I would like to start this year's letter by remembering Sergio Marchionne who sadly left us far too early last summer.
Sergio was an incredible man and an extraordinary leader. He first crossed our path in 2001 when he was appointed as a board member and then CEO of SGS, which was then one of our companies. But it was when he agreed to become CEO of FIAT in 2004 – after a long dinner and a couple of “grappas” – that he became an integral part of all our lives and of mine in particular.
The journey we started together when Sergio took over FIAT, which was losing €5 million a day, led us to places we could not have imagined in our wildest dreams - from the turnaround of FIAT to the rescue of Chrysler, the creation of CNH Industrial, the foundation of FCA and the IPO of Ferrari. What used to be a troubled Italian Industrial conglomerate with an illustrious past became, under Sergio’s leadership, three separate companies, all global leaders in their respective industries, with great futures ahead of them.
The financial side of this story is simply told. Total shareholder return from June 1st 2004 to July 20th 2018 was ̴590%. In other words, if you had invested €6.0 when Sergio first became CEO, it would have become €41.4.
But as well as delivering these outstanding financial returns, Sergio also saved the livelihoods of many of the women and men working in these companies and restored to them, and their communities, pride and a future. For me that is an important part of Sergio’s legacy - he showed us that with a great business leader financial results come hand in hand with benefits for all the stakeholders in a company.
I shared with my colleagues in FCA the attached letter: (https://www.fcagroup.com/enUS/SupportFiles/Documents/FCA_Letter_to_Employees/letter.html) which describes both how much Sergio did and how much he gave us. As Sergio once said: “The value we bring to anything is best measured by what remains after we have gone. It is measured by what we have changed for the better. It lives on in those we have helped grow.”
Sergio bequeathed to us a culture of “high” performance. “Mediocrity is never worth the trip,” he said. It is about setting high standards and being accountable for reaching them, something that he did with tenacity.
But Sergio did more than this. He combined his rationality with emotionality and was able to be both strategic and operational, tough but caring and serious with a smile. Francis Scott Fitzgerald once wrote that, “the test of a first-rate intelligence is the ability to hold two opposed ideas in mind at the same time and still retain the ability to function.” If this is the test, then Sergio met and exceeded it.
I would like to start by sharing some thoughts on the three companies in which Sergio was involved, which together represent ~60% of our Gross Asset Value (GAV). In 2018, all three achieved record earnings, which is a tribute both to Sergio’s legacy and to their new leaders, Mike Manley at FCA, Louis Camilleri at Ferrari and Hubertus Mühlhäuser at CNH Industrial, who are all determined to continue to build these great companies.
FCA, which is the largest of the three in terms of Gross Asset Value, achieved ̴€5 billion of adjusted Net Profit in 2018 and a net cash position of €1.9 billion, thanks to very strong Industrial Free Cash Flow of €4.3 billion. For the first time in nearly ten years, FCA will distribute an annual ordinary dividend, worth €1 billion.
The US made the biggest contribution to these results, with FCA increasing its market share to 12.6%, with Jeep and RAM performing particularly strongly in the pick-up and SUV segments. LATAM was also able to more than double its profit despite the political and economic uncertainties in Argentina and Brazil.
FCA’s other two regions, APAC and EMEA, were more challenging due to trade and regulatory uncertainties. This impacted 2018 results and will continue to be a factor in 2019. Mike, who ran with huge success FCA’s Jeep and RAM brands, which together represent the largest part of the company, is attacking these issues with his usual determination while strengthening the organization, appointing great leaders from within the company and from outside.
In addition to achieving its best ever results, FCA announced the sale of Magneti Marelli to Calsonic Kansei for €6.2 billion, a transaction which is expected to close in Q2 of 2019. Magneti Marelli has been on a very successful journey since Ercole Marelli and FIAT founded it together in 1919. A company that started as a “magnetos and electrical component” business has transformed itself into a major supplier of “cartronics” with very strong capabilities in lighting, electronics and hybrid & electric systems.
On a personal level, having started my career interning, while studying engineering, in the lighting division of Magneti Marelli, learning about “lean production” and
“Kaizen” (continuous improvement), and as a business owner, I have been determined to ensure a strong future for the company and its employees. I am therefore delighted that this opportunity has been secured for Magneti Marelli to become, by combining with Calsonic Kansei, one of the world’s largest independent automotive suppliers with ~$15 billion in sales.
2019 is also the 120th anniversary of the foundation of FIAT on 11th July 1899, when my family’s entrepreneurial adventure began.
We are entering a period for the car industry which is similar to its early days when multiple technologies and new business models were emerging. Between 1898 to 1908, more than 100 car companies were founded in Italy alone. Today, like then, the challenges are large, but the potential is even larger. We are very excited about the opportunities offered by connectivity, electrification and autonomous technologies to make our business stronger financially and ever more environmentally sustainable.
For over a century we have been a source of stability for FIAT and latterly for FCA and the business has prospered. Our permanence in the capital of FCA has given its successive leadership teams the latitude to plan for the long term rather than having to react to daily pressures. This has made courageous and original decisions possible that have also respected the enduring interests of all our stakeholders. This approach and mindset remain as relevant to us today as ever and our commitment to FCA and to participating in its bold and profitable future is also unchanged.
The next 20 years for the automotive industry, like its first 20 years, are set to witness a greater level of change than during the intervening 100. We are determined that we and FCA will play our part actively and ambitiously in this new and exciting era.
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