FCA recovers financially from difficult year
Fiat Chrysler Automobiles (FCA) experienced a clear recovery at the end of 2019, a difficult year for the group. This allows the Italian-American manufacturer to confirm its objectives for this year.
FCA also reached an agreement with the Italian tax authorities, which accused it of undervaluing Chrysler to pay fewer taxes. FCA can, therefore, calmly tackle its merger with its French counterpart PSA. The two groups expect to complete the merger “by the end of the year and early 2021 at the latest”.
Nevertheless, the coronavirus epidemic represents a challenge for the manufacturer. One of its European factories may be forced to stop production due to supply problems from China. FCA boss, Mike Manley, said that FCA will know within two to four weeks if supplies are stopped to that plant.
This is the first coronavirus problem for the European car industry. Hyundai stopped production in South Korea on Wednesday due to a lack of parts. Volvo switched from a Chinese to a South Korean supplier last week. Other manufacturers in Europe also have backup plans, but the question is whether they are always perfectly suited to the needs, in case the virus gives trouble. The worldwide impact is expected to be significant.
2019 has been a complicated year for FCA, which includes Fiat, Chrysler, Jeep, Maserati, Alfa Romeo, Dodge, and Ram. Its net profit fell by 19% to 2,7 billion euros, while its sales fell by 2% to 108,18 billion euros globally.
Nevertheless, in the fourth quarter, the group saw an upturn, with a 1% increase in sales, but above all a 35% jump in net profit to 1,57 billion euros. This allows FCA to approach 2020 with more optimism.
The Italian-American group has confirmed all of its objectives for 2020, targeting an adjusted EBITDA of more than 7 billion euros, compared to 6,67 billion in 2019, a cash flow of more than 2 billion, and adjusted earnings per share of more than 2,8 euros, compared to 2,73 euros last year.
FCA sold 4,41 million vehicles during the year, down 9%, mainly due to inventory reductions in North America. The weak Chinese market also affected sales, resulting in a 29% drop in deliveries to Asia-Pacific (60.000 fewer vehicles).
The group posted record profitability figures in North America, driven by its Ram and Jeep brands. This region alone, where it makes slightly more than half of its vehicle deliveries, recorded an adjusted operating profit (Ebit) of 6,69 billion euros, up 7%.
At the same time, FCA suffered losses in Europe, especially with its Maserati division, which is experiencing major difficulties.
Meanwhile, the group has reached an agreement with the Italian tax authorities. It accused FCA of having undervalued Chrysler at the time of the take-over, in order to pay less tax. Under the terms of the agreement, FCA will increase the taxable capital gain by 2,5 billion euros, offset by 2,5 billion in tax losses. There will, therefore, be no impact on the group’s accounts.
The dispute concerned the structure created in October 2014 following Fiat’s takeover of its American counterpart Chrysler. The group, born in Turin, then transferred its headquarters to the Netherlands and its tax headquarters to the United Kingdom. As such, it was subject to a capital gains tax, which is imposed when groups move their assets outside Italy.
The Italian tax authorities accused Fiat of having undervalued Chrysler by 5,1 billion euros. As the tax rate at the time was 27,5%, this left Fiat with a potential recovery risk of 1,3 billion euros (1.5 billion dollars), Bloomberg wrote in December.