6 min read.Updated: 29 Jul 2019, 10:22 PM ISTBloomberg
Fiat’s market cap has shrunk to $22 billion, less than half the value of General Motors
New chief strikes different tone than charismatic predecessor
The “check engine" light lit up almost as soon as Mike Manley took over as chief executive of Fiat Chrysler Automobiles NV. Days before the late Sergio Marchionne died unexpectedly a year ago, Manley was tasked with leading the Italian-American company into an automotive era increasingly defined by progress in electrification and self-driving technology.
Right after being named CEO, he was forced to cut financial targets due to disappointing sales in China. The company rattled investors again six months later by lowering 2019 earnings guidance. Then came a failed attempt to merge with Renault SA orchestrated by Chairman John Elkann, scion of Fiat’s founding Agnelli family.
Those setbacks -- paired with peaking global car demand -- have weighed heavily on Fiat Chrysler shares, which are down nearly a third over the past 12 months. Its market capitalization has shrunk to $22 billion, less than half the value of General Motors Co. The two will compare quarterly results this week.
Fiat Chrysler shares fell as much as 1% to $13.57 as of 9:45 a.m. in New York.
Known as a workaholic with an icy, no nonsense demeanor, he’s been busy putting his own stamp on the company, according to interviews with executives who worked closely with him. He’s dispatched with Marchionne’s pressure-cooker style of having top lieutenants wear multiple hats and manage vastly different parts of the business, instead streamlining divisions and assembling a brain trust of longtime veterans and outsiders from Amazon.com, Nike Inc., and Nissan Motor Co. to help run them.
Mark Stewart, whom Manley hired from Amazon, now runs North America, a job Marchionne himself had done, while CFO Richard Palmer is in charge of business development, and not the systems and castings division he once ran under Marchionne. Manley also moved the CEO’s office back up to the 15th floor at Chrysler’s Auburn Hills headquarters, after Marchionne spent nearly a decade on No. 4, ostensibly to be closer to his foot soldiers.
‘No Easy Task’
Manley, 55, is trying to keep Fiat Chrysler on track in North America, which Goldman Sachs estimates generated 93% of the automaker’s profit last year. He’s meanwhile looking to reboot the company’s money-losing business in China and Europe and has billions of dollars of catching up to do on electrified and self-driving vehicles.
And even as he works to lessen Fiat Chrysler’s dependence on American demand for gas guzzling pickups and SUVs, it’s unclear if the Agnelli family, which owns a controlling stake in the carmaker, is certain it can thrive in an electric, autonomous age without a big partner. Manley inherited a collection of storied brands that his charismatic predecessor revitalized, but also some clunkers, all adding up to a company with an uncertain future as an independent entity.
“Inheriting such a legacy is no easy task, but one thing I will not do is try to be Sergio," he told employees during a private memorial service held for Marchionne in Auburn Hills last year. “It’s now our responsibility, collectively, across our company, to deliver the future that has now been made possible because of Sergio’s work."
Manley, who started his career as a car salesman, declined to be interviewed for this story.
Executives say Manley has brought a new level of transparency. During a meeting of senior executives in Auburn Hills this past winter, he laid out the company’s problems in China, from customer acceptance of Jeeps and Alfa Romeos to the number of unsold cars piling up on dealer lots. It was a striking contrast to the Marchionne era, when information was doled out on a need-to-know basis, said one person who was present.
A strong believer in the power of brands, Manley aims to expand the lucrative Ram truck and Jeep SUV divisions as twin engines of global growth. Fiat Chrysler is retooling a plant in downtown Detroit to make the next-generation Jeep Grand Cherokee at a time when crosstown rivals Ford Motor Co. and GM are downsizing their manufacturing footprint.
Baillie Gifford & Co., Fiat Chrysler’s fourth-largest investor, is betting Manley and Elkann can continue to grow Jeep and Ram, and turn around luxury sports-car specialist Maserati. “They get where the future value of this company is likely to be, and they’re investing at the appropriate rate given the uncertainties," said Tom Coutts, manager of the EAFE Fund at Baillie Gifford. “That is clearly something Marchionne had, but I think it goes much deeper than him."
Fiat Chrysler’s business plan through 2022 calls for Jeep’s global sales to reach 3.3 million, and for Ram to rise 30% to 1 million. Last year, the company forecast it would sell 1.9 million Jeeps, but researcher LMC Automotive says it likely undershot that by some 300,000 vehicles.
A key to achieving those goals will be developing new electrified powertrains to meet stricter emissions rules in Europe and China. And to fund that, Manley needs to keep the cash flowing in the all-important North American market.
But auto demand is weakening worldwide after several years of growth, which may put the ambitions laid out in Fiat Chysler’s five-year plan out of reach. “The opportunity for further North American earnings growth is limited, while other segments of the business face substantial challenges," George Galliers, an analyst at Goldman Sachs, wrote in a July 15 report initiating coverage of the carmaker with a sell recommendation.
Goldman isn’t alone in doubting Fiat Chrysler can stem the tide. “There’s only so much good execution will get you," said Demian Flowers, an analyst with Commerzbank in London. “If you don’t have volume growth, then it’s not happening."
Perhaps the biggest challenge for Fiat Chrysler is establishing a foothold in the world’s largest car market. Its market share in China was less than 1% in 2018, well behind Ford’s 2.3% and GM’s 13.8%.
Under Manley, Fiat Chrysler restructured its decade-old joint venture with Guangzhou Automobile Group in April, calling the shakeup an attempt to “more rapidly respond to changes in the Chinese market."
The company has struggled to tailor its lineup to meet the needs of Chinese car buyers, said Bill Russo, a former Chrysler executive and CEO of Shanghai-based consultancy Automobility Ltd.
“If you want to unlock the potential for growing into the market, you need the boots on the ground to do the product development and adaptation work necessary," Russo said. “FCA doesn’t have the capacity deployed in country that is capable of doing that."
Another urgent trouble spot is the Maserati brand, which has suffered from an aging lineup and steadily shrinking global shipments. Manley recruited former Nike executive Davide Grasso to revamp the unit, which is expected to be among the first to showcase Fiat Chrysler’s new electrified vehicle architecture.
Investors will pay close attention to what Manley says about Fiat Chrysler’s near-term prospects on the company’s earnings call on July 31. But ultimately, the CEO answers less to Wall Street than to Elkann, who has sent mixed signals about his long-term strategy for Fiat Chrysler. He told Italian newspaper La Stampa this month that Manley is doing a “a great job" and is “a true leader."
But as part of the scuttled deal with Renault, that company’s chair, Jean-Dominque Senard, would have become CEO, with Elkann staying on as chair and Manley serving as COO for North America, according to people familiar with the discussions.
The day after that corporate marriage proposal was disclosed, Manley sold $3.5 million of Fiat Chrysler stock for what people familiar with the matter say were personal reasons.
This story has been published from a wire agency feed without modifications to the text. Only the headline has been changed.
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