Fiat Chrysler Automobiles investor presentation titled, “Confessions Of A Capital Junkie.”

An insider perspective on the cure for the industry’s value-destroying addiction to capital

Fiat Chrysler Automobiles – Purpose of the pitch

  • Goal is to provide clarity on two issues that have been raised publicly by FCA
    • Industry has not earned its cost of capital over a cycle
    • Consolidation is the key to remedying the problem
  • What this is not about
    • An excuse for FCA’s current ranking in the automotive food chain
    • Putting FCA up for sale
    • A revision to our 5 year plan (which remains a firm commitment)
    • A matter of life or death for FCA
    • SM’s final big deal
  • What this is about
    • Dispassionate look at the industry from the outside using insider knowledge
    • It is about choosing between mediocrity or fundamentally changing the paradigm for the industry

Before we get into this, we should be reminded that…

“Everyone is entitled to his own opinion, but not to his own facts.” — Daniel Patrick Moynihan, (Former US Senator and Ambassador to the UN)

Auto industry’s capex and R&D requirements have grown significantly over the past years…

Fiat Chrysler Automobiles

… and going forward, new technological challenges will continue to raise the bar on capital requirements

Fiat Chrysler Automobiles

Product development costs are consuming value at a much faster rate than in other industries …

Fiat Chrysler Automobiles

… and high operational leverage amplifies profitability swings across the cycle …

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… resulting in structurally low and volatile returns

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Why did this happen? OEMs spend vast amounts of capital to develop proprietary components, many not really discernible to customers

Fiat Chrysler Automobiles

One industry solution focuses on reducing the number of active platforms and increasing scale …

Fiat Chrysler Automobiles

“More of our components will be common, and more of our vehicles will be on global architectures” — Dan Akerson, GM (2011)

 

“I’m really proud to say that we’ve reduced that number down to 12 global platforms. In 2016 we’ll reduce that down to a further nine global platforms, and our team is working towards a further consolidation of that to get down to a long-term target now of eight global platforms […] that obviously yields tremendous benefits for us as an enterprise” — Raj Nair, Ford Group Vice President-Global Product Development (2015)

… and some OEMs are trying larger scale commonization across diverse brands…

Fiat Chrysler Automobiles

“By the middle of 2020, we plan to expand TNGA (Toyota New Generation Architecture) to approximately half of the line-up […] —Traditionally we have tended to focus on developing individual models and lacked the total alignment and consistency, which will change with a company-wide effort.” — Mitsuhisa Kato, Toyota Executive VP (2015)

See the full presentation below.