Fiat Chrysler bets on Jeep, Alfa revamp to go global
DETROIT (Reuters) - FIAT (F.IT)Chrysler is betting on a breakneck expansion of its upmarket Alfa Romeo, Jeep and Maserati brands to transform itself into a global carmaking powerhouse within five years.
The newly-merged group outlined a long-awaited business plan on Tuesday, aiming to revive its two historic carmaking names and persuade investors it can overcome high debts, an uncertain market backdrop and past missteps to close the gap on industry leaders such as Volkswagen and Toyota <7203.T>.
"Today is much more than a new chapter. We are writing an entire new book," Chief Executive Sergio Marchionne told reporters and analysts during a day of presentations in Detroit.
Fiat Chrysler said it would invest billions of dollars to build new models and ramp up output, and forecast sales would surge to almost 7 million vehicles by 2018 from 4.4 million last year - a target which some analysts thought highly ambitious.
"It's definitely a tall order, but I don't think we ever expected anything less from Marchionne in terms of the ambition," said Exane-BNP Paribas analyst Stuart Pearson.
"Even getting half or two-thirds of the way to those business plan targets would be a positive achievement industrially - it's then a question of what investors are expecting and what's already priced into the shares."
Fiat shares have risen 44 percent, outpacing a 5.4 percent gain for the broader sector , since the Italian company announced a January 1 deal to take full control of Chrysler and create the world's seventh-biggest carmaker. The stock closed 1.2 percent lower at 8.47 euros on Tuesday.
The group, preparing to move its main share listing to New York, hopes its combined clout and profitable U.S. business can overcome European losses and propel it into the major league.
At stake are thousands of jobs, particularly in Italy where Fiat Chrysler plans to make many of the new Alfa Romeo models.
Marchionne is seeking to mimic rivals such as Volkswagen by building global brands and a strong position in the rapidly-expanding and high-margin market for premium cars, particularly in Asia - a blind sport for Fiat Chrysler right now.
The company forecast Alfa Romeo would multiply sales more than fivefold to 400,000 vehicles as it invested 5 billion euros ($7 billion) to add eight new models and ramp up production.
Maserati sales would rise at a similar rate to 75,000 on the back of more than 2 billion euros of capital spending, while Jeep would double output to 1.9 million vehicles in 2018, almost half assembled at six new sites outside the United States.
CHALLENGES
With sales of the mass-market Fiat brand expected to remain flat in a struggling European market over the coming years, analysts said the strategy made sense, though some were sceptical of the sales targets.
"Of all the plans presented so far, Jeep is both the most interesting and the most tangible," said ISI Group analyst George Galliers from the sidelines of the presentations.
"The opportunity is clearly there, but 1.9 million Jeep units is a stretch," he added. The brokerage has forecast Jeep sales of 1.2 million in 2018.
Jeep, whose globally recognised products trace their roots to the iconic World War Two vehicle, is seen as Fiat Chrysler's biggest opportunity to tap fast-growing demand for sport utility vehicles (SUV) in Asia.
While Marchionne has a track record of dealmaking in ten year's at Fiat's helm, however, he has been much less successful at delivering a string of ambitious turnaround plans, with Fiat losing market share in its main European market amid delayed investments and some bad design choices.
There are other challenges too. Analysts expect the total cost of the revamp could top 8 billion euros a year - a big burden for a group with 9.8 billion euros of net debt.
Then there is the market backdrop. Europe's car industry is battling to recover from a six-year slump in sales, while demand in some of Fiat Chrysler's most important emerging markets, such as Brazil, is faltering.
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(Writing by Laurence Frost; Editing by Mark Potter)