Fiat Chrysler Automobiles CEO Sergio Marchionne does not expect an all-out tariff war to erupt even though the Donald Trump administration shocked Canada, Mexico and Europe this week by slapping tariffs on steel and aluminum imports.
Responding to questions on Friday at FCA’s capital markets day, Mr. Marchionne said he believes that “rational people will find equitable solutions to the differences of opinion that exist” because all sides understand that a tariff war could be highly damaging.
He admitted, however, that the White House is not happy with the various levels of tariffs placed on American car exports. “There is no doubt there is a high level of dissatisfaction about the disparity of the treatment of vehicles coming into the United States and coming out of the United States into Europe,” he said.
Still, the Italian-Canadian executive acknowledged he could be wrong on his view on the potential launch on tariffs on vehicles exported to the United States. FCA’s Canadian operations would be highly vulnerable to U.S. tariffs; almost 90 per cent of Canadian output goes to the American market (Canada represents about one-quarter of FCA’s North American production capacity).
When asked what damage such tariffs could inflict on FCA, he said it depended whether the Americans applied any tariffs on a net or gross basis. For instance, if Canadian car exports to the United States more or less matched American car exports to Canada, the tariffs would not be an issue.
FCA should be able to emerge largely unscathed, he said, “as long as we play the net game ... There is a happy medium ground that could be found.”
The Trump administration has floated the idea of tariffs as high as 25 per cent on imported cars. Tariffs that high would inflict enormous damage on the German car makers since Germany exports far more cars to the United States than it imports.
The prospect of tariffs on vehicle exports did not mar Mr. Marchionne’s celebratory mood at the capital markets day event, which was held at Fiat’s Balocco test track, located between Milan and Turin. The company has positioned itself to face the greatest technological upheaval in a century by finally eliminating its net debt, he said.
“It is a significant milestone in the process of healing a structural weakness that has burdened us for too many years” Mr. Marchionne said.
To mark the occasion, he unzipped his trademark dark sweater to reveal a blue necktie, fulfilling a promise he made to FCA chairman John Elkann to don neckwear if the debt were to vanish. “Today, as you can see by my well-tied tie” – picking up a line from Oscar Wilde – “I expect when we close the books at the end of June, we will report a net industrial cash position.”
In 2013, FCA’s net debt was about US$12.5-billion. Its elimination was propelled by strong sales and margin growth at its Jeep and Ram brands, the initial public offering in 2015 of Ferrari, whose shares trade New York Stock Exchange, and the revival of the near-moribund Alfa Romeo and Maserati brands.
FCA said it plans to pay a dividend for the first time since the company was formed after the financial crisis. About 20 per cent the profit will be paid out in the dividend, equivalent to €6-billion (C$9-billion) over the next five year, said Richard Palmer, the chief financial officer.
The company’s strengthened financial firepower will help it to finance the company’s drive to electrification. “We live in a time when the speed of change is exponential and we are clearly on the threshold of the biggest revolution in personal transportation since the automobile replaced the horse and buggy,” he said.
FCA, which has been a laggard among the big auto markers in the electrification drive, said it would spend €9-billion to install various levels of electric technology in its fleet. But Mr. Marchionne said that the “vast majority” of its products would still contain internal combustion engines, even if they were paired with electric motors in some models.
It is treading cautiously on autonomous car development. Its strategy is to work with partners such as Google’s Waymo and BMW to “limit risk” in this area, said Harald Wester, FCA’s chief technical officer. “There is no evidence as to who will win the [autonomous car] race,” he said.
Still, FCA’s tentative autonomous car drive got off to a good start this week, when FCA announced the sale of 62,000, Ontario-built hybrid Chrysler Pacifica mini-vans to Waymo.
Mr. Marchionne, 65, became Fiat’s CEO in 2004, when the company, controlled by Italy’s billionaire Agnelli family (now Elkann) was on the verge bankruptcy and not expected to survive as an independent player. Five years later, Mr. Marchionne made a deal with the U.S. government to take over then-bankrupt Chrysler. The two companies were fully merged a few years later, becoming FCA, now the world’s seventh-largest auto marker.
Today, FCA is the automotive darling of the stock market. Since 2015, FCA’s shareholder value, excluding the sale or spin-off of divisions such as Ferrari, has almost doubled. In the last year, the shares are up 90 per cent, taking the company’s market value to €30-billion.
The division chiefs of Jeep, Ram, Maserati and Alfa Romeo presented their five-year plans, which promise ever rising sales as new models are launched, especially of the SUV and cross-over variety as FCA downgrades the traditional car business.
In the presentations, the Fiat brand, the largest brand by number of vehicles produced, was barely mentioned. Fiat and urban runabouts, especially the Fiat 500, and inexpensive family compacts are still strong in Italy, parts of Europe and Brazil but have a waning presence elsewhere in the world; it may be axed from the North American market.
The standout star of the FCA fleet is Jeep, which analysts have estimated produces as much as 70 per cent of the company’s profits. Jeep sales in the NAFTA region are expected to reach 1.1-million vehicles this year, up from 788,000 in 2014. In Europe and the Middle East, sales are expected to reach 260,000 units, up from 76,000 five years ago.
Michael Manley, the British head of the Jeep and Ram divisions who is considered a contender, to replace Mr. Marchionne as CEO next year, said that all Jeep models will offer electrification options by 2021. Jeep plans to offer 10 plug-in electric models and four battery-only models by 2022. Jeep is dropping diesel engines in Europe, the Middle East and Africa as regulators tighten emission requirements to reduce pollution and greenhouse gas output.
Ram trucks, which Mr. Marchionne launched as a separate brand in 2009, are also high growth products even if they remain well behind Ford and Chevrolet. FCA expects to sell 770,00 Ram vehicles this year, up from 263,00 in 2009.
In a challenge to Tesla in the luxury electric car market, Mr. Marchionne said Maserati would develop a full-electric car sports car that could go as fast as the quickest Teslas. All of Maserati drivetrains, including the electric versions, will come from Ferrari.