Things can always be worse.
That’s one way to look at the earnings reports for Fiat Chrysler Automobiles and other automakers in the midst of a global downturn brought on by the coronavirus pandemic.
The question on Friday was how bad things would get for FCA, the last of the Detroit Three to announce its results for the second quarter of 2020. It was bad, as expected, but company leadership and analysts said things should look up later in the year.
“We expect a much, much better second half,” FCA CEO Mike Manley said during a conference call.
FCA said it lost $1.24 billion (1.05 billion euros) in the second quarter, a drop of 232% compared with the same period a year ago. That follows FCA’s woeful first quarter performance, when the automaker said it lost $1.9 billion (1.7 billion euros).
That’s bad, of course, but it’s bad for most in the auto industry these days, with the coronavirus pandemic continuing to rock the global economy. That has forced companies to focus on finding the bright spots.
For FCA, that’s still being able to make money in North America, although significantly less than before, something neither Ford nor General Motors managed in the second quarter, and returning plants to “pre-COVID production levels with strong dealer demand.” The company said its planned merger with PSA Group remains on track.
For the quarter, FCA reported revenues of $13.8 billion (11.7 billion euros), and an adjusted earnings loss before interest and taxes of $1.09 billion (928 million euros). FCA said it had $20.1 billion (17.5 billion euros) in available liquidity as of June 30, not counting a newly available credit line in Italy. The company has withdrawn its guidance for the year because of the pandemic, which FCA said caused a 63% drop in global vehicle shipments, down to 424,000.
The revenue picture was worse than expected, according to Mainstay Capital Management, which said the company was projected to have revenues of $17.3 billion. But the loss of 77 cents per share (.65 euros) beat an expected loss of $1.35 per share.
Manley touted the company’s efforts to manage the crisis, which included a one-quarter pay deferral of 20% for salaried workers and pay cuts for top leaders.
“Our second quarter showed that decisive actions and extraordinary contributions from our workforce enabled FCA to contain the impact of the COVID-19 crisis. While the company remains vigilant about the health and safety of employees, our plants are up and running, dealers are selling in showrooms and online, and we have the flexibility and financial strength to push ahead with our plans,” Manley said.
Those plans include retooling for new vehicles, such as at Warren Truck and in Toluca, Mexico. Warren Truck should be down through the end of September as the plant prepares for the launch of the Jeep Wagoneer and Grand Wagoneer next year. Toluca will be down for one month to prepare for a mid-cycle refresh on the Jeep Compass, according to the company.
Manley said the retooling would take as many as 38,000 older-style Ram 1500s, what the company calls the Classic, out of production, and just over 20,000 Compasses out of production.
Highlighting the plans for the future and how they should improve the picture for the company going forward, Manley noted that the Wagoneer and Grand Wagoneer will put Jeep into one of the highest-margin segments of the U.S. market.
“So you can imagine the expansion of that opportunity for the Jeep brand,” he said.
Regarding competition from the likes of the Ford Bronco, Manley said FCA is more than prepared.
“We’re very used to competition. I think our products and our people have proven that they are up to that challenge so I view ’21 very positively,” he said.
Manley was asked by one analyst about electric pickups, something FCA has not announced plans to produce. The CEO noted the company has revealed most of its electric vehicle strategy, although not everything, but he offered a hint at how the company views the truck market and whether now is the right time to roll out an electric truck.
“Obviously, pickup trucks is a key franchise for us, and we’re not going to sit on the sideline if there is a danger that our position gets diluted going forward,” he said.
FCA’s results followed the release of those at its rivals this week. GM lost $800 million, and Ford reported a $1.1 billion profit but only because of a one-time investment gain from its partnership with Volkswagen in Argo AI, the autonomous driving technology company, of approximately $3.5 billion. Both companies painted their earnings reports as positively as possible.
Despite some wariness ahead of the earnings release, David Kudla, CEO and chief investment strategist for Mainstay Capital Management, gave a more upbeat assessment after the results were announced Friday.
“Fiat Chrysler’s second quarter report came in better than we anticipated for earnings due to out-performance in North America. We are also pleased that management said that the deal with PSA is still on track to be concluded by Q1 2021. Cash burn was slightly higher than Ford, but barring a COVID-19 setback, we believe cash flow will improve for Fiat Chrysler over the second half of the year,” Kudla said.
Consumer demand, he said, is expected to recover in North America in the next half of the year but it’s not clear if the same will hold true, at least at the same rate, in Europe.
Rich Hilgert, senior equity analyst for Morningstar, was not disappointed by FCA’s results.
“Given the shellacking the unit volume took from COVID-19, I thought Fiat Chrysler’s second quarter results were impressive. Even though North America volume plunged 54%, the region was still slightly better than breakeven with adjusted EBIT of $39 million,” he said, referencing earnings before interest and taxes.
He noted that FCA’s earnings losses compared favorably vs. other auto companies, too.
“Compared to the second quarter last year, for every dollar of lost revenue, Fiat Chrysler only lost $0.16 in profit. In my view, Fiat Chrysler has demonstrated resiliency on a dramatically improved breakeven-point compared to just five years ago,” Hilgert said.
On Thursday, another industry expert had pointed to Jeep and Ram as well as FCA’s future merger partner in Peugeot-maker PSA Group as positive points.
“If there’s a silver lining in this historically dreadful quarter, it is that Fiat Chrysler’s pillar brands — Jeep and Ram — held up relatively well. While we believe the worst is behind us and the second half will improve, it will be a bumpy ride, one we enter with high unemployment and uncertainty,” said Michelle Krebs, executive analyst for Autotrader. “For FCA, the second half should be the home stretch for its merger with PSA, but also to make some decisions about what models and even brands need to stay or go.”
When asked whether brands like Chrysler, Fiat (at least in the United States) and Alfa Romeo would disappear, Krebs focused on Fiat, though she did not offer a prediction.
“Consumers have given up on the Fiat brand with its sales down to almost nothing, and Fiat Chrysler looks as if it has given up throwing incentive money at Fiat to no avail,” she said.
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FCA’s sales declines during the quarter, particularly with its Ram brand, were a flag for Kudla.
In a research note Thursday, Kudla’s firm cited FCA’s larger sales decline than its crosstown metro Detroit competitors. FCA saw sales down 39% compared with 33% for Ford and 34% for GM vs. the same period in 2019. U.S. sales were down across the board for FCA’s brands.
The drop in sales also reduced FCA’s market share to 12.65% from 13.63%, according to Cox Automotive.
“We were especially concerned with the 35% decline in Ram trucks for the quarter when compared to the 14% decline of the Chevrolet Silverado and GMC Sierra at just 5%,” the Mainstay note said.
However, Kudla also highlighted the planned merger with PSA Group, which is to be named Stellantis:
“Sales disappointed for FCA this quarter, but all eyes are on the potential of the combined Stellantis entity than it is for FCA alone.”
That merger is projected to provide billions of dollars in “synergies” and a pathway to develop autonomous and electric vehicle technology for the future, the note said.
Staff writer Phoebe Wall Howard contributed to this report.
Contact Eric D. Lawrence: elawrence@freepress.com. Follow him on Twitter: @_ericdlawrence.
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