Fiat Chrysler to invest US$1b, pay bonuses on US tax cut

[WASHINGTON] Fiat Chrysler Automobiles is investing US$1 billion in a Michigan truck factory and paying worker bonuses in the wake of a US tax cut, gestures that could come in handy amid major policy matters being sorted out in Washington.

The Italian-American carmaker will share the spoils of a lower corporate tax rate by sending US$2,000 cheques to about 60,000 US workers. Fiat Chrysler also will spend more than US$1 billion and add 2,500 jobs at a factory near Detroit to produce heavy-duty Ram pickups that the company been making in Mexico.

The moves may prove useful to Fiat Chrysler's cause. Threats by US President Donald Trump to withdraw the US from the North American Free Trade Agreement or dramatically rework the deal have spurred warnings from the car industry of major harm. The president also has said he'll cut carmakers a break on fuel economy standards his administration is reviewing and explicitly asked them to return the favour by hiring more workers.

"At least making Trump's tax plan look like it's rewarding workers very quickly should bode well with the administration," said Dave Sullivan, an analyst at AutoPacific Inc., said by phone.

"Part of it also is showing the administration how many workers they have here in the US" and signalling the company will "pump that money right into the economy."

The investment follows a dramatic jump in Fiat Chrysler stock amid optimism about its product lineup being revamped with fresh trucks and sport utility vehicles. The company's US-listed shares have surged 31 per cent already this year after almost doubling in 2017. The carmaker is set to reveal revamped Ram 1500 and Jeep Cherokee models at the Detroit car show next week.

"It is only proper that our employees share in the savings generated by tax reform and that we openly acknowledge the resulting improvement in the US business environment by investing in our industrial footprint accordingly," chief executive officer Sergio Marchionne said.

Fiat Chrysler has been producing heavy-duty Ram pickups in Saltillo, Mexico. The company's plant there will be re-purposed to build commercial vehicles.

Consolidating Ram production in Michigan will help protect Fiat Chrysler against possible disruptions to Nafta. Mr Trump reiterated a threat to pull out of the trade accord on Thursday, a day after Canadian officials said they viewed the odds of withdrawal as rising.

The investment "is a hedge by FCA against the increasing likelihood that Nafta will be dropped or renegotiated to favour manufacturing in the US," Erik Gordon, a professor at the University of Michigan's Ross School of Business, said.

"It's the best news for Michigan auto workers in a long time."

Fiat Chrysler announced a year ago that it would invest in its Warren, Michigan, factory to produce the Jeep Wagoneer and Grand Wagoneer SUVs and that the plant would be able to make the bigger Ram trucks.

The roughly US$120 million payout to employees will be in addition to profit-sharing checks that United Auto Workers members as part of Fiat Chrysler's union contract. Wal-Mart Stores said earlier on Thursday it will boost wages to US$11 an hour and also give as much US$1,000 bonuses to employees after Mr Trump and Congress cut the US corporate tax rate to 21 per cent from 35 per cent late last year.

BLOOMBERG