Fiat SpA share price, reveals five-year target, bets on Jeep sales growth

Fiat SpA revealed at a 10-hour presentation on Tuesday its long-awaited business plan which should boost the automakers sales by 2 million vehicles annually through 2018 and reduce its debt by 90%.

Sergio Marchionne, Fiats chief executive officer, outlined at a conference at the Chrysler division’s headquarters in Auburn Hills, Michigan, that the Italian-American car maker will aim at narrowing the gap to the leaders in the auto industry – Toyota Motor Corp., Volkswagen AG and General Motors Co., by investing as much as 55 billion euros over the next five years to make Maserati, Jeep and Alfa Romeo global brands.

The company expects to more than double its profit through the planned period, projecting earnings before interest and taxes in 2018 at between 8.7 and 9.8 billion euros, up from 3.5 billion euros in 2013. Net profit is projected to soar fivefold to about 5 billion euros, while net industrial debt is expected to decline to 1 billion euros after peaking at nearly 11 billion euros next year.

Fiat plans to achieve its bald targets mainly on the back of a nearly threefold jump in sales of its Jeep sports utility vehicles, whose production will be expanded to ten factories in six countries, instead of only in the US. The number of Jeep dealers worldwide is projected to rise by 28% to more than 6 000, helping the brand achieve annual sales of as much as 1.9 million vehicles over the next five years.

The automaker also plans to revive its premium Alfa Romeo brand, which sold only 74 000 vehicles last year, by investing 5 billion euros through 2018 and bringing out eight new vehicles. The new models, which will be built like before in Italy, will be unveiled by the end of 2015 and should help the brand raise its sales to almost 400 000 annually through 2018.

Fiat will also invest more than 2 billion euros in its Maserati brand, which should help triple its revenue to more than 6 billion euros. Maserati will raise the number of models it offers to six and will aim at expanding sales as much as four times to 75 000 through 2018.

Mr. Marchionne said in his opening remarks: “Today is much more than a new chapter. We are writing an entire new book.” Fiats CEO will steer Fiat through the revamp, instead of departing two years earlier as he had announced in January.

However, Mr. Marchionne faced skepticism from some analysts at the conference as Chrysler, the fourth-largest car manufacturer in the US by sales, has previously missed profit and sales growth targets in 2006 and 2010.

Moreover, yesterdays five-year goals were announced alongside a first-quarter net loss of 319 million euros, compared to a net profit of 31 million euros during the same period last year. Net revenue rose by 12.3% to 22.1 billion euros but the results were depressed by costs linked to the Chrysler acquisition, which took part in January, and the devaluation of the Venezuelan Bolívar.

George Galliers, an analyst at ISI Group, said, cited by Reuters: “The opportunity is clearly there, but 1.9 million Jeep units is a stretch.” The brokerage expects Jeep sales to jump to 1.2 million vehicles annually for the planned period.

Harald Hendrikse, a London-based analyst with Nomura Holdings Inc., said for Bloomberg: “The problem is powerpoint presentations are a lot easier than real life. These brands need a huge amount of work to get where they need to be. The world changes very slowly and you have brands at the bottom of the pile in many regions. It’s not going to happen overnight.”

Mr. Marchionne underscored the business plans aim to continue reducing Fiats reliance on the European market and refocus on the Chinese and Latin American markets. Annual sales growth at its core Fiat brand is expected at around 3.4% in Europe, Africa and the Middle East through 2018.

Fiat SpA fell by 1.17% on Tuesday in Milan to close the session at 8.47 euros per share, prior to the quarterly results release and the conference in Auburn Hills. The company is valued at $10.59 billion euros. According to the Financial Times, the 22 analysts offering 12 month price targets for Fiat SpA have a median target of 7.00 euros, with a high estimate of 10.00 euros and a low estimate of 4.00 euros. The median estimate represents a -17.36% decrease from the last price of 8.47 euros.