Monday, 4 August 2014

Companies Focus – The Global 11 Automakers - Q2 2014 Results (thus far)...Part 2

As the successive adjunct to a previous detailing of Q1 positioning, below are the continued summaries and analysis commentary to date from most recently availed Q2 reports.

Provided relative to the respective release schedule below:

Previously -
Daimler: 23.07.2014
GM: 24.07.2014
Ford: 24.07.2014
Hyundai 24.07.2014

Herein -
Honda 29.07.2014
Renault 29.07.2014
Peugeot 30.07.2014
FIAT-Chrysler 30.07.2014

To Come -
Volkswagen 31.07.2014
BMW 05.08.2014
Toyota 05.08.2014

Honda -
(Q1 2015 = Q2 2014)

Unit Sales
Group Level: 6.708m (across motorcycyles, cars, power products)
Consolidated: 4.862m (across motorcycles, cars, power products)
Group Level n/a
Consolidated ¥2,988.2bn (+5.4%)
Group Level n/a
Consolidated ¥198bn (+7.6%)
Net Income
Group Level n/a
Consolidated ¥146.5bn (+19.6%)
EPS (ord) ¥81.29 (+¥13.32)
Net Liquidity ¥1,084.4bn (-5.6%)
Operating C-F ¥58bn (EBIT - ¥140bn CapEx)
Free Cash Flow ¥13.5bn
Profit Margin 6.6%

- EBIT gains driven by volume and model mix
- boosted by replacement and all new model launches in Japan and Asia
- positive FX impact of weaker Yen vs US$ and €
- overhead cost-down exercises
- increases in SG/A costs
- increase in depreciation charges for new plant start-up
- CapEx reduced by 18,2% yoy

By Division:

Geographically, Honda saw its operating income and margins in Japan remain flat, that of N. America contract, Europe substantially improve but just below break-eve, Asia improve substantially and ROW decline.

Motorcycles -
At the Group Level 4.137m units (+2%), whilst at Consolidated Level 2.457m units (+3.6%). Revenue ¥407.7bn, EBIT ¥ 43.9bn (+3.3%), Operating Margin 10.8% (from 10.7)
Sales in Japan dropped to 48k units (from 54k the previous year), N. America was flat at 62k yoy, Europe up to 60k (from 52k), Asia up to 3,593k (from 3,479), RoW down to 374k (from 407k).
India proved the greatest demand driver, with the well entrenched Activa, CB Shine and Dream Yuga selling well. However other EM regions such as Thailand, Africa and S. America saw sales falls. Capital Expenditure fell to ¥8.8bn (from ¥12.5bn a year previously)

Cars -
At the Group Level 1.061m units (+6.2%), Consolidated Level 0.895m units (up +4.3%).
Revenue ¥2,319.5bn, EBIT ¥99.8bn (+3.6%), Operating Margin 4.3%
Sales in Japan grew well to 202k units (from 140k a year previous), N. America contracted -3% to 445K (from 459k), Europe flat at 40k yoy, Asia at 316k (from 285k), RoW down to 58K (from 75k).
The cross-segment effects of a remodelled Fit (Jazz) B-segment car and Odyssey mid-size MPV plus all new N-WGN kei car and Vezel cross-over boosted Japanese sales, whilst D-segment CRIDER sedan and Jade estate/wagon was favoured in China.
CapEx reduced to ¥129.8bn (from ¥155.4bn)

Power Products -
At the Group Level 1.51m units (-5%), Consolidated Level likewise.
Revenue ¥77bn, EBIT ¥2.3bn (+77%), Operating Margin 3.1 %
Generally, an increase of small engine sales to OEMs in Japan as prime component parts for various applications at 68k units (from 63k), but decrease for similar in N. America at 773k (from 828k), and a decrease in engine sales for agricultural uses across Thailand and Indonesia, creating Asian contraction at 336k (from 364k).
CapEx reduced to ¥1.8bn (from ¥3.3bn)

Financial Services -
At the Group Level the full vale of total subsiduary inclusive assets rose to ¥8,009bn (+ 11%).
Revenue ¥189.3bn (+12.5%, EBIT ¥51.8bn (+16.1%), Operating Margin 27.4%
CapEx grew to ¥0.1bn (from ¥0bn a year previously)

Announced Outlook:

Honda Motor views the FY2015 financial year (running March '14 to March '15) as promising the following: net sales ¥12,800bn (+8.1%), EBIT ¥755bn (+3.6%), operating margin of 6%, equity income of affiliates ¥155bn (+17%), net income ¥600bn (+4.5%), EPS ¥332.91 (up ¥14.37).

This based upon essentially flat cross-divisional sales: Motorcycles -0.9%, Cars flat 0% and Power Products -0.2%.


Like all Japanese auto-makers, Honda has sought to re-orientate itself toward the advantages of pan-Asian market expansion. This seen by the manner in which specific model names (City and Mobilio specifically) have been applied to enlarged vehicle packages from over successive generations so as to move lock-step with improved populace purchasing power and desire for enlarged size and comfort from small city cars to sub-compacts

India's previous upward market dynamic from the Suzuki Alto based Maruti 600 to newer larger models reflective of the general pan SE Asian trend, yet recognised as within the lower-cost category. This seen by Honda's 'dedication' of the new sub-compact Mobilio 7-seat estate/wagon for Indonesia (derived from the Brio), even if intentionally priced at the higher end of 'lower-cost'.

Though somewhat blighted by the damaging sales reduction impact of the previous geo-political impact of the 'island tensions' in 2013, the present dispersal of the military concern has buoyed important China market sales.

However, N. America obviously still retains market importance, especially so at present. Thus Honda has chosen to be more brazen about pricing elasticity on run-out models such as 'old' Accord, seeking to boost volume sales in a still value conscious market versus Camry, Fusion, Malibu and Chrysler 200. Beyond pricing regards product function added-value, Honda has sought the provision of low cost 'lifestyle solutions'. The 2014/5 Odyssey Minivan is fitted with an optional stow-away vacuum cleaner within a rear internal trunk panel: a simple but very effective USP that recognises the lifestyle and profession requirements of its users, from that of young families' to courtesy-car drivers.

As for Honda's executive presented FY2015 'outlook' of essentially flat overall sales expectation appears slightly conservative. This given the slightly more subdued but still healthy uptick in N.America, a well managed “soft landing” at 7.5% growth in China and what looks to be a well executed effort to re-align corporate transitions (and new enterprise opportunity) away from state-power links, which in turn bodes well for the pan-Asian supply chain and so pan-Asian economies.

However, slightly greater confidence is shown within the financial forecast, with Revenue +8.1%, EBIT + 3.6% and Net Income +4.6%. Furthermore the overall reduction in CapEx, Depreciation and Research/Development should conserve ¥26bn.

Renault -
(only H1 figures reported,
so, calculated as H1 - Q1 = Q2)

Unit Sales 729,759 (1,365,998 - 636,239) [H1 +4.7%]
Revenue €11.56bn (€19.820bn - €8.257bn) [H1 -3%]
EBIT €0.232bn avg (€0.464bn / 2 quarters) [H1 +270% approx]
Net Income €0.4005bn avg (€0.801bn / 2 quarters) [H1 +900%approx]
EPS (ord) €2.75 [H1]
Net Liquidity €-0.970bn (from €1.742bn year previous) [-55%]
Cash at Hand €11.3bn (+€0.6bn over H1)
Operating C-F €-123.5bn (EBIT - [€0.711bn / 2 quarters])
Free Cash Flow €-0.36bn (from €-0.031bn year previous) [>-1000%]


- negative H1 € currency headwinds (€800m in variance analysis)
- positive ongoing 'monozukuri' cost-down efforts to off-set FX effect.
- ongoing deployment of 'push-pull' inventory ordering to 'wave balance' overall stock levels across independent and group dealerships

By Division:
Automotive -
Although registrations grew 4.7% over H1, Autos revenues actually fell by 3.3% to €18.739bn vs €19.383bn a year previously. Since the Q1 report showed Autos revenue of €7.727bn, it is calculated that Q2 offered an improved turnover of €11.012bn.

Of H1's 4.7% worldwide increase in car and LCV registrations (vs 4.1% TIV), Renault saw a majority of 11 country gains amongst its 'top 15' countries; its top 2 regions, France and Brazil offering the best revenue stream marriage of improved volumes and market-share.

Though a problem previously during the EM good times, Renault's still overtly Euro-centric template (representing 57% of all sales and 10.2% market-share) experienced a strong overall boost +18% yoy. It gained 2.3% share in France, able to reach 27.3% domestic sales share. So overcoming losses in other regions. Eurasia -7%, Euro-Med-Africa -15%, the Americas -2% and Asia-Pacific -12%. However, Turkey (Oyak-Renault) saw small marginal gains, as did S.Korea (Renault-Samsung). Russian sales (via Avtovaz) stayed flat yoy.

Critically for H1, whilst the yoy sales growth of Renault badged vehicles has been effectively flat (at 1.063m units), the loss of yoy sales across much of the range has been partially countered by the newer compact cross-over Captur. However it seems Dacia's 24.4% increase (to 263,311 units from 211,607 previously) substantially supported the bottom-line, given the high 'in-built' margins (via amortised components and lower fixed and variable costs) of the Romanian company's business model.

However, as was the strategic intention when Renault-Nissan was created – to create an pan-regional and anti-cyclical entity – it was Nissan's contributions of €0.415b in Q1 and €0.374bn in Q2 that has been of crucial support.

In a similar manner, but closer to home, in order to create an off-set business model during these uncertain times, Renault has sought to create what it calls a 'virtuous' network of sales channels, with proportionate sales between private retail and fleet, and lesser to rental companies and others.

Financial Services
RCI Banque saw a revenue improvement for H1 to €1.081bn from €1.058 a year previously. Given that RCI's Q1 revenue was €0.53bn, its Q2 turnover is obviously calculated as €0.551, showing a 4% improvement.

Now operating as a banking entity taking deposits under the ZESTO name – operating beyond conventional auto financing and insurance realms since 2012 – RCI has gained account deposits of €5.107bn, primarily from German customers (75% or so of savings base), French customers and now as of May 2014, a new avenue of Austrian savers.

Announced Outlook:
Given the challenges previously faced by mainstream European VM firms from 2009 onward, it was little surprise that reporting and guidance transparency was generally opaque. However, Renault's previous non existent, then scant, guidance has now taken on a more cautiously optimistic expanded manner for H2:

Positives - reduced headwinds by € FX effect, ongoing operational cost-down efforts”.

Negatives – European market momentum*, ongoing EM regional decline, product life-cycle effects”

[NB * investment-auto-motives recognises that for “Euro markets momentum” Renault actually sees it positioned as a mid-positioned, unavailable 'amber light'].

CEO and Chairman Ghosn and his executive Board do however state that...

In the first half, trends in the Group's key markets were contrasted”. While its main emerging markets were slowing down, the European market recovery was stronger than foreseen. In this still uncertain environment, the Group expects a continuing decline in the market of its emerging countries, but upgrades its previous 2014 expectations for the European market at 3-4%, from 2-3% previously”.

Renault confirms its guidance:
- increased registrations and Group revenues (at constant FX rates)
- improved Group and Auto Division operating profit
- achievement of +ve Autos FCF


Renault's model range maintains its conventional hatchback's with Twingo, Clio, Megane, and its lead in compact MPVs with Scenic. Megane and Scenic however have become 'long in the tooth'. Newer Twingo has from its inception been under pressure from competitors (eg Hyundai i10, Skoda Citigo) hence the rational for its shared-costs development work with Daimler, thus projected volume sales may be problematic outside of France. Positively however, though late by sector standards new Captur provides for an “urban cross-over”. The modus operandi being to intentionally arrive 'late' so as not to cannibalise Nissan's European sales of Juke, and to also critically deploy much of Juke's (Clio shared) amortised platform and components for the seemingly “all new” vehicle; so able to boost per unit ex-factory margins. Reports indicate that sales-wise across Europe since Q4 2013, it now leads its sibling models Juke and Dacia Duster, and badged as the Samsung QM3 is expected to sell well locally given renewed S. Korean economic strength.

The Dacia brand continues to demonstrate its worth as the value-marque during these value conscious times. The highly positive customer reaction to Duster since 2010 demonstrates its relative uniqueness. Though conventionally engineered from a car platform, its SUV-like character (rather than that of softer cross-over) and relative 'on-demand' off-road capability appeals to a broad section of buyers, from suburban families seeking more on-road presence, spacious functionality and winter safety, to small enterprise 'tradies' (plumbers, carpenters etc) choosing its comfort, style and (construction site) useful 4WD. over that of a small van; a similar need to those (farmers and others) who live in the countryside.

Thus Renault-Nissan holds the top three best-selling cross-over/SUVs in Europe, with the possibility that ex-Juke owners seeking a change opt for Captur or Duster, so retaining much of the customer-base.

Critically (unlike Daimler's constant reporting of its Van division) Renault's H1 presentation failed to spotlight the importance that its LCV division plays. Renault is a European sector leader providing obviously own-branded vans of Kangoo, (Dacia) Dokker, Trafic and Master rebadged as Nissan when useful (eg Interstar). Moreover, Trafic is also licensed to GM's Vauxhall-Opel so bring-in either per unit royalties or an annual license fee.

Since during any economic upturn, van sales volumes gain from the commercial imperative to order LCVs, as opposed to the typical latter wave of private car sales.

Somewhat hidden away within accompanying earnings report, a list of H1 registration and productions statistics was provided. This showed:

- Kangoo +6.7% (74.4k units vs 69.7k year previous)
- Dokker +28.5% (27.9k units vs 21.7k)
- Trafic + 11.8% (35.1k units vs 31.5k)
- Master -2.5% (43.8k units vs 44.9k)

[NB Master now under greater pressure from Merrcedes Sprinter and VW Crafter]

Given the headwinds presented by the ongoing FX effect of the comparitively strong Euro, Renault's executive team may well be hoping that the ECB's “Draghai's Put” will be brought into play to provide an export earnings boost from Chinese JV equity contributions, continuing Nissan contribution primarily from N.America and its own portion of non-European sales.

Whilst overall unit sales have suffered in S. America and Central America, with Renault's sales down likewise, it has managed to pick-up market-share with obviotus marketing exercises such as the 'GT-Line' (Renault badged) Sandero, so offering the appeal of value and apparent sportiness.

Whilst Renault is well placed to enjoy the European economic revival, when finally under-way, given its updated model range and prevelence in compact cross-over/SUVs, the equity market's general confidence – seen in Renault's high p/e levels – has been premature; hence the unsurprising stock correction upon H1 earnings release.

Peugeot SA-
(only H1 figures reported,
so, calculated as H1 - Q1 = Q2,
or as Autos and Parts+Financial Services)

Unit Sales
Revenue (Cons) €14.3bn (H1 €27.616bn – Q1 €13.3bn) [H1 -0.44%]
EBIT €0.2385bn (H1 €0.305bn + €0.172bn = €0.477bn / 2 qtrs) [H1 >+600%]
Net Income €0.1885bn (H1 €0.207bn + €0.17bn = €0.377bn/ 2 qtrs) [
Consolidated €0.021bn (H1 €-0.145bn + €0.103bn = €-0.042bn / 2 qtrs)
EPS (ord) €-0.25
Net Liquidity €11.872bn (from €9.91bn year previously)
Operating C-F €0.83bn (H1 €1.66bn / 2 qtrs)
Free Cash Flow €0.755bn (H1 €1.514bn / 2 qtrs)

- agreement of new €3bn syndicated credit facility in April
- negative € FX impact for H1 of €251m
- favourable impact of pricing policy, model mix, profit channels
- France and Italy market share beats national TIV uplifts
- H1 China launch of 2008 and DS5 LS / H2 China launch DS6 WR
- H1 Europe launch of new C1 and C4 Cactus / H2 Europe 508
- reduced 2014 CapEx to >7% (thereafter 7-8% of revenues)
- vehicle inventories in midst of reduction (valued €4.5bn in '13, €3.5bn '16)
- Banque PSA alliance with Santander in Europe

By Division:
Autos -
H1 revenues of €18.61bn, which when Q1 revenues of €8.925bn are subtracted, shows €9.685bn for Q2. H1 Operating income of €0.007bn, when divide over 2 qtrs showed €0.0035, impacted by the H1 €-0.1bn special item charge for restructuring costs. PSA's variance analysis shows that the general operating environment gave a headwind of €-0.333bn, but more than countered by internal gains of €0.878bn for the H1 period.

H1 Worldwide sales up +5.5% to 1.541m units. Of which: Europe +11.7% to 956k units, China and SE Asia +27.7% to 360k, Latin America down -26.8% to 107k, Eurasia down -26.5% to 27k, India and Pacific down -3.7% approx 10k, Middle East / Africa down 37.2% to 82k. Altogether, ex Europe 'International' sales contracted by -3.2%.

Components -
Faurecia had H1 revenues of €9.328bn, which subtracting Q1 revenues of €4.518bn, shows Q2 of €4.81bn. H1 revenues marginally improved by +0.68%, with EBIT improved by €0.055bn to €0.266bn.

Financial Services -
Banque PSA had H1 revenues of €0.848bn, which subtracting Q1 revenues of €0.418bn, shows Q2 of €0.43bn. H1 revenues down by €-0.04bn, with EBIT down €-0.026bn. Its penetration rate dropped by 1.4% to 27.3%, whilst the number of new lease and finance contracts fell by 15,039 to 360,781, as the total outstanding loan value contracted by €0.5bn to €21.9bn.

Consolidated -
As reported excludes €0.121bn H1 income from China's DPCA and CAPSA alliances, which when re-merged shows Net Income of €0.1885 + €0.0605 = €0.249bn. The major item of note is the rise in FCF at €1.514: primarily consisting of: €1,459bn Faurecia provision + €1.139bn in Autos working capital + the large equity derived cash injection of €2.944bn. Set against primary cost of CapEx of €1.159.

Announced Outlook:
In 2014 PSA expects to see automotive demand increase by around 3% in Europe and 10% in China, but decline some 7% in Latin America and around 10% in Russia”

It is aiming to deliver recurring positive Group operating free cash flow by 2016 at the latest, and an aggregate €2bn in Group operating free cash flow over the 2016-18 period. It is also targeting an operating margin of 2% in 2018 in the Automotive division, with the objective of reaching 5% over the period of the next medium-term plan, covering 2019-23”


PSA executives note the need to alter the dealer forecourt vehicle inventory management of independent and group dealers. Previously old stock had accumulated through the downturn with governmental eco-schemes to support national auto-sector also adding an influx of new capacity so raising to inventory levels to record highs. Now that that the pressure to “sell, sell, sell” has retracted somewhat, the value of lower inventory levels should be seen in policy-driven “floor pricing” on new models, which provides for improving stable units margins and so better dealer relationships.

Renewal of the model range will continue to improve sought modernity. Peugeot and Citroen, respectively gaining evolutionary and revolutionary aesthetics befitting respective brand values, whilst DS (yet to be properly dealer differentiated in Europe, though so in China) continues its unique cosmetic path.

The perennial b-segment hatchbacks (208 / C3) though face-lifted in 2013 appear “long in the tooth” because – as with many auto-makers - of necessarily postponed new model capex budgeting. Previously, limited CapEx was directed at what PSA recognised as immediate requirements. Such as that pertaining to urgent a-segment replacement in its JV with Toyota, and the need to maintain its leadership within the important compact-MPV class.

These efforts have resulted in the new C1, which sought to adopt and merge the now segment endemic retro-face (from upscale Mini and 500) into an own-brand avant-garde aesthetic (see C4 Picasso). That avant-garde cosmetic extended yet further with the more radical C4 Cactus, a new variant-themed sibling to C4 Picasso. C4 Cactus is essentially the C4 MPV morphed into Urban SUV, presenting itself with 'impact-capable' front, rear and sides, door skins wearing external “impact pads” which though do offer some protection, in reality have been created to mimic the touch-pad and screen-icons effect of personal mobile devices, so engendering similar user attachment and affection within customer psychology.

So the b-segment and c-segment model line (C3/208 and C4/308 continues to develop onward from previous hatchback and MPV variants, to today for Peugeot include 'mono-boxes' with respectively cross-over influence (5008/3008/2008), and for Citroen, now 'style-SUVs'. (The 'Cactus' cosmetic far more convincing than that of the necessarily cost-constrained C3 Aircross of Latin America).

Thus with a broader portfolio of plausible variants providing enhanced product characterisation, able to support higher volume sales, PSA is now able to more cost effectively deploy its developed dual-axle powertrains: either conventionally so with an ICE based 4WD system to reduce costs and increase acceptance in EM regions, and for mature markets and higher price point eco-models (as with 3008Hybrid4) the hybrid-driven alternative.

Given the critical nature of the Euro LCV market to Peugeot, vans have been partially highlighted in H1 results, with the statement that PSA retains its LCV l;eadership with 21.2% share.

However, in March (whilst European TIV is still slack) it was seen that China had become PSA's lar gest market, this well anticipated in advance given the prime focus on China for some years, and a timely point for Dongfeng's 14% equity investment. The 360k units sold in H1 represented 4.2% market share (up from 3.8%). DPCA announced its plan for a 4th SUV dedicated factory, whilst CAPSA to see 60 dealers by beginning of H2.

Whilst extending its credit facility by €3bn in April, an exercise that went hand-in-hand with the new shares and warrants created, PSA recognised the complimentary need to build its liquidity reserves in cash and marketable securities, so has over the last wisely boosted the total from €9.91bn to €11.872bn. Even if (as likely) European market demand does indeed grow as predicted, the terrain will be very competitive, especially vis a vis Renault, thus a portion of this sum may then be deployed for both necessary sales incentives to maintain and grow market share,  to allow working capital to feed the business growth path, and latterly enhance share dividend.

The major present drawback for PSA is its still uncompetitive labour rates overhead (labour costs equal to 15.1% of revenues in 2013), with plans to reduce that figure to <14 .5="" 11="" 2014="" 2015.="" all="" and="" benchmark="" font="" in="" level="" oems.="" of="" relative="" the="" to="">

However, whilst its 'social contract' with the unions promises to see high-cost seniors replaced by lower-cost new employees, investors would expect to see greater transparency in wage cost structures, specifically that of specific skills-based accordant grading, and the implementation of the now industry standard 'bankable hours' approach, critically imposed at the individual factory level; so as true truly reduce labour rates. Otherwise the present 15.1% will simply be seen to fall as a function and consequence of general economic growth and improved production capacity utilisation.

FIAT-Chrysler -

Unit Sales 1.2 units(+2%) [vs 1.159 previous year]
Revenue €23.328bn (+5%) [vs €22.281]
EBIT €0.961bn (inc €0.004 special items) [vs €1.073bn]
Net Income €0.197bn
PbT €0.455bn [vs €0.556bn]
EPS (ord)
Net Liquidity €18.7bn
Operating C-F €0.6bn
Free Cash Flow

- May SOP of all new Chrysler 200
- this the 3rd model from 'US compact-wide' platform
- Chinese agreement with GAC to produce 3 Jeep models in 2015
- July €850m corporate bond issuance (4.75% coupon) matures in 2022
- SEC administration undertaken for establishment of FIAT-Chrysler Automobiles NV
- 'FCA' NYSE exchange listing planned for October 2014
- improved volume and mix (with higher retail)
- legacy product incentives undermined raised (feature-enhanced) new product pricing
- improvements undermined by industrial costs, SG/A, R+D, 'unusuals' and € FX effect
- Jeep US sales +28% yoy, Ram has (ten year) record sales
- H2 Jeep expansion in China (Cherokee Trailhawk,
- Q3 SOP of Dodge Challenger SRT

By Division:

Autos -
Q1 geographic deliveries / revenues / EBIT as:
NAFTA - 627k units (+2%) / €12.258bn (+7%) / €0.598bn (-18%) (with 4.9% margin)
EMEA - 286k (flat) / €4.61bn (-3%) / €-0.006bn (-0.1%)
LATAM 203k (-21%) / €2.188bn (-23%) / €0.062bn (-72%) (with 2.8% margin)
APAC 54k (+42%) / €1.522bn (+34%) / €0.106bn (+20%) (with 7% margin)
Luxury brands 11k (165%) / €1.406bn (+59%) / €0.166bn (+58%) (11.8% margin)

A summary focus upon the leading region shows that the NAFTA region saw Q2 TIV gains in USA of 0.3m units (+7%) with FIAT-Chrysler gaining 13% uplift in sales. Canadian TIV grew by 0.02m units (+4%), with the company gaining +6% sales increase. FIAT-Chrysler, now at 12.1% US market share, has gained 1.5% share since Q2 2011. At 15.3% in Canada, it has gained 0.4% over the same period. Unsurprisingly, pick-up trucks lead sales growth, up +10% in USA and +7% in Canada vs 4% growth in US cars and stagnancy in Canadian cars.

Likewise focus on Asia-Pacific (given present complementary support) shows overall regional TIV up 0.5m units yoy (+9%), Sales gains seemingly well in excess of TIV growth, since from low sales base. General growth in China, India and S. Korea over-coming declines in Japan and Australia.
FIAT-Chrysler's country by country market-shares of: China 1%, India 0.3%, Japan 0.4%, Australia 3.9%.

EMEA (Europe, Middle-East and Africa) has seen marked improvements, with EBIT rising from €-69m in Q2 2013 to €-6m today, one year on. Broad Euro TIV increased by 40k units compared to Q2 2013, reaching 450k, though Italy faired 'flat' yoy. In this environment the company took 13% of Euro share (a declining dynamic since Q2 2011's 14.5%), but gains in homeland Italy to 44.5% (re-reaching in Q2 2011 mark). The combination of improved sales volume / model mix (500 family, Jeep and LCV [esp large van Ducato]) and industrial cost savings outpacing falls in net pricing and SG/A. The intense pricing competition amongst mass vehicle producers undermined the positive pricing effects of LCVs. Ducato is presently the #1 European large LCV with 25.7% share. Improved JV results and non re-occurrence of 'unusual items' helped to lift profitability to just below break-even.

Expectantly, the new confidence in western economies, especially within financial and property service sectors, helped boost the luxury cars division' top and bottom lines.

Ferrari shipped 1,932 street cars (-2%) but with better mix and pricing. Though stated as “capped volumes to maintain exclusivity” this total also reflects the off-setting of new N.American demand (+18%) versus the socially conscious surpression of conspicuous consumption in China (-12%). Europe down -3% and Asia down -10%. However, the client demand for large margin V12 cars (F12 Berlinetta and FF) grew by +1% excluding the unstated, but highly positive contribution, from the limited series LaFerrari 'hyper-car'. Ferrari revenue of €729m (+16%) and EBIT of €105m (+9%).
Maserati delievred 9,491 units, +400% yoy increase due to new Quattroporte and all new lower segment Ghibli. N.America took 3,500 vehicles, whilst China took 2,600, Europe 1,700 cars. Maserati revenues of €738m (+162%), with EBIT of €61m (vs €9m previous year).

Components -
(Magneti Marelli – Lighting, Electrics and Electronics, Powertrain)
(Teksid – Castings of Iron and Alumium)
(Comau – Production Processes)

Overall revenues of €2.074bn (-2%), EBIT of €0.060bn (2.9%)
Magneti Marelli: revenue €1.592bn (vs €1.587 year previous), EBIT €0.05bn (vs €0.049bn).
Teksid: revenue €0.166bn (vs €0.189), EBIT €-0.001bn (vs €0.001)
Comau: revenue €0.336bn (vs €0.358bn), EBIT €0.011bn (vs €0.010).

Consolidated -
As is present obvious constant in the auto-industry, North America continues to do much of the 'heavy lifting' regards group turnover and net income, with the China element of Asia providing complimentary support, ultimately providing a 5% uplift in global turnover. EBIT however down overall by -10%. Thereafter a hike in US 'book basis' taxation (from 22% to 57%), affected more so, this though counteracted by general decline (esp NAFTA) of cross-regional special item charges.

Announced Outlook:

Confirmation of FY expectations given May 6th -
- global deliveries of approx 4.7m units (vs previous 4.55m)
- revenues of €93bn
- EBITwithin €3.6-4.0bn range (exc special items)
- net profit of €0.6-0.8bn
- EPS of €0.44 - €0.60
- net industrial debt €9.8 - €10.3 range


Since Marchionne's pronouncement of the necessary 6m unit 21st century volume manufacturer, Chrysler has, chunk by chunk, become ever more integrated within FIAT. The theoretical last hurdle to the full acquisition was overcome just a few days ago, when (as a formality) over 80% of FIAT shareholders attending the required meeting approved.

Previously, Chrysler's resuscitation process - within the re-expanding but still very competitive automotive world – was kick-started by Washington's relaxed inward direct investment policies, Capital Hill's financial assistance, and union recognition that its members would be best served by VEBA stake-hold release; so as to entice a new set of private and institutional American investors via the NYSE; so far beyond the liquidity limits of Milan and Europe.

As part of that process Marchionne has sought to demonstrate the apparent strategic potential of an operationally and geographically re-balanced and revitalised entity. Named FIAT-Chrysler Automobiles NV using corporate registration in the Netherlands, it is to be officially established as an improved 'going concern' having already gained from the much re-strengthened US economy.

The showcasing of apparent global future potential came via the presentation of ambitious pan-geographic growth targets, associated brand sales, their revenue impact and investor appeal. This rightly gained a mixed reaction regards the feasibility of implementation from investment analysts.

Response was that whilst appreciating the rising tide of NAFTA sales,and those of a slower re-bounding Europe and eventual returned strength of EM regions, and that FIAT obviously has the necessary industrial small car and LCV competence, the process of actually gaining such sizeable new conquest sales elsewhere around the globe would prove tougher than the rebounding of already established markets.

The FIAT board must convince investors, and understandably views its ploy - the ability to use the income of one economically strengthened region to gain market-share in the next upturn region – as wholly logical.

However, whilst the company has a long precedence in EM regions / RoW markets, given licensing history of its products (to many such as India's Premier and Poland's Polski) with today full ownership of Serbia's Zastava brand, the FIAT brand today may well lack the level of 'brand equity' (ie presence and associations) enjoyed by various of its international competitors.

Although the 500 has re-energised the FIAT brand in Europe and to a degree in the N.America amongst private buyers, its European LCVs through 'Professional' are regaining status, and the inalienable fact that FIAT is #1 in Latin America (though likewise vulnerable), elsewhere around the globe it must essentially re-connect (possibly re-invent) itself to become meaningful.

The theory to this re-invention process appears well under-way, with the investor presentation describing the continued strategic deployment of a dual aspect marque personality. That of extending and translating the dualistic product design DNA (ie 500 chic vs Panda FUNctionality) into dealership layouts. As seen, the 'chic' element also conjoined by the sporting Abarth moniker, this intentionally the bridge to Alfa Romeo.

As a child of FIAT's own historical cyclical fortunes, Alfa Romeo has yet to properly re-start a new growth phase. The b-segment Mito and c-segment Giulietta deployed as core mainstream market income providers and brand representatives during the western recession., whilst the limited series, mid-engined sportcar 4C seeks to convey the purist performance 'halo' with associated high-value price point. Alfa's future execution is vitally important if the brand is to gain true premium status, by balancing probable new cross-over product stream income with brand integrity, and so FIAT-Chrysler gain associated high unit margins. A case of wait and watch business model developments.

Little needs to be said about the luxury division's Ferrari and Maserati, given the capable manner they have been run, especially that of Maserati's expanded range with Ghibli (see respective income above).

[NB investment-auto-motives suspects that FIAT-Chrysler will deploy the aluminium-steel Ghibli structure for future Alfa Romeo models in the similar exec-class size and also for “specials”. Just as Jaguar has gained strong learning in volume aluminium vehicle production, so Alfa Romeo must likewise. Thus the production learning of relatively low volume Maseratis will be transferred into higher volumes using latest learning production methods and tools (assisted by JLR) via Comau and others, so as to provide Alfa with the necessary technical standing. The exact proportion of aluminium to steel is expected to alter relative to model type and respective volumes, lower-end Alfas with more steel content, whilst future Maserati's gain ever more aluminium and composits].

As well understood by Marchionne et al, for the near to medium term, beyond the US rise in Chrysler cars and higher margin Ram truck sales and the slow but welcome rebound of Europe, it is worldwide brand power of Jeep that offers good potential.

Jeep now offers a broad model range with target customer appropriate styling and packaging, its small urban vehicles wisely echoing Wrangler for innate brand appeal, their 'boxy' functionality and perceived durability. Of course, internationally, much relies upon Jeep, able to leverage its historical and iconic presence across Asia in the post WW2 era, both as the Willys original, as well as the various 'domesticised' models in India, China born from licensing rights aswell as the Philippines' own re-invented Jeepney.

However, as to how FIAT and Chrysler badged models will fair in international markets (esp India, SE Asia and Africa) given the stiff competition from Japanese, S.Koreans and now Detroit counterparts (such as Ford's efforts in Africa), is presently questionable.

The concern is that FIAT and Chrysler will not able to generate the necessary 'brand equity'. This obviously home-grown over a long period, through sustainable vehicle engineering and product design quality and through powerful on-going marketing messages – both aspects well understood by Marchionne. If unable to simultaneously improve and attract – so creating a virtuous circle of sales and re-investment – inevitably a company eventually becomes involved in local market price wars which, even if funded from the profits of other regions, obviously slowly undermines investor rational.

FIAT's historical presence and immense success in Brazil since the 1970s might appear to to the investment community that the Turin company has the perfect credentials to conquer EM and RoW markets. Yet it should be recognised that this success was born from very accommodating Brazilian industrial policy-setting, then reaching-out to counter the in-market dominance of VW, GM and Ford and critically to expand the country's then fledgling automotive base. Conversely, today within a new-order world, indigenous industrial policy power is very much in the hands of EM governments (hence the central idea of the “BRIC Bank”) and increasingly so (with BRICs assistance) within those of newer 'Pioneer' countries.

Thus, FIAT's continued EM success story will very much depend upon a government relations as well as the critical mix of product quality / integrity, “in-market” corporate dedication and the ability to create deep brand connection.

For mainstream markets (beyond Jeep) whilst better research, development and production approaches and executive will can be proactively applied, the latter aspect of 'brand connection' will require a more sensitive and exacting approach. Case studies across automotive and FMCG sectors to do so will be sought out.

The obvious case-study is that of the Japanese adoration for “retro Euro chic”' especially original Minis and Cinquecentos. Whilst that has and will continue to serve well amongst a a small select sliver of trend-setting EM buyers – themselves promoting such purchases to aspirant others -
as time passes even seemingly pertinent yesteryear “cultural contexts” and USPs (ie the 1950s/60s Italian Romanticism of 'La Dolce Vita' or the 1930s American glamour and prowess of the Chrysler Building) may well become more culturally remote as EM people's look to their own self-built consumer culture futures.

Thus, new ideologies of indigenous “future chic” will need to be created – that story partially seen to date in the designer-fashion clothing sector.

But, vitally important for mainstream volume vehicle sales, it will be the ability to find the appropriate local culture 'brand hooks' for dependability, practicality and charcaterisation (ie FUNctionality) in products and their marketing that will be critical to reach the broad mosaic that is the EM mass customer base.

FIAT's May investor presentation was lengthy, considered and detailed, so as to obviously try and convince. Marchionne has posited strong argument regards Jeep's EM future (supported by initial sales growth and plant investment plans). And the dual-directional philosophy of the FIAT brand - whilst itself ostensibly regurgitating FIAT's past approaches – actually makes simple sense.

Until presentational rhetoric is crystallised through global sales traction beyond the US, Europe and Brazil, FIAT-Chrysler's long-term global success remains presently a story of ambition. Given the scale of international competition from others in the “global 11” automotive pack, a degree of medium-term caution from the investment community, after the given western rebound, is inevitable.

FIAT-Chrysler then must demonstrate to investors its own uniqueness within EM realms. Others have already proven themselves or otherwise started their respective stories.