This automaker’s September sales soared nearly 14%. Its growth potential, as well as its bid for GM make the company’s stock attractive.
Fiat Chrysler (FCAU)
from Global Investing
My main reason for tipping Big Board stock Fiat Chrysler (FCAU) is that its bid for GM is likely to go into overdrive after the VW scandal. VW, a potential buyer of GM, is now off the highway. GM would find it hard to build out its own multi-vehicle emissions systems, not just for diesel but also for gasoline cars and trucks. And tighter controls are surely in the works.
The Unijet Turbo Diesel (UTD), used by Fiat, was developed by GM Powertrain, during its earlier 2005 aborted joint venture and continues to be upgraded for the Fiat minicars like the Punto and the Panda, and GM vehicles like the Opal German, Vauxhall British, and Cadillac and Chevrolet US diesels.
So getting together makes even more sense now. While of course UTD exhausts may also have been fiddled with, the technology is widely used by other carmakers in more than a dozen configurations, including Ford, Tata Motors, Suzuki, Peugeot-Citroen, Lancia, Saab, Jeep, and Alfa Romeo. I find it hard to believe that so many competitors fiddle the nitrous oxide emissions of the UTD diesel, but I also think that the great concentration of regulators on emissions software will make it costly for GM to prove that its systems are not being gamed for emissions testing.
Another reason is that car stocks are all being garaged today, not only because of VW, but also because of Caterpillar.
Moreover, that green and humble car advocate, Pope Francis, was hauled in from Dulles airport in a Fiat car, and Fiat also made the Popemobile. Of course that was because the HQ of Fiat is just north of Rome in Turin.
And while Volkswagen’s plans to build its cars in Mexico are not likely to achieve fruition, Fiat will add Mexico production to emerging markets where it already builds cars, including Brazil, Poland (via a joint venture with Suzuki), and Pune (India, via a joint venture with Tata, sold). It also has a plant in Poughkeepsie, NY. Its Brazil plant now produces electric cars, a greener alternative for California and Brazil, under a joint venture with Cemig and Itaipu, so even if diesel is debunked as a cheap green fuel, there is another alternative coming.
While there will be speed bumps with any US deal, FCAU has experience in driving in this country. Its links with Chrysler and Dodge have been subject to autoworkers union picketing over an alleged pay gap with GM, but CEO Sergio Marchionne managed to get a renewal contract through earlier this month.
Fiat also has experienced the nasty US recall process. Last summer FCAU was fined $105 million for how it handled recalls of Ram pickup trucks, Dodge Durango SUVs, and Jeep Cherokees because of safety risks. A total of 1.6 million vehicles were affected, but the complaint had to combine several recalls. Fiat was fined over failing to find all the owners. The problems for which most of the recalls were called involved security flaws allowing remote electronic manipulation of the vehicle systems, hackers taking charge of the vehicles and shutting down their electronics. The other recalls were over faulty airbag seat pretensioners, and airbag modules. If there were built-in electronics to hide emissions violations, surely they would have been spotted.
A warning. This is a speculation, mainly because we do not know the full terms of the spinoff by Fiat of 10% of its stake in Ferrari to finance its GM ambitions. FCAU is losing money. It depends on one very dynamic Italian manager, Signor Marchionne. Moreover, chartists warn that it is in a declining channel, which I think is mainly because it tracks Ford in Milan, which is traded in euros. Buy at under $13.
Vivian Lewis, Global Investing, www.global-investing.com, 212-758-9480, September 24, 2015