Author Topic: FCAU - Fiat Chrysler Automobiles  (Read 834095 times)

Cigarbutt

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Re: FCAU - Fiat Chrysler Automobiles
« Reply #2750 on: August 26, 2018, 01:30:13 PM »
I am not sure that current auto valuations are justifiable.  Global auto sales are at all time highs but then they have a tendency to be at all time highs.   If you look at the sales numbers and compare to say global GDP, I would say things are more less in line.
...
FCAU looks good but I am also thinking about TM right now.  PE of 8, below book value, economies of scale, low defect vehicles, just a really solid company all around.  I am open to any other ideas.
The numbers described by no_free_lunch made me go back to a file that has been updated for about 20 years.
1-the auto industry is cyclical
2-money can be made but most money can be made opportunistically
3-the incredible growth of China was not really expected in 2001 and now skews the numbers

For 1- and 2-
In the early 2000ís Fiat was close to bankruptcy and Chrysler went through a difficult reorganization in 2009. Combination of the two entities through a bold deal pushed by a genius gave rise to a great opportunity. Who could have predicted that? When looking at the 2001 file update, that didnít seem to be in the cards. Another one Iíve been closely following for about 20 years in the parts and components component of the auto industry is Linamar (LNR.TO, separate thread). IMO this has been a greatly managed firm but, in the last 20 years, the only significant periods when investment money could have been made was for a brief period during the GFC and from 2013 to 2015. I would say it is very hard to play buy and hold here.

For 3-
Mr. Marchionne used to say that he preferred 1% market share in China versus 30% market share in Italy. I find FCAU has not been particularly successful in China (apart from surprising Jeep results) and this seems to be an important variable going forward.

To shine a light on no_free_lunch numbers:

Here is the percentage share of the growth in numbers mentioned,
Since 2001, the China share for growth in:
-population:  about 7%
-GDP: about 25%
-car sales: about 65% (!)

Since 2009, Chinaís share of GDP growth and car sales growth, respectively: about 45 to 50% and about 50 to 55%. China car sales account for 2/3 of global incremental sales in the last three years.

China barely produced or sold cars until the 1990ís and since then has accomplished one of the most dramatic industrial growth story in human history. The global future of the auto industry and FCAU has to correlate with future extrapolation of past trends. Since 2001 to today, car ownership in China has grown from about 10 to about 125 per 1000 civilians (for the US: about 800, for Europe: about 500).

Forgetting the unnecessary math or Gomperz concept which simply lays out scenarios of rising car ownership in China versus growing GDP and car ownership propensity, the numbers, even ignoring the sustainability issues, are simply staggering.
http://www.mdpi.com/2071-1050/6/8/4877/htm
Figures 3 and 5

Given that cycles are cycles and the unprecedented growth of emerging markets (mostly China), I would be careful with simple extrapolation of previous trends and at least discount the possibility of excess capacity in the context of rules of global trade being presently redefined.

From a 2004 official China industry report: "It is true that the demand for automobile in China is accelerating at a remarkable rate and seems to have no ceiling. It is also true, however, that not everyone will win."
« Last Edit: August 26, 2018, 01:55:12 PM by Cigarbutt »


Value^2

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Re: FCAU - Fiat Chrysler Automobiles
« Reply #2751 on: August 27, 2018, 05:29:50 AM »
How about FCAUs plan to be debt free. To me that doesn't make any sense (when interest rates are so low), i think debt-free capital structure would ultimately mean higher cost of (equity) capital and Debt-free FCAU will be even bigger capital junkie, than with appropriate amount of debt-financing (going against Sergios theory).

kab60

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Re: FCAU - Fiat Chrysler Automobiles
« Reply #2752 on: August 27, 2018, 07:06:52 AM »
One point on FCAU, that I didn't see discussed here but is in included in a large Berenberg analysis on Auto OEMs, is the negative WC. They point out the cash effect if/when cycle tur ns. Haven't looked into it but thought I'd point it out.

merkhet

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Re: FCAU - Fiat Chrysler Automobiles
« Reply #2753 on: August 27, 2018, 08:14:07 AM »
How about FCAUs plan to be debt free. To me that doesn't make any sense (when interest rates are so low), i think debt-free capital structure would ultimately mean higher cost of (equity) capital and Debt-free FCAU will be even bigger capital junkie, than with appropriate amount of debt-financing (going against Sergios theory).

Think back to what happened to Ford in the GFC. They essentially got lucky in their timing. Right before the GFC, they decided they wanted to restructure the company, so they drew down on their credit lines to fund that transformation -- shortly thereafter, the world went to hell in a handbasket. If they had tried to draw down those credit lines during the crisis, would they have been able to do so?

Now, that was, obviously, an unprecedented scenario, and it's unlikely to recur to that extent in the near- and medium-term future. However, imagine if FCAU was net-debt, and there was between a moderate to severe downturn -- how likely are they to be able to access credit lines to stay afloat? That's the reason they want to be net cash. They don't want to be dependent on the kindness of credit markets if/when there's a downturn.

whatdadil9

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Re: FCAU - Fiat Chrysler Automobiles
« Reply #2754 on: September 01, 2018, 07:56:24 AM »
BIG question..

In the three years since capital junkie, fca has spunoff race, about to spinoff MM, and margins are equal and about to surpass gm and way higher than ford.

If you are one of the double digit bn activist funds... why dont you push for a ipo of alfa /mas in light of aston mulitples or spin out -- given relationship with ferrair on power train and r&D can survive on its own.... and then partner with elkann to finally to oem consolidation. if MM sells for cash in theory FCA could do hostile of someone... F has a ton of net cash on BS... not crazy...

Not alot of cheap stocks for the big dogs out there. We get to around 1x EBIT ex marelli and normalized for ram product launch costs...

cubsfan

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Re: FCAU - Fiat Chrysler Automobiles
« Reply #2755 on: September 01, 2018, 01:30:23 PM »
BIG question..

In the three years since capital junkie, fca has spunoff race, about to spinoff MM, and margins are equal and about to surpass gm and way higher than ford.

If you are one of the double digit bn activist funds... why dont you push for a ipo of alfa /mas in light of aston mulitples or spin out -- given relationship with ferrair on power train and r&D can survive on its own.... and then partner with elkann to finally to oem consolidation. if MM sells for cash in theory FCA could do hostile of someone... F has a ton of net cash on BS... not crazy...

Not alot of cheap stocks for the big dogs out there. We get to around 1x EBIT ex marelli and normalized for ram product launch costs...

I'm wondering how hard you can push an agenda like this - if you have the family driving the process and control the shares. Not sure you can outmaneuver Elkann.

walkie518

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Re: FCAU - Fiat Chrysler Automobiles
« Reply #2756 on: September 01, 2018, 04:43:44 PM »
BIG question..

In the three years since capital junkie, fca has spunoff race, about to spinoff MM, and margins are equal and about to surpass gm and way higher than ford.

If you are one of the double digit bn activist funds... why dont you push for a ipo of alfa /mas in light of aston mulitples or spin out -- given relationship with ferrair on power train and r&D can survive on its own.... and then partner with elkann to finally to oem consolidation. if MM sells for cash in theory FCA could do hostile of someone... F has a ton of net cash on BS... not crazy...

Not alot of cheap stocks for the big dogs out there. We get to around 1x EBIT ex marelli and normalized for ram product launch costs...
Excising Alfa and Maserati are probably two different conversations.

There are a number of problems with Alfa's re-launch...most of them having to do with being new.  I would think once the kinks are worked out, Alfa could spin but it unclear how strong the brand would be on its own?

Maserati, on the other hand, is a different business from Ferrari or likely even Aston Martin.  Maybe if Alfa and Maserati were one company that might be feasible, but Maserati isn't particularly exciting...it's not much different from most other cars despite the Italian name and design.  Rolex:Tudor :: Ferrari : Maserati

The resale values of Maserati tend to move in line with any other car, except that Maserati are very, very expensive out the gate.  I would think that Maserati on its own wouldn't really make much sense without a rebirth of the brand.  There are way too many out there.

Eg, this one looks like it was likely leased and is up for resale asking $36k, no accidents, less than 10k miles:
https://www.ebay.com/itm/Maserati-Ghibli-S-Q4/401590758246?hash=item5d80acab66:g:EHcAAOSwlUhbfxFv&vxp=mtr#viTabs_1

original msrp might be $100k
https://www.wideworldmaserati.com/new-inventory/maserati

whatdadil9

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Re: FCAU - Fiat Chrysler Automobiles
« Reply #2757 on: September 02, 2018, 09:35:03 AM »
I was referring to ALFA/MAS combined.. alfa is making some fully /hybridelectric super cars that are goinna go for 250.. maserati too.. tesla beating..

maserati resale values are actually pretty good on the high end. the ghibli is a high production car in a declining category --- wouldnt use that as my benchmark. its 4-5 model years ago.. mileage is less important then age given how quickly tech is moving.

I am super bullish on ALFA/ MAS. I think the fact that they have ferrari inside for sure creates a halo... just like how jcrew cashmere sweaters are made in same factory as loro piana -- not many peopel know that..

So, look is aston lower prouduction than alfa mas.. .sure... but i think the audience for ferrari wannabees is also much higher. How many people by a tudor bc they can afford a rolex. or audemars bc they cant afford patek or dont buy enough from a dealer ot get allocated one.

I think mass market luxury is a great category to be in...great pricing growth and secular demand drivers...Alfa is prob profitable on operating basis -- i believe they are investing alot in sales and marketing and dealers to get the brand going which is more growth capex in my mind.. I think the cars are great and reviews corroborate it. Give it time... Its been out of the US market for over 20 years and they are doing huge sales growth.. they just need more product...and to fix dealership based.

ajc

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Re: FCAU - Fiat Chrysler Automobiles
« Reply #2758 on: September 02, 2018, 10:28:51 AM »

My two cents is if there were some kind of activist (say ValueAct or someone who isn't just there to break things up), then tracking stocks a la John Malone might be the best way to highlight the value of FCAU's businesses ahead of potential future spin-offs, etc.
I mean, if someone could just own the Maserati part, or the Jeep part, that might be a darn nice option for attracting new owners.

Otherwise, I think announcing a major $2B or $3B buyback below certain levels could do nice things for the stock. Maybe reintroducing a small dividend would work as well, to attract different investors.
Those'd be the things I'd focus on getting management to consider, also they'd probably cost very little relative to the potential upside.



whatdadil9

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Re: FCAU - Fiat Chrysler Automobiles
« Reply #2759 on: September 09, 2018, 10:19:37 AM »
What makes Fiat go up now?

It seems to be in a death spiral. F/GM have their own issues and are trading at ~4.5x EBIT--with declining / stable margins. FCA trades approximately 1.5x ex-marelli.

FCAs margins are going up (already better than F and tied with GMish) and they have the best brand in the world at 2m units that can go to 7+ over time.

Yet, stock keeps going down.... It seems absent Pabrai, no one wants to take a stand and publicly vouch for this company yet others are willing to vouch for GM -- seems odd.

Im curious to understand the set of circumstances that others seem to need to get comfortable buying the stock at these valuations..

If the Company sells marelli, half hte market cap will be in cash at year end almost generating a 30+ pct FCF yield to equity...much greater to EV