Author Topic: FCAU - Fiat Chrysler Automobiles  (Read 866003 times)

kab60

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Re: FCAU - Fiat Chrysler Automobiles
« Reply #2730 on: August 19, 2018, 10:23:39 AM »
I agree on all of the above, but I struggle with this idea of timing the cycle. Scott Miller from Greenhaven seems to plan the same, and I don't think you two are alone. Quiet the opposite actually. Seems like people want to get out around the Magnelli spin. Is It doable? As in, if everyone does it, perhaps price gets so low (might be there already) that one might be much better off going long late cycle and live with a recession?


kab60

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Re: FCAU - Fiat Chrysler Automobiles
« Reply #2731 on: August 19, 2018, 10:27:22 AM »
I mean, if you throw in a recession and normalize, isn't it still cheap? And if so, why not go long for the long term (unless it rerates much higher)?

I have no position because of the usual reasons but am long Auto Nation, so we're somewhat in the same boat.

no_free_lunch

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Re: FCAU - Fiat Chrysler Automobiles
« Reply #2732 on: August 19, 2018, 10:38:46 AM »
Thanks so much AJC.  From the little I have read I do have a good feeling on Manley as far as ability to execute operationally but just not sure on his capital allocation skills.  He is supposed to be doing a conference call soon so there will be some info there.

I am with kab in that I won't even attempt to time the cycle and feel a trough is heavily priced in already.

Let me briefly diverge to wild speculation.  As background we all know there is this huge discrepancy between traditional auto companies and Tesla.   It feels a bit like the old / new economy of the late 90's.  However Tesla seems to be blowing up as we speak.   Maybe, just maybe investors will discover a little love for the forsaken auto companies if Tesla goes down.  At current prices FCAU does not require any of this to happen but it's fun to think about.

ajc

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Re: FCAU - Fiat Chrysler Automobiles
« Reply #2733 on: August 19, 2018, 02:17:16 PM »

@ kab60 and no_free_lunch

Ha. No disagreements here.

I mean, at a 15B euro market cap after a Magneti Marelli spin, it'll be trading at 3x 2018 earnings. 2x, if you assume they have 5B in the bank. So yeah, it's cheap as hell and can easily re-rate. Also, that large-scale momentum-to-value shift is in the mail. The data is relatively undeniable. That's another big possible catalyst for the stock.

From my side, the only reason I'll gradually be selling is I've made great returns in it the past 5 years and happen to have identified some management teams and businesses I think have the ability to generate long-term Marchionne-type results. Hehe, they also aren't in industries as shitty as the auto one.

So yeah, essentially I've been fortunate enough to do well with them and think I've found some non-auto people and businesses that could deliver similar CAGRs. I can't argue with the substance of what's been said. It's very cheap on most every measure, and its earnings power should ensure that for the next few years.



wachtwoord

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Re: FCAU - Fiat Chrysler Automobiles
« Reply #2734 on: August 19, 2018, 04:38:14 PM »

From my side, the only reason I'll gradually be selling is I've made great returns in it the past 5 years and happen to have identified some management teams and businesses I think have the ability to generate long-term Marchionne-type results. Hehe, they also aren't in industries as shitty as the auto one.


You understand this makes people very curious. Willing to share those opportunities?
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DTEJD1997

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Re: FCAU - Fiat Chrysler Automobiles
« Reply #2735 on: August 19, 2018, 07:20:43 PM »
Hey all:

When I was a little kid, I can just barely remember Lee Iococca & the K-Car & Mini-van turn around of Chrysler. 

Fast forward through the decades and Chrysler has always been kind of a "problem child"...HOWEVER, think 3 things are radically different today:

1). The company is debt free...they may actually have a nice chunk of $$$$ in the bank in a few quarters...I don't know if Chrysler has EVER been debt free?

2). After the bankruptcy, they shed most of the pension obligations.  Anybody have information/confirmation of this?

3). They are making money, and making a TON of it.  Hard to gauge the P/E, but it is something 4 or 5 going forward.  I don't know if Chrysler has ever traded at this low of a P/E.

So if you look at these 3 items, it looks like Chrysler may be in a position it has NEVER been in before.  Thus, this time it really might be different?

ajc

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Re: FCAU - Fiat Chrysler Automobiles
« Reply #2736 on: August 20, 2018, 10:14:02 AM »




From my side, the only reason I'll gradually be selling is I've made great returns in it the past 5 years and happen to have identified some management teams and businesses I think have the ability to generate long-term Marchionne-type results. Hehe, they also aren't in industries as shitty as the auto one.



You understand this makes people very curious. Willing to share those opportunities?




Ha. Fair comment.
JD.com is one of the more well-known businesses. They do have capex requirements, but their industry isn't nearly as fragmented as the auto one. Also, they're expanding intelligently into new geographies and their growth runway is sizeable.
I started following them closely after they sold Tencent a 15% stake in 2014.
Richard Liu, the founder, still owns 15%+. They also have Walmart as shareholders and Alphabet too.
If you think about online/offline distribution questions in China, ASEAN, and the rest of the world, the picture of their likely growth path with those partners becomes clearer.

I'd also say management matters, and Liu has many of the qualities I look for in a founder.
The team he's hired to build out the business (AI, drones, luxury offerings, etc), have all been top notch.
Another thing I look for is years of making a lot of smart decisions day after day, month after month. In a fast-paced market like e-commerce, you want management to be expanding rationally but also at a good clip. My sense is JD.com has pulled off this very difficult balance better than almost anyone, and this got me more comfortable with the thesis.

That idea's been developing over 5 years though, so I don't think it'll necessarily seem clear to anyone.
That's one of the risks of sharing names. Sometimes a lot depends on what your area of focus is, and what you've witnessed over the past few years from management and the business. Anyway, it's one of the company's I think is attractively valued, with great management, and a really impressive runway.
Value Ventures did a good write-up on them a few years back (https://oraclefromomaha.wordpress.com/2016/05/05/jd-com-a-multi-decade-compounder/), for a little context.
Basically, it'd be opportunities of that scale.



ajc

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Re: FCAU - Fiat Chrysler Automobiles
« Reply #2737 on: August 20, 2018, 10:27:52 AM »

Anyway, back to FCA....

I thought this interview from earlier today with Council of Economic Advisers chairman, Kevin Hassett, on the status of the current Mexican NAFTA negotiations was more encouraging than not.

https://www.youtube.com/watch?v=mXbi4NobjCc



QuesnelCap

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Re: FCAU - Fiat Chrysler Automobiles
« Reply #2738 on: August 20, 2018, 01:36:36 PM »
Hey all:

When I was a little kid, I can just barely remember Lee Iococca & the K-Car & Mini-van turn around of Chrysler. 

Fast forward through the decades and Chrysler has always been kind of a "problem child"...HOWEVER, think 3 things are radically different today:

1). The company is debt free...they may actually have a nice chunk of $$$$ in the bank in a few quarters...I don't know if Chrysler has EVER been debt free?

2). After the bankruptcy, they shed most of the pension obligations.  Anybody have information/confirmation of this?

3). They are making money, and making a TON of it.  Hard to gauge the P/E, but it is something 4 or 5 going forward.  I don't know if Chrysler has ever traded at this low of a P/E.

So if you look at these 3 items, it looks like Chrysler may be in a position it has NEVER been in before.  Thus, this time it really might be different?

Very good points/questions.

1. This is the strongest part of the bull thesis IMO, Fiat Chrysler is net cash. That's amazing. It is not like pre-08 where the chances of going back to go on the monopoly board were high. John Elkann is squarely focused on his family's legacy and after the difficulties he has gone through in 04 and 08, he seems to be obsessed with not going bankruptcy. But remember he has also separated the crown jewel (Ferrari) in order to further achieve this goal.

2. This is true, most of pension liabilities became equity ownership in Chrysler. Fiat did have to inherit 5B Euros of pension liabilities when they closed the deal for the remainder of Chrysler in 2014. They current pension liability stands at about 10B Euros for the company as a whole. Very manageable.

3. On an earnings basis it looks really cheap but I was recently reading some Li Lu and this quote really stood out to me "I think the value of a long-term investment comes ultimately from the value that the business has created over its existence". Basically how much cash is coming in and out of the business over its existence. Like I said on twitter we seem to do alot of mental gymnastics to avoid this basic fact (at least I do). I pulled up the cash flow statements from 2007 and noticed that only 5B Euros FCF had been produced by the operating businesses (Op Cash Flow minus Investing Cash Flows) from 2007-2017. 5B!!!! Now it is true that anytime during this period management could have stopped investing to meet increased demand (esp at Jeep/Ram) and it would have rained cash but they did not (probably wisely so in order to maintain market share and a larger FCF bounty than in the future). The 2018-2022 plan has roughly the market cap worth of cash (approx 20B Euros) coming out the business in the next 5 years.

So unless you have some high degree of certainty of how much free cash flow the equity holder will lay claim to post 2022 I think this one has to go into the too hard pile. Nobody can reasonably predict where we are in the cycle and I just read everything on www.waymo.com and wow I did not know just how much progress Google has made. Yes, I know FCA is Google's partner but this technology is just probably just licensed to all the automakers. How does that play out?

Another interesting data point, over $20B of capital has gone into Tesla since inception and it still  bleeds money. Sergio (RIP) said the future will be electric & commoditized. What are the chances that FCA will spend less than Tesla ($20B) post 2022 in this commoditized and electric future to just keep up? I think its probably going to be more.

Anyway to answer your questions I think this time is both different (Bankruptcy risk extremely low) and very much the same (capex needs, cloudy future, stage in cycle, etc).

Btw, I am long this but have been really trying to stress test my thesis in the past few weeks and have been coming up with more questions than answers to be honest and that's always a warning sign for me. This was one of the great post-08 investments after they got Chrysler for basically free but before Ferrari spinoff. But alot of people much smarter than me think otherwise so all thoughts welcome

wachtwoord

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Re: FCAU - Fiat Chrysler Automobiles
« Reply #2739 on: August 20, 2018, 07:29:29 PM »
@ajc: thanks for the reply and link. Will definitely invest some time looking at it.
"Beware of he who would deny you access to information, for in his heart he dreams himself your master"