Fiat Chrysler’s road narrows without Ferrari

MILAN — Fiat Chrysler CEO Sergio Marchionne is about to find out what it is like to run the business without Ferrari’s fat profits.

Fiat Chrysler on Sunday distributed to shareholders its remaining 80% stake in Ferrari, the producer of the $324,000 Berlinetta coupe.

Investors received one Ferrari share for every 10 Fiat Chrysler shares they owned. The supercar manufacturer was listed on the New York Stock Exchange in October and started trading on Monday in Milan as well.

Mr Marchionne courted investors in the US and Europe last month to try to persuade them that the luxury car company’s value would increase once it was no longer part of a mass producer.

Still, losing Ferrari’s earnings will put the focus on his ambitious €48bn revamp of Fiat Chrysler. Slowing demand in China and a drop in Brazil’s car market prompted cutbacks in the plan, with the Alfa Romeo and Maserati divisions putting off new models as the spending emphasis shifts to expanding the Jeep sport utility vehicle brand.

“Investors are worried that the value of Fiat could be much lower without its crown jewel,” said Vincenzo Longo, a strategist at IG Group in Milan.

Fiat Chrysler rose 1.9% to €8.625 in morning trade in Milan, giving it a market value of €10.9bn. Its market capitalisation before the Ferrari spin-off was about €16.7bn. Ferrari traded at €42.40, valuing the company at €8bn.

Fiat Chrysler was created in the October 2014 merger of Turin, Italy-based Fiat and US partner Chrysler, and its stockin Milan rose 69% between when the Ferrari spin-off was announced two weeks later and its completion on Sunday. Fiat Chrysler sold 10% of Maranello, Italy-based Ferrari in an initial public offering two months ago. The parent’s remaining 80% stake has a market value of about $7.3bn.

Piero Ferrari, the son of founder Enzo Ferrari, owns the last 10%.

Mr Marchionne, who is also Ferrari’s chairman,has been positioning the supercar manufacturer as a creator of high-end products, rather than as a car maker, to entice stock buyers.

Ferrari is valued at 26.5 times estimated 2016 profit, in line with figures for French fashion company Hermes.

By comparison, Fiat Chrysler fetches 8.6 times earnings and General Motors sells for 6.4.

The supercar division accounted for 12% of Fiat Chrysler’s profit before interest and tax in 2014.

Mr Marchionne will now focus on the five-year reorganisation of the London-based parent company after General Motors rebuffed his bid to make the US competitor a partner to share investments.

The CEO, who will give an update of the plan at the end of the month, has so far stuck to his 2018 targets including boosting sales to 7-million cars. That is almost 2-million more than market researcher IHS Automotive’s estimates for Fiat Chrysler deliveries.




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