Cars and Drivers

Why Fiat Chrysler Automobiles Has an Edge, for Now

Fiat Chrysler Automobiles N.V. (NYSE: FCAU) saw its sales increase 15% since 2012, versus 8% for Ford Motor Co. (NYSE: F) and 2% for General Motors Co. (NYSE: GM). Fiat Chrysler is also outperforming the S&P 500, giving its shareholders a 75% return, compared to 11% for the index, since going public again in October 2014. Over the same period, Ford and GM have given their shareholders 18% and 9% returns, respectively.

Fiat Chrysler’s CEO, Sergio Marchionne, continues to call for industry consolidation to reduce overcapacity. However, he and his company seem to be doing well enough on their own, for now.

The Jeep brand has served as a strong catalyst for Fiat Chrysler’s sales over the past five years, with the most recent quarter being no exception. People love their sport utility vehicles (SUVs). They provide a lot of room, comfort and a feeling of safety for consumers and their families. The recent decline in gas prices has compelled more consumers to buy SUVs, such as the Jeep. According to FuelEconomy.gov, Jeeps have a tendency to offer better fuel economy than a Chevy Silverado or an F-150 pickup, meaning that this product line is more immune to the volatility in gas prices.

In addition, Jeep offers a wide selection of sleek-looking vehicles to choose from. However, Jeep is not the only Fiat Chrysler brand that competes with the Ford and GM full-sized pickups. While Jeep does well, the company’s Ram pickup continues to sell well behind its competition.

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In spite of these advantages, Fiat Chrysler’s shareholders face a difficult future, looking out over several years. The automotive industry is a capital-intensive business, making it difficult for any car company to generate cash, especially Fiat Chrysler. This has compelled Fiat Chrysler to seek a buyer or partner for the company, according to Bloomberg Business. However, other car manufacturers showed zero interest in the company. Moreover, the Fiat and Chrysler brands are also struggling, despite the strength of Jeep.

Wall Street analysts agree with this negative assessment. Thomson/First Call has a mean target price for Fiat Chrysler pegged at $16.71 per share, representing a 7% increase over its current price. The mean target price for GM and Ford are $42.18 and $17.29 per share, respectively, representing 21% and 16% increases.

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