Chrysler’s financial plan is where the rubber hits the road for Sergio Marchionne’s turnaround. It starts with a break-even projection for 2010 on net revenue of about $42.5b, which is more than double the projections for 2009 of $17b net revenue. As the previous sales projection chart and product plan analysis indicates, a short-term turnaround of this magnitude seems highly unlikely. Unfortunately, because Chrysler plans to spend $23b on R&D and other capital expenditures (capex) between 2010 and 2013 without injecting any fresh capital, this sales turnaround absolutely has to happen in order for the rest of the plan to move forward. Though this plan is said to be stress-tested for a zero-SAAR growth by 2011 scenario, there’s no indication that these projections consider the possibility that Chrysler’s market share won’t grow. In this weak-market/strong share growth scenario, Chrysler believes that despite a $7b drop in revenue, $.4b operating profit could be rescued through cost interventions. But it’s not specified where those cost interventions would come, leading to the inevitable assumption that product development (the crucial factor in any market share growth) would be drastically reduced. It’s worth noting again that Fiat does not plan on contributing any new capital to Chrysler.
More analysis on Chrysler’s financial plans are coming, but in the meantime, check out the complete presentation (PDF).
“Total units sold more than double from ~1.3M in 2009 to ~2.8M
in 2014 with growth in all geographies.”
Well there’s your problem, right there! (On the first page with actual content, at that.)
Given the zen aspects of the entire weeks proceedings, I thought it not altogether inappropriate to respond to this in Haiku:
“Fiat hopes eternal
Sales rise assumptions die in
Reality’s Mist”
It’s worth noting again that Fiat does not plan on contributing any new capital to Chrysler.
This sentence, or a variation thereof, should be required in all news reporting about Chrysler’s projected future growth.
Why would they (why should they) contribute monies to chrysler, they were shopped to every carmaker in the world and no body wanted anything to do with them (Daimler had to pay to get rid of them) including Renault/Nissan (when you’re making a russian automaker the third leg of your world stool over chryco…)
Why would they (why should they) contribute monies to chrysler
I’m not saying they would or should, but the subject should definitely be kept in mind if Fiat-Chrysler comes back for yet another bailout. If a company’s management has repeatedly disclaimed any willingness to invest additional capital in the company (despite having capital available, as I undertstand it), why on earth should anyone else lend money to that company if it has near continuous declining sales/market share for the past several years?
Well, I for one am willing to sit back and see how it pans out.
They’ve come out with a plan. They’ve admitted that what they did int he past didn’t work and that most of what’s out now sucks and they’re going to correct as much as they can quickly. They’ve set a target for paying back the bailout money.
Whether it works or not is a different story but at least there is a plan in place and I kinda hope it works. I still want my Wrangler.
I do have my doubts about it. Right now people are trending heavily towards appliance-mobiles (Hyundai’s rise) and I’m not sure if Chrysler is going to be the company to pull people over to the “drive what you love” side. It would be far easier if they had a recent history of great quality, because right now many people may see new designs and say “sure I like it, but is it going to hold up?” It’s a problem for them, but again, I give them credit for being open about how they’re going to try.
Plus I find it all far better than GM’s approach: “What we make and have been making is just fine – the CUSTOMER is the problem!”
This should be viewed in the proper context, PR. Marchionne had to publicly present some semblance of a future plan. To say it’s wishful thinking is probably a gross understatement. I live in metro Detroit so obviously I want Chrysler to succeed but I sure don’t see how it’s possible without more federal money. It’s easy to see why no other brand was interested in Chrysler with zero new product there wasn’t anything to be interested in. Another brilliant move by Cerberus in gutting the R&D. If they can produce anything that resembles progress and if there isn’t backlash from GM’s bailout perhaps more federal money will be made available to bridge the gap until new products are in showrooms. I see that as the only hope Chrysler has of remaining viable.
Weird…
The 2009E (slide 10) net revenue estimate of $16B divided by their 1.3M estimated shipments gets you an average of $12,307 per vehicle.
2010E net revenue comes in at a whopping $42.5B at 1.65M estimated shipments. This makes the new per vehicle average $25,757.
Slide 20 says there’s a 20% CAGR growth from 2009E to 2014. I wonder if this means that slide 10 is messed up. Even with fixed costs held constant among a volume bump, I still wouldn’t expect the per-vehicle for average Net Profit to jump that high… so to see the jump in Net Revenue seems odd.
Or I’m just missing something really obvious like a ($10B) one time hit for some contra-revenue accrual or the VEBA writeoff implications having some revenue impact.
I’m also surprised the variable margin pieces aren’t shown anywhere in a financial business summary for a company that relies on contribution margin for a large volume of products sold.
I think Marchionne has penis envy of Ghosn, which was why he made the Chrysler play. He wanted a multi-corporation empire.
That said, this is starting to look like there’s only 3 ways it can play out: they do in fact get the market share they’re projecting somehow, most likely through discounting since the gains are too aggressive; FIAT does put some cash in the mix even though they don’t “plan” to do so; or it’s back to the Federal troth.
My own view is that the most likely, 4th outcome is they divest it all in bits within 3 or 4 years, by breaking the Ram brand out I tend to think this option is buried in the non-public “plan B” powerpoint presentations (probably all written in Italian…), as they could get some revenue from selling Ram and Jeep, while just shutting down Chrysler and Dodge, all the while facilitating the Fiat/Alpha return to the US market via US goverment monies.
FrankCanada:
Wouldn’t be caught dead in a Prius. My A6 and I are quite content….
I also drink beer, spit, smoke on occasion (Cubans, when I can get ’em), eh?
BTW: You should be nicer to a fellow son of Canada….
I just thought that, given the ephemeral nature of Fiat’s plans, an ephemeral form of expression would point out the irony. Sorry, I will explain in small words for you: Ephemeral means “not going to last very long.”
As a beaner, I just noticed something else interesting about their financial plan:
They show a $4 Bn US decline in their debt from 2010 – 2014. AND, they show a net cumulative Cash Flow of $5 Bn US for the same period. The two are not cause-and-effect. Under GAAP, Net cash flow is NET of debt reduction. What they are saying here, then, is they expect $9 Bn US in cash flow from operations WHICH they will use to retire $4 Bn in Debt during those years.
Uh. Huh.
Timeline of events:
1980s: US bails out Chrysler, loses money (I presume)
1990s: Daimler buys out Chrysler, loses money
2000s: Cerberus buys out Chrysler, loses money
2000s: US bails out Chrysler (again), loses money, gives it to Fiat
My prediction: 2010s: Fiat loses money, tries to unload Chrysler
1980s: US bails out Chrysler, loses money (I presume)
1980’s Bank Loans backed by US Government bails out Chrysler, Chrysler pays loans back early (in full, not for lack of trying to get the US Government to eat it), goes on to become a little profit machine by cutting corners and inventing the minivan segment, making it seem like it much more than it is (alot of people will argue with this)
1990’s…..
What they are saying here, then, is they expect $9 Bn US in cash flow from operations WHICH they will use to retire $4 Bn in Debt during those years.
Not really. The implication is that there is a plan to sell stock to raise cash when (if) the company becomes profitable.
1980s: US bails out Chrysler, loses money (I presume)
Wrong presumption. The government made a profit on the loan guaranty fees.
Just to set the record straight, Fiat can’t lose money, they didn’t invest any and Chrysler was not given to Fiat, the UAW is the majority stakeholder.
Father owned a 1993 Jeep Grand Cherokee in the 90’s from 96-99, changed the engine, transmission TWICE, and every sensor and moving part in the vehicle, He’s preached toyota and honda ever since, he owns a camry now, and will purchase a lexus come next summer.
I just don’t understand why chrysler doesn’t learn from hyundai and introduce a 5 year warranty like hyundai/kia/mitsubishi, seems like it would force the manufacturer to actually build cars that don’t fall apart at least during that time frame so that it doesn’t have to pay for fixing them. I don’t know about you guys, but two years in a dodge is eternity.
Chrysler believes that despite a $7b drop in revenue, $.4b operating profit could be rescued through cost interventions. But it’s not specified where those cost interventions would come, leading to the inevitable assumption that product development (the crucial factor in any market share growth) would be drastically reduced.
This isn’t surprising, since Chrysler (it was LaSorda, IIRC) went on the record saying they want to reduce the expenses generated by their suppliers (i.e. the fine materials that make the Caliber) by 25% in the future. Which is about now.
The only intervention I see as feasible (discounting the UAW’s presence in Chrysler) is doing the Haliburton route: closing up most NA operations and moving to a foreign country…like China, in this case.
I’d also like an explanation on how revenue grows from $17B in 2009 to $40B in 2010 without doubling the volume of vehicles sold. Something doesn’t make sense unless there is a huge shift in mix assumed – which will be a big stretch in assumptions.
The 2009 revenue estimate is, I think, only for the period since Chrysler emerged from bankruptcy in June, not a full year.
Missing in the presentation is how many strong armed goons are required to force customers to buy their products.
Because it ain’t gonna happen any other way.
Well, they plan on getting US$1b/year in 2010, 2011 & 2012 from the Department of Energy, which strangely enough is the free cash flow in 2010, 2011 and 2012 with a net debt reduction of $4b for 2014.
Hilarious.
@ amcurrie; I was thinking the same thing but that’s why I normalize on a “per unit” basis. If they ignore the revenue pre-bankruptcy, then they’d also shed the claim of shipments pre-bankruptcy.
So dividing total revenue by the # of units should somewhat limit the impact of the bankruptcy as regards to comparing numbers from one year to another year.
Yes, there are still some differences. For example, vehicles shipped in the latter half of a year tend to have better net revenue per unit since they are the newer model year vehicles with less incentives.
If you dig a bit deeper, Chrysler’s expected 2010E revenue per vehicle of $25K is pretty high.
On Page 1 of Ford’s 2008 Annual Report they put their operating highlights:
Ford’s 2008 Revenues = $129.2B and 5.532M units shipped worldwide. That’s a per-unit average of $23,355.
So Chrysler has a $2,000 per unit advantage in pricing/incentives of the average vehicle versus the Blue-Oval average vehicle? Yes, Chrysler has a higher mix towards large vehicles, but the difference isn’t that extreme.
Couple this with foreign markets having higher revenues than NAFTA (especially with a weak US Dollar), and Chrysler doesn’t have high penetration into foreign markets. There really are some aggressive assumptions coming from Auburn Hills once you start digging and thinking.
$2,000 on Chrysler’s expected 1.65M units isn’t chump change. I wonder how the cost advantage stacks up.
Exactly whom will they be taking market share from with their fine new products? It’s not like Toyota, Ford or Hyundai will roll over for them.