A new Fiat Chrysler Automobiles sign is pictured after being unveiled at Chrysler Group World Headquarters in Auburn Hills, Michigan May 6, 2014.Rebecca Cook/Reuters
The push to sell more higher-margin Jeep SUVs and RAM trucks lifted Fiat Chrysler Automobiles' quarterly earnings, making Chief Executive Sergio Marchionne confident the carmaker can turn cash positive by the end of 2018.
FCA has been retooling some U.S. factories to boost output of sport-utility vehicles (SUVs) and trucks while ending production of some unprofitable sedans to boost profitability in North America, where it makes the lion's share of profit.
The move is slowly paying off and puts FCA on track to reach its ambitious 2018 targets, including erasing all debt and generating up to €5-billion ($5.88-billion) in net cash by the end of next year, Marchionne said.
"Those numbers are deliverable now especially because of the industrial realignment, that gives me all the confidence I need," he told analysts on a conference call.
FCA reported an 8 per cent adjusted operating profit margin in North America for the third quarter, up from 7.6 per cent a year ago, despite a drop in sales and shipments.
That compares with an 8.3 per cent North America margin reached by bigger U.S. rival GM, showing Marchionne making good on his promise of closing the margin gap with GM and the company's other U.S. rival, Ford, by next year.
FCA's Milan-listed shares closed up 5 per cent, with investors welcoming the margin boost.
"We welcome positive earnings and margin evolution in NAFTA year-on-year given the company is yet to fully realize benefits from new products associated with its industrial realignment," George Galliers, an analyst at Evercore ISI, said in a note.
The company sticking to its full-year outlook despite forex headwinds also pushed shares higher, traders said.
Another key part of Marchionne's turnaround plan is centered around the revamp of luxury brand Maserati and sporty Alfa Romeo. Maserati margins remained strong at 13.8 per cent due to healthy demand for its first SUV, the Levante.
Sales of Alfa Romeo were also picking up on the back of the newly launched Stelvio SUV and the Giulia sedan although Marchionne said he did not know whether the brand would break even this year.
Asked about a sudden drop in sales in China for those two brands, Marchionne said the company needed to work on improving its distribution network for Alfa Romeo, but as far as Maserati was concerned, there were "no structural issues in China".
FCA said adjusted earnings before interest and tax (EBIT) for the July-September period rose 17 per cent to €1.76-billion, while revenues were down 2 per cent, both in line with consensus forecasts in a Thomson Reuters poll of analysts.
Net debt rose slightly to €4.4-billion by the end of September from three months earlier due to currency effects, but was still lower than expected by the market. The company plans to slash that to below 2.5 billion by year-end.
FCA is due to present a new strategy to 2022 early next year, part of which will focus on streamlining its portfolio.
Marchionne already has said that components businesses, including Magneti Marelli, would be separated from the group, possibly via a spin-off.
He reiterated on Tuesday he expected the separation of Magneti Marelli to be "a 2018 event", but did not give details.