Fiat turnround plan hits carmaker's shares

Investors have scoffed at Fiat Chrysler's five-year turnround plan - questioning the credibility of chief executive Sergio Marchionne's goals and how he will manage to pay for them.

Shares in Fiat Chrysler fell by as much as 9 per cent on Wednesday, the day after Mr Marchionne spent 10 hours laying out a road map to double the carmaker's profit and increase sales by more than 50 per cent in just five years.

Analysts queried the ambitious €55bn plan, which relies heavily on expanding the reach of premium brands Alfa Romeo, Maserati and Jeep, pointing to first-quarter financial results that lagged behind expectations.

"Reality is a lot tougher than PowerPoint presentations," said Harald Hendrikse, automotive analyst at Nomura. "Fiat's [share] performance suggests a lot of hope is priced in. The new plan tries to justify that hope, but stretches our credibility."

Mr Marchionne, who struck a deal on January 1 for Fiat to take full control of Chrysler, the fourth-largest carmaker in the US by sales, said the plan was "courageous" and would require "near-perfect execution".

He said no capital increases were planned to fund the plan, but that the company might look at a possible way to raise fresh investment when it had completed the merger and moved its primary listing from Milan to New York.

"Probably the most prudent thing that one can do is raise some type of equity-linked instrument," Mr Marchionne said.

Shares in Fiat, which closed down 8.7 per cent in Milan on Wednesday at €7.73, are up 32 per cent so far this year. Appetite has rallied on renewed confidence in the European car market, and hope pinned on Mr Marchionne, who has presented three turnround plans for Fiat over eight years.

"Much as we admire the ambition and think elements are achievable, it is hard to find conviction on the financing of the plan," said Max Warburton, an analyst at Bernstein Research. "Fiat's massive plan, and the necessary capex and R&D, simply do not look affordable or prudent to us."

Fiat Chrysler is the world's seventh-largest carmaker, but sells less than half the number of vehicles as leaders Toyota, General Motors and Volkswagen.

The carmaker plans to increase its sales from 4.4m last year to 7m vehicles by 2018, mainly by increasing its business in China and India, more than doubling Jeep sales, and more than quadrupling sales at Alfa Romeo, a perennial underperformer.

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Alongside the plan's unveiling, Fiat said trading profit during the first quarter of the year was €622m, below a consensus of €854m.

The financial results "are likely to somewhat take the shine off the credibility of the midterm plan", wrote Philip Watkins, analyst at Citibank, who described Mr Marchionne's targets as "almost unnecessarily bullish".

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