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What Is Fiat S.p.A.'s Grand Plan for Chrysler?

The Maserati Ghibli is Fiat Chrysler's alternative to the BMW 5 Series. Maserati's U.S. sales are up sharply this year. Photo credit: Fiat Chrylser

What's the deal with Fiat Chrysler (NASDAQOTH: FIATY  ) ?

Its merger was five years in the making. Now that it's completed, the company is looking toward a listing on the New York Stock Exchange -- hopefully before the end of the year, it says.

When that happens, will the mashed-up Italian-American automaker be a buy?

I think we need more information before we know for sure. Fortunately, we're going to learn a lot more soon.

A new five-year plan for a newly merged company
CEO Sergio Marchionne is expected to announce the company's next five-year plan in May. It's widely expected that this is when Marchionne and his team will explain how they will take the disparate pieces and regional strengths of Fiat and Chrysler and turn them into cohesive parts of a truly global automaker.

We know some of what they'll say. There are plans to invest heavily in the Maserati and Alfa Romeo brands to create a full luxury lineup that can compete against BMW (NASDAQOTH: BAMXF  ) and Daimler's (NASDAQOTH: DDAIF  ) Mercedes-Benz brand -- and generate the kind of luxury-car margins that have made VW Group (NASDAQOTH: VLKAY  ) so profitable in recent years. (Some of that is already happening, and more is on the way soon.) 

There are plans, already unfolding, to turn Jeep into a major global brand. The new entry-level Jeep Renegade is a big part of those plans, as is a significant expansion into China.

I expect that Marchionne will move further forward with his plan for the Chrysler and Lancia brands to become regional twins, much like General Motors' (NYSE: GM  ) Buick and Opel brands, which are moving toward closely related model lineups sold as Buicks in North America and China and Opels in Europe. 

I expect that there will be a lot more under-the-skin parts-sharing across brands, in much the way that VW is able to build Volkswagens and Audis and even some Porsches on common architectures, saving millions in engineering costs.  

Mostly, I expect it to be an aggressive, ambitious plan, one that will raise eyebrows among analysts who see Fiat Chrysler's better-funded, more advanced competition as a huge headwind. 

But here's the thing: Marchionne's last five-year plan raised an awful lot of eyebrows, too, but he proceeded to do pretty much what he said he would. 

That should give the company more credibility this time around.

The last plan worked out better than most expected
Back in 2010, Marchionne said that Fiat would cut costs at already-cut-to-the-bone Chrysler, while overhauling its uncompetitive product line quickly and cheaply.

The world laughed, mostly. But then he (and his team at Fiat, and the battle-hardened folks at Chrysler) actually went and did it.

The Jeep Grand Cherokee has been posting big sales (and big profits) for Fiat Chrysler. Photo credit: Fiat Chrysler 

Significant refreshes of the Dodge Charger, Chrysler 200, and other vehicles stopped short of the clean-sheet redos that many had thought would be necessary -- but they were made more stylish, more comfortable, more up-to-date, and nicer to drive.

Sales took off, and Chrysler started reporting steady profits.

That surprised quite a few analysts, including your humble Fool. It also bought Marchionne and his management team the benefit of the doubt. Their next five-year plan will get more serious consideration.

The upshot: I'm not investing yet, but I'm watching closely
There's still a lot that needs to be done. While some of Chrysler's recent all-new products were hits -- the Jeep Grand Cherokee, for instance --others were misses, like the not-quite-there Dodge Dart.

Fiat Chrysler needs a more consistent product-development effort. And it needs to manage its brands well: It's not enough to learn the parts-sharing lesson from VW; it also needs to learn how VW makes an Audi feel like an Audi despite all the VW parts. Its new Alfas and Maseratis need to deliver a convincing luxury-car experience, because their competitors will.

And Marchionne needs to explain more fully how the company plans to harness and build on its global scale.

But I won't be surprised if he makes a convincing case for all of that next month. Stay tuned.

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Read/Post Comments (2) | Recommend This Article (2)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On April 30, 2014, at 1:34 AM, LouisTewl wrote:

    JR - Of COURSE you're "Still Watching" - FCA's stock has only doubled over the past year, and is still trading at the top!

    I would wager a fair amount of money that you, and, by extension, TMF will NEVER own or recommend FCA - your on-going ANTI-FCA campaign mentality and position would be too hard to reverse without losing whatever credibility said campaign hasn't already cost you.

    Fortunately, FCA will succeed, and their stock will go up with or without you and TMF and your propatorial machine.

    You say in your above article "The world laughed, mostly." Not so, JR, even though you WISH it were. A number of investors bought FIATY stock at $6.00 per share while you were laughing.

    However, ever since you stopped laughing you (and TMF) have been trying to shore up your positions in GM and Ford with a negativity campaign against FCA, although I don't take it personally, mostly.

    Well, outside of the extensive amount of time and effort it has taken me to rebut your irritatingly misleading and disingenuous articles, I am among the FCA investors who are laughing now, and it's still only 2014 - just wait until 2015, when FCA is fully listed on the NYSE and trading up to $18.00 per share-

    Maybe then you and TMF MIGHT be recommending FCA, but I seriously doubt it - and if you ever do, it will probably be time to take profits.

    Fool On.

  • Report this Comment On May 01, 2014, at 1:28 PM, TMFMarlowe wrote:

    @LouisTewl: Your comments always make me laugh, for which I thank you. I do wish you'd explain exactly how you think my writing about FCA's stock could possibly influence F's and GM's share prices. It's almost as if you think these are the only three companies in the entire global auto business.

    FCA "doubled" because it got clobbered, rightfully, and sort of rebounded. Good for you if you made that trade at the right time; but for a fundamental investor the business case is still a lot hazier than Ford's (or VW's, or even GM's) from where I sit.

    (To take just one of your points, the reason Fiat isn't closing its Italian factories is because it can't -- so it's scrambling to come up with products to build at them, even though those products could be built more cheaply elsewhere.)

    FCA has much potential, but also much risk. It still has some big holes in its product line and global map, and not a ton of cash available to fill those holes. Meanwhile, as for Ford, if you think it's "too big" now, wait until you see where it is 3-4 years from now...

    John Rosevear

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John Rosevear

John Rosevear is the Fool's Senior Auto Specialist. John has been writing about the auto business and investing for over 20 years, and for The Motley Fool since 2007.

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