At a time when sales of new vehicles are reaching pre-recession levels and sales of highly profitable SUVs and trucks are red-hot, Detroit automakers are absolutely raking in the dough -- well, at least Ford (NYSE:F) and General Motors (NYSE:GM) are. Fiat Chrysler Automobiles (NYSE:FCAU), on the other hand, isn't having nearly as much fun this week with its third-quarter earnings call.
Here's a look at what happened as FCA swung to a surprising net loss, and a couple of very interesting takeaways from the automaker's conference call.
By the numbers
Starting from the top: FCA's net revenue in the third quarter topped 27.5 billion euros, which was a strong 17% increase over last year's 23.5 billion euros during the same time period. However, that's where much of the good news ends. FCA's EBITDA declined to 1.7 billion euros in the third quarter compared to last year's 2.1 billion euros. Furthermore, the automaker's EBIT plunged to 360 million euros from 926 million euros during last year's third quarter.
A silver lining for investors: FCA's adjusted-EBIT, which excludes one-off after-tax charges due to the current regulatory and recall issues, increased to 1.3 billion euros in the third quarter, compared to last year's 968 million euros. However, that silver lining pales in comparison to the results of other mainstream automakers.
Crosstown rivals General Motors and Ford Motor Company posted very healthy pre-tax profits of $3.1 billion and $2.7 billion, respectfully, generated by red-hot SUV and full-size truck sales, compared to FCA's adjusted-EBIT of 1.3 billion euros, or about $1.4 billion. Even worse, FCA swung to a surprising net loss of 299 million euros in the third quarter due to charges to earnings to cover recall costs as well as vehicles lost in a port explosion in China.
Despite posting less-than-impressive profits compared to rivals GM and Ford, FCA had some interesting aspects to its third-quarter earnings call.
What better way to pick up the spirits of disappointed investors than to explain a strategy aimed at taking profits from its Detroit rivals? That's exactly what FCA CEO Sergio Marchionne aims to do, suggesting that FCA would use its Ram truck brand to field a viable competitor to GM's and Ford's large SUV products, the Chevy Tahoe and Ford Expedition.
It's an interesting move after FCA separated its Ram truck brand image from Dodge, and the latter still has a capable large SUV, the Durango. However, if a Ram SUV could rope in incremental sales, rather than cannibalize sales from the Durango, it could certainly help FCA's North America operating margin, which was 6.7% for the third quarter, to better compete with GM's and Ford's respective North American margins of 11.8% and 11.3%.
But the potential Ram SUV strategy wasn't the only change on Marchionne's mind.
It wasn't long ago that FCA's ambitious plan to revive its Alfa Romeo brand and increase the footprint of its Maserati brand was a big deal. Now, that seems to be fading from Marchionne's list of top priorities. Due to continued weakness of imported luxury vehicles in China amid the country's economic slowdown, FCA is reassessing its Alfa Romeo strategy.
However, it's important for investors to note that it's more of an adjustment to the strategy, rather than backing off entirely. Marchionne noted that FCA stands by its 2018 sales projection of 400,000 unit sales globally -- at least for now -- but that a large chunk of the expected volume from China would be absorbed in other regions. Basically, if investors don't start seeing more Alfa Romeos on the road in America, expect a downward revision in FCA's Alfa Romeo sales projections in the next year or two.
Ultimately, FCA still lags behind the profitability of its crosstown rivals, and its brands have consistently taken a beating in Consumer Reports' annual auto reliability surveys. Compared to all the automotive investments out there, FCA remains debt-laden and much riskier. The company's third quarter further proves that it has a ways to go before becoming a solid investment.
Daniel Miller owns shares of Ford and General Motors. The Motley Fool recommends Ford and General Motors. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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