIT up by 38% to EUR 4.5 billion
For the period January-September 2016, the FCA Group's net revenues grew 0.1% y/y to EUR 81.29 billion; adjusted EBIT increased by 38.1% y/y to EUR 4.5 billion; and adjusted net profit rose threefold to EUR 2.02 billion. The automaker's financial results improved owing to strong sales of high-margin SUVs in North America. Unusual expenses for the period of January-September 2015 amounted to USD 1.100 billion, and included costs for future recall campaigns in North America and the Tianjin port (China) explosion. The expenses for the same period in 2016 totaled USD 800 million, and included costs for the Takata airbag inflator recall campaign and North American capacity realignment.
FCA released its 2016 outlook for financial results in October 2016. The company revised its full year guidance upward from the figures released in July 2016 based on its strong performance in the third quarter of 2016. In its 2016 outlook, net revenues was confirmed at EUR 112 billion, while adjusted EBIT was raised from EUR 5.5 billion to EUR 5.8 billion. Adjusted net profit was increased from EUR 2.0 billion to EUR 2.3 billion.
FCA Group's consolidated business results
(in millions EUR)
|Adjusted net profit||1,140||943||1,060||2,026||2,300||613||1,977|
|Source: FCA 2015 Annual Report, FCA Interim Report Q3 2016
(Note) 1. Consolidated business results exclude Ferrari after 2014, but 2014/2015 net profit and adjusted net profit include Ferrari as a single line item within discontinued operations.
2. The 2016 (Plan) column represents the outlook that FCA released in October 2016.
FCA Group's global sales to reach 4.97 million units in 2019 (LMC Automotive)
(LMC Automotive, Quarter 3 2016)
According to LMC Automotive's forecast released in the third quarter of 2016, the FCA Group's global sales are expected to be 4.67 million units this year, up 1.7% over 2015. The improvement will be driven largely by increases for Jeep and Ram brands. The FCA group plans to end passenger car production in the U.S. by early 2017 to free capacity in favor of the more profitable Jeep SUVs and Ram pickups. The group's global sales will increase gradually after 2016 and reach 4.97 million units in 2019, implying growth of 6.5% compared to 2016.
In the U.S., following a strong 2015, FCA is forecasted to experience a very nominal decline in 2016. Throughout the forecast horizon, FCA will experience a reduction in market share due to the decision to drop the Chrysler 200 and Dodge Dart, and focus more on SUVs. FCA's sales in the U.S. are expected to decrease slowly to 2.00 million units in 2019, down 11.1% from 2016.
In Europe, the group's market share progressed well in the first half of 2016; key drivers were Fiat and Jeep. Alfa Romeo will also be important in the near future, with the new Giulia and Stelvio SUV expected to drive something of a breakthrough for the brand in 2017.
The Italian market has shown strong improvement so far in 2016. Given that Fiat's geographical footprint is skewed heavily towards its home market, ongoing recovery in Italy will provide plenty of opportunity for growth. LMC Automotive expects that FCA's sales in Italy will be 565,757 units in 2016, up 15.8% year-over-year (y/y). The group's sales are projected to increase and reach 607,530 units in 2019, showing growth of 7.4% compared to 2016.
FCA's sales in China are expected to grow by 57.0% y/y to 224,767 units in 2016. The growth is attributed to the strong performance of the Jeep Cherokee, local production of which began in 2015. The group's sales in the country are projected to double over the next three years and reach 442,898 units in 2019.
In contrast, Brazilian sales for FCA are expected to plunge by 20.8% y/y to 382,437 units in 2016 as the economic woes and political turmoil continue to undermine vehicle demand in the country. The group's sales in Brazil are projected to turn upward after 2016 and increase to 491,098 units in 2019, up 28.4% compared to 2016.
FCA Group sales forecasts (LMC Automotive, Quarter 3 2016)
|Source: LMC Automotive "Global Automotive Sales Forecast (Quarter 3 2016)
(Note) 1. Data indicate figures of only small-size vehicles, including passenger cars and light commercial vehicles with a gross vehicle weight of under 6 tons.
2. All rights reserved. Reproduction of any data will require permission of LMC Automotive.
3. For more detailed information or inquiries of forecast data, please contact LMC Automotive
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