This weekend marked the end of an era for U.K.-based carmaker Fiat Chrysler (NYSE:FCAU). CEO Sergio Marchionne, suffering complications stemming from a recent shoulder surgery, has stepped down after being at the helm for an amazingly successful 14 years. Although he’s being replaced by the proven leader of its Jeep brand, Mike Manley, the weakness being exhibited by FCAU stock suggests shareholders don’t think Marchionne is readily replaceable.
There’s some truth to the premise too. Marchionne arguably saved the Fiat brand, wisely melding it with a then-doomed Chrysler back in 2009, but also shedding heavy vehicle company CNH and sports car outfit Ferrari as a means of improving shareholder value. He even extracted $2 billion from General Motors (NYSE:GM) back in 2005 as a penance for ending a partnership that wasn’t working out … funding that helped seed the turnaround.
One does not easily replace a Sergio Marchionne.
On the flipside, with Marchionne’s long-term vision still serving as marching orders for fresh but experienced leadership, an FCAU stock that’s trading at only 6.7 times its trailing per-share profits and only 4.4 times next year’s expected income, there’s opportunity in this scrum.
Marchionne’s Fingerprints Remain
For the record, Marchionne was scheduled to step down in April of next year anyway, and Manley was one of only a limited number of internal candidates pegged as potential successors. Neither announcement is terribly rattling.
Still, change is change, and this one was forced.
As far as FCAU stock owners are concerned, however, they may not see much (if any) superficial change. Marchionne’s plans to ramp-up production of SUVs and wade deeper into the electric car arena is now Manley’s mandate, and the company’s goal of doubling its operating profit by 2022 on the backs of those two initiatives remains the goal until further notice.
There’s an intangible factor in play, however. Marchionne was hard-driving, demanding chief that not only expected sacrificial commitment to the company’s success, but was able to adapt as needed. As Bernstein analyst Max Warburton put it, “Marchionne ran FCA in a command and control style, with constant firefighting measures. There is no operating manual to follow.”
Those who knew him personally and saw him in action also understand how important his personality was to the rekindled success of Fiat Chrysler. Fiat Chairman John Elkann, a member of the Fiat-founding Agnelli family, said of Marchionne, “It was his intellect, perseverance and leadership that saved Fiat,” adding “He taught us to have the courage to challenge the status quo, to break with convention and go beyond the tried and tested.”
FCAU: In Good Shape/In Good Hands
Not everyone is entirely on board with a post-Marchionne Fiat Chrysler. London-based Albemarle Asset Management’s chief investment officer Umberto Borghesi said of this weekend’s news “FCA has a defined way forward, the management was chosen by Marchionne which reassures, and the choice to focus on Jeep is a winning bet, but I still plan to sell for now to lock in a profit as the sudden change creates uncertainty. We need to see if they can execute the plan.”
The company is in good hands with Manley though, if his performance at Jeep is any indication. While in that role, Jeep’s revenue quadrupled … at a time when rivals were also becoming hyper-competitive within the SUV market.
The decision to tap Manley rather than another affiliated chief like the company’s European head Alfredo Altavilla implies the board knows the Jeep brand will remain a breadwinner going forward. In June, a company report suggested that by 2022, one out of every twelve SUVs sold would be Jeep-branded — a lofty goal to be made possible by the launch of nine new products.
Marchionne also leaves the company in sound financial shape, and debt-free. That’s practically unheard of in the industry. The aforementioned GM is sitting on nearly $12 billion in debt, while Ford (NYSE:F) sports nearly $13 billion worth of long-term debt.
Bottom Line for FCAU Stock
No transition from one CEO to another happens without a few hiccups, and it’s unlikely this one will prove to be an exception to the norm.
As far as the injection of new chiefs go though, this one should be as seamless as one can be. Not only does Manley have industry experience, he’s got company-specific experience and helped revive Fiat Chrysler largely on the strength of his Jeep brand … the same brand that will carry more than its fair share of weight going forward. Number-wise, Marchionne’s goal of improving 2017’s bottom line of $7.7 billion to something between $15.2 billion and $18.8 billion by 2022 is still within reach.
To that end, with FCAU stock now priced at mid-single-digit P/E levels and a handful of investors worried about the company’s future, now may be a good time to scoop up some cheap shares. Fiat Chrysler is going to be fine.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities. You can follow him on Twitter, at @jbrumley.
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