Fiat Chrysler's SUV shift fuels profit jump as sales decline

[MILAN] Fiat Chrysler Automobiles NV is reaping the rewards of an aggressive shift to lucrative SUVs such as the Jeep Compass, Maserati Levante and Alfa Romeo Stelvio, posting a 17 per cent jump in third-quarter profit despite weaker sales and deliveries.

By sidelining traditional sedans and hatchbacks, Chief Executive Officer Sergio Marchionne is tapping robust demand for the rugged and roomy models to lift the Italian-American automaker's margins to 6.7 per cent from 5.6 per cent a year ago. The results underpin the company's goals of increasing annual profit by at least 15 per cent to more than 7 billion euros (S$11.2 billion).

"Marchionne's shift to SUVs is paying off as you see a jump in profit with lower revenue, especially in North America," said Vincenzo Longo, a strategist at IG Market in Milan.

The long-time Fiat CEO is emphasizing profit over growth as he seeks to prepare the company for his departure in April 2019. The goal is to shore up the balance sheet to put the carmaker in a better position to weather the changes sweeping the auto industry. Marchionne has already flagged that the effort is set to involve a spinoff of component operations, such as Magneti Marelli.

Fiat shares rose as much as 4 per cent in Milan after the figures were released. The stock has surged 67 per cent this year, valuing the company at 21.6 billion euros.

Adjusted earnings before interest and taxes rose to 1.76 billion euros in the third quarter, beating the 1.67 billion-euro average of seven analyst estimates compiled by Bloomberg. Revenues declined 1.6 percent to 26.4 billion euros as deliveries slipped 1.4 percent.

Marchionne is spending on the products and technologies that make money now, taking a different approach to many competitors which are ramping up spending to develop self-driving, electric cars. Fiat's conservative approach is aimed at eliminating debt by the end of next year.  The company reaffirmed its goal of reducing net industrial debt to less than 2.5 billion euros by the end of 2017. That means Fiat expects to slash nearly 2 billion euros in borrowings in the final three months of the year, after trimming just 180 million euros through September. Burdened by the weak dollar, debt rose slightly in the quarter to stand at 4.4 billion euros at the end of September.  The euro's 12 percent gain against the dollar this year acts as a headwind for the company in its key North American market. In Italy, Fiat builds models such as the Jeep Renegade, the Alfa Romeo Giulia and the Maserati Ghibli, which are sold in the US. Increased shipments of the Stelvio as well as Ram trucks helped its margin in North America widen to 8 per cent from 7.6 per cent.

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