Stellantis NV (STLA) 2015 Q1 法說會逐字稿

Good afternoon, ladies and gentlemen, and welcome to today's conference call hosted by CF Chrysler Automobiles.

For your information, today's conference is being recorded.

At this time, I would like to turn the call over to Joe Veltri, Head of FCA Global Investor Relations.

Mr. Veltri, please go ahead, sir.

Thank you, Leanne, and good day to everyone on today's call.

As outlined in our updated invitation sent out on Monday, there are three topics that we plan to cover today.

First, the Group's 2015 first-quarter operating results, then operating initiatives in our NAFTA region, and finally, we'll present the Group's view on capital optimization in our industry.

In light of these additional topics, we expect that the duration of today's call will be longer than customary.

The earnings release issued earlier today, along with the presentation material for all three of these topics, is available on our Investor Relations website.

Today's call will be hosted by the Group's Chief Executive, Sergio Marchionne, and Mr. Richard Palmer, the Group's Chief Financial Officer.

After presentation of all material, they will be available to answer your questions.

Before we begin, let me remind you that any forward-looking statements we might make during today's call are subject to the risks and uncertainties mentioned in the Safe Harbor statement, included on page 2 of today's 2015 Q1 results presentation.

And as always, the call will be governed by this language.

With that, I would like to turn the call over to Mr. Richard Palmer.

Thanks, Joe, good morning, good afternoon to everybody.

Just before starting, a point around our metrics, effective this call, we have started to report adjusted EBIT as a non-GAAP measure to assess the Group's performance, replacing our prior metrics of EBIT ex unusual items.

The definition is contained in our supplemental financial pages.

The change to the metrics aid communication, and the impact of the results are either adjusted compared to our prior metrics of EBIT ex unusuals are negligible on the quarter.

Let's go to page 4 and summarize the Group's first-quarter results.

Our worldwide shipments were substantially flat at 1.1 million units, with the Jeep brand continuing its growth with volumes up 11% year over year, and sales up 22%.

Group net revenues EUR26.4 billion, with adjusted EBIT of EUR800 million.

Our net profit for the Group was EUR92 million.

Our net industrial debt at March 31 was EUR8.6 billion, and our total available liquidity at that same date was EUR25.2 billion.

During the quarter, there were three new model launches, expanding the reach of the Fiat, Jeep and Ram brands.

The all-new 500X Crossover was launched in EMEA, while the all-new Jeep Renegade and the Ram ProMaster City LCV were launched in NAFTA.

On the industrial side, the Pernambuco plant in Brazil was completed, and began production of the Jeep Renegade for sale in the NAFTA region.

In February, we repaid EUR1.5 billion of FCA bonds at maturity, using existing liquidity.

Regarding the planned separation of Ferrari, that process is on track, and we're looking at an IPO in Q3, and a spin off on the first available business day of January 2016.

Our 2015 guidance is confirmed for the year.

Moving to page 5 to talk about the operating highlights for Q1.

Our shipments were down 2%, with growth in NAFTA, despite the Mini Ram plant being down for 90 days at the end of the quarter, for product changeover activity and EMEA was also up.

Those two regions offset declines in other segments, principally in LATAM, which was down 34%.

Net revenues were up 19%, mainly attributable to the FX translation and positive pricing, primarily in NAFTA.

At constant exchange, revenues were up 4%.

Adjusted EBIT for the Group increased EUR145 million to EUR800 million, with EBIT totalling EUR792 million, versus the EUR270 million last year.

As you remember, EBIT for 2014 included some one-off charges, principally the EUR495 million related to the UAW MOU.

The adjusted EBIT improvement, over EUR145 million benefited from positive translation impacts, mainly due to the stronger US dollar, which were entirely offset by negative transaction impact.

Our net profit improved by EUR265 million to EUR92 million, inclusive of EUR606 million of financial expenses, and an income tax expense of EUR94 million.

Net industrial debt was EUR8.6 billion at the end of March, up from EUR7.7 billion in December, due to timing of capital expenditures, mainly due to the Pernambuco project and to some working capital seasonality, together with the shutdown of the Windsor plant impacting our working capital in NAFTA.

Total available liquidity, as I said before, remains strong at EUR25.2 billion, down from EUR26.2 billion in December, due to a net effect of three items: operating cash absorption of EUR1.1 billion, the bond repayment at maturity of EUR1.5 billion, and favorable currency translation of EUR1.6 billion.

Moving to page 6, you can see the year-over-year changes in adjusted EBIT for the various areas of the Group.

I will explain the drivers of the segment performance in the regions in the next few pages.

As shown here, the NAFTA and EMEA regions were the majors contributors to adjusted EBIT growth, more than offsetting declines in LATAM and APAC.

Just a moment to explain the overall impact of foreign exchange.

The year-over-year improvement in adjusted EBIT of EUR145 million included positive foreign exchange translation benefit of EUR130 million, due principally to the strengthening of the US dollar, which was entirely offset by negative foreign exchange transactional impact in the segment.

These impacted NAFTA, due to the weakening Canadian dollar against the US dollar, negatively impacting our long CAD position, due to Canadian vehicle sales.

EMEA and LATAM, where there the strength in the US dollar negatively impacted our short USD position, due to imported vehicles and components from NAFTA, and in APAC, due to long Australian Dollar and Chinese renminbi.

Moving to page 7, we show the evolution of net industrial debt, which at the end of April was EUR8.6 billion.

The increase is primarily due to the timing of capital expenditure of EUR2.1 billion in the quarter, EUR600 million higher than last year, mainly related to Pernambuco, the Windsor plant, and the Alfa Romeo project.

Moving to page 8, we start to review the performance by region, starting with NAFTA.

In NAFTA the industry remained strong in the quarter, with US and Canada up 6% and 3%, respectively.

Group sales were up 6% in the region year over year.

In the US, sales were up 6% to just over 500,000 units.

The Jeep brand posted its best-ever quarterly performance, with 179,000 units sold, with all Jeep models up year over year.

Chrysler brand sales increased 13%, led by the all-new Chrysler 200 sedan, and Ram finished the quarter with sales up 9%.

Total market share for the Group was 12.5%, with fleet mix at 23%, both flat versus prior year.

Dealer inventory at March 31 was 73 days of supply, in line with year-end levels.

In Canada, Canada vehicle sales were up 2%, and the Group was a market leader in the quarter, with a market share of 16.4%.

In the quarter, both Jeep and Ram expanded their product portfolio, with the introduction of the Jeep Renegade and the Ram ProMaster City.

Moving to page 9, NAFTA shipments were up 8% year over year to 633,000 units, primarily driven by the US, which was up 11%, while Canada was down 7% and Mexico was flat versus prior year.

Net revenues increased 38% year over year, driven by the strong US dollar, increased volumes, and higher pricing.

NAFTA margins improved to 3.7% from 3.2% a year ago, and excluding the effect of recall costs in the quarter, year-over-year margin was up 120 basis points to 5% in the quarter.

Looking at the evolution of adjusted EBIT, volume and mix contributed positively to EUR75 million versus prior year, due to the higher shipments.

Net price improved by over EUR200 million, due to positive pricing actions, partially offset by negative FX transaction impacts for the Canadian dollar and the Mexican peso.

Industrial costs increased by EUR125 million, driven by increased recall campaign costs.

Higher base material costs for enhanced content were largely offset by purchasing and supply chain efficiencies.

Moving to slide 10, in LATAM, the industry was down 18% versus prior year, as weak macroeconomic conditions and political uncertainty impacted auto sales.

More specifically, the Brazilian market was down 16% due to the end of the IPI incentive scheme, while Argentina was down 27%, reflecting import restrictions.

Sales for the group were down 28%.

Group share in the region stood at 14.5% for the quarter, down 220 basis points versus last year.

Overall share in Brazil was down 300 basis points year over year, but down only 20 basis points from the fourth quarter position.

The Group maintained its market leadership position in Brazil, with a 250 basis point share lead over its nearest competitor.

In Argentina, year-over-year share declined by 60 basis points to 12.6%, due to continued import restrictions.

However, Group share was up 290 basis points over Q4 2014.

Share in the combined A/B segment was 16.6%, up 50 basis points over the last year, on the part of increased sales of the new Palio

At the end of the quarter, stock levels were at 46 days of supply.

This stock level is on the high end of our optimum stock position, although Q1 is seasonally higher, as the sales rate normally increases going into Q2.

We will continue to manage production to match market demand.

From a product standpoint February, the refreshed Bravo model was launched in Brazil, and the new Jeep Renegade has been commercially launched on April 25 throughout Brazil.

Moving to slide 11, shipments in LATAM were down 34%, with Brazil down 34% and Argentina down 35%.

As a result, net revenues were down 21% for the quarter.

Adjusted EBIT, the impact of lower volumes was more than offset by EUR150 million of pricing action.

Industrial costs were negatively impacted by import cost inflation, Pernambuca start-up costs, and SG&A was increased for the Jeep Renegade launch expenses.

Adjusted EBIT was EUR109 million lower than Q1 2014.

Excluding the cost of the Pernambuca start-up and the launch of the Jeep brand, adjusted EBIT would have been breakeven for the quarter.

Moving to slide 12, in APAC, the industry rose by 3%, driven by growth in all major markets except Japan.

Group sales were in line with the prior year, with growth in China, South Korea, and Australia offsetting declines in India and Japan.

Dodge was the best performing brand in the region, and sales rose by 22%, driven by Journey, while Jeep sales continued their positive performance, up 8%.

The Group share was favorable versus last year, with some growth in Australia and South Korea, while China and Japan were flat.

Inventories at the end of March were in line with year end.

In the first quarter, the Chrysler 200 was launched in South Korea, and the Alfa Romeo 4C was launched in Australia.

Turning to slide 13, shipments in APAC were down 13%, and net revenues were flat versus prior year, but down 17% at constant exchange.

Adjusted EBIT for the quarter declined EUR65 million, as volume and mix were negative due to competitive market actions, and the fact that the Jeep Cherokee shipments were lower, in advance of beginning localized production the later this year.

Net price was down, primarily due to negative FX transactional impacts to vehicle sales in China and Australia, and also due to some increase in incentive levels in China.

The negative impact from industrial costs relates to recall expenses, while SG&A improved slightly, due to lower marketing expenses.

Slide 14 for the EMEA region, the passenger car industry in EU28 plus EFTA was up 8% year over year to 3.6 million vehicles, as all major markets experienced growth.

For the Group, passenger car sales rose 11% to 252,000 units.

Group share increased by 20 basis points in Europe to 6.2%, driven by improved performance in Spain, Germany, and Italy, with France and the UK flat.

In Europe, the 500 family of vehicles continued their market leadership in the A and L0 segments.

During Q1, the all-new Fiat 500X was launched in 14 countries across Europe, expanding the brand reach into the compact crossover segment.

The light commercial vehicle industry in Europe was up 12%, driven by increases in most major markets.

Sales in the EMEA region were up 13% to 66,000 units, with share in Europe down 40 basis points, as share gains in the major markets were more than offset by share loss in the UK, due to a large fleet delivery in Q1 of last year.

Ducato continued its segment leadership with 15% sales growth over Q1 last year, and the new Doblo performed well in the quarter, as order intake increased by over 30% year over year.

Looking at the EMEA's financial performance for the quarter on slide 15, shipments were up 5% to 271,000 units, with passenger cars up 4% and LCVs up 7%.

Net revenues were up 8% on the back of the high volume, favorable mix driven by the new Renegade and the new Fiat 500X, and positive pricing actions.

For the second consecutive quarter, adjusted EBIT was positive in EMEA, with Q1 results of EUR25 million.

This was mainly due to the contributions from the higher volume and the favorable mix.

These were somewhat offset by higher industrial costs, which were impacted by unfavorable euro-US dollar exchange rate for imported vehicles, and higher SG&A to support the launch of the Jeep Renegade and the Fiat 500X.

Moving on to Ferrari on slide 16, shipments were 1,635 vehicles for the quarter, with 12-cylinder models down 37% and 8-cylinder models up 10%.

Shipments to the US were down 10%, APAC volume was up 12%, while shipments to the main European markets were down 12%.

Net revenues were level year over year, with variable FX offsetting lower volume.

Adjusted EBIT was EUR100 million during the quarter, up 25% on the back of some positive currency effects, and lower R&D costs, due to the timing of model development.

In March, Ferrari presented a new 488 model at the Geneva Motor Show, and the Scuderia Ferrari racing team had a successful start in the new F1 racing season.

Moving to slide 17, Maserati revenues in the quarter were down 19% due to lower volumes and unfavorable mix.

Adjusted EBIT decreased by EUR23 million, primarily due to FX, partially offset by cost efficiencies and some more positive FX.

NAFTA remained the brand's number one market, with shipments up 6%.

However, shipments were down in both China and Europe.

On the product side, the Maserati Alfieri was awarded as Concept Car of the Year by Car Design News at the Geneva Motor Show.

Slide 18 covers the components businesses, which all had improved operating results year over year.

For Magneti Marelli, net revenues were up 15%, thanks to positive performance in Europe, offsetting some decline in Brazil.

Adjusted EBIT increased EUR13 million year over year to EUR56 million, driven by the higher volumes, cost-containment actions and efficiencies, partially offsetting start-up costs for the Pernambuca plant.

Margin was up 40 basis points to 3.1%.

For Teksid, revenues were up 11% with the aluminium volume up 37%.

Adjusted EBIT improved by EUR5 million versus last year, reflecting increased cost efficiencies and favorable exchange.

Comau's net revenues were up 30%, primarily due to body welding, powertrain, and robotics businesses.

The adjusted EBIT, at EUR11 million versus EUR9 million last year.

Slide 19 provides an update on some recent and upcoming events.

In April, FCA issued a $3 billion premium secured note.

This the first step towards our previously-announced unified financing platform.

This transaction leverages both our European and US investor base, extending our maturity profile.

Following completion of the FCA notes offering FCA US notified holders of its 8% senior secured notes due in 2019 that these notes would be redeemed on May 14, 2015, pursuant to their terms.

This refinancing will result in about $100 million of annualized interest expense reduction.

The second quarter will include an interest charge for payment of the call premium of about $115 million.

Also in April, FCA announced that we would invest over EUR500 million in our Termoli Italian engine plant, to produce two new engines for future Alfa Romeo models.

The Group has also announced that on June 24, Alfa Romeo would present its all-new midsize sedan in Milan.

It's also worth mentioning two events that occurred on April 16, FCA conducted its first AGM, which took place in Amsterdam, this is the first such event outside of Italy for Fiat, and outside of the US for the ex-US.

Also on that date, an agreement was reached with the unions in Italy on a new compensation arrangement for all its employees in the automobile business.

Moving to slide 20 to review our expectations for 2015 industry demand.

For NAFTA, we see the industry growing to just over 20 million units, with US up slightly at 17 million vehicles, and Canada expected to be flat.

The LATAM industry is forecasted to decline to 4.4 million vehicles, due to the challenging trading conditions in both Brazil and Argentina.

In Asia Pacific, we're maintaining our guidance at 5% growth in 2015.

And in EMEA, we expect continued improvement in the market for 2015.

The passenger car segment is forecasted to grow to 13.6 million units, with all major markets in a positive trend, and LTVs are expected to grow slightly to 1.8 million vehicles.

Finally, on slide 20, we show our guidance for 2015, which is confirmed unchanged from our last call in January.

The industry decline in LATAM and the challenges in APAC due to exchange rates and also the product changeover in China, are being offset by improving performance in NAFTA and in EMEA.

Now, having finished the quarter, we're going to move to the second deck, which is entitled NAFTA Region Profitability Benchmark and Improvement Actions.

We have been discussing for a while with yourselves our trend in NAFTA profitability.

I wanted to give you a little bit more information about how we see our performance gap compared to our direct competition in NAFTA, and the areas in which we are focusing to improve the margins in the next 12 months, particularly and obviously over this time period.

If you go to slide 2, when you utilize the external and internal data to understand the operating gap that we have to Ford and GM in terms of EBIT margins, and we've classified the differences into volume and mix, commercial differences, industrial differences, and other cost structure.

Straight volume and market mix within the NAFTA region is impacting margin by 1 to 3 basis points, compared to our competitors.

This includes the partial offset of favorable market mix within NAFTA compared to both Ford and GM, due primarily to our lower fleet business and lower Mexico sales.

Our analysis using this basis suggests our domestic competitors have a commercial advantage of 2 to 3 basis points -- 2 to 3 percentage points, driven by better option, cab and trim mix in pickups, lower dealer discounts, and better residual values.

This is augmented by a larger car parc of trucks and vehicles in the most profitable four to seven year age group, which supports higher parts revenues.

As you know, we have invested heavily in both engineering and product variable costs to improve our product offerings in recent years.

We are at a disadvantage, in our opinion, due to sourcing scale and supply chain efficiencies associated with the continued volume growth in the face of limit supply capacity.

We have made some improvements, but still estimate a 2% difference between our cost structure, in terms of product cost, and those of our competitors.

If you move to page 3, for a little bit more about mix.

Obviously there are different levels of mix, so here we're looking at the market mix, the fleet channel mix, and segment mix.

Then, obviously, we can going into more detail on nameplates.

But at this level, we see that we have an advantage in terms of market mix, since we have less fleet volume and Mexico volume, which are both markets which have lower-than-average margins in NAFTA.

However, at the bottom of the left of the chart, you can see that within our US fleet mix, we have a distinct disadvantage compared to Ford and a disadvantage compared to GM, and it means that our reliance on daily rental volumes for the year 2014 was up 75%, GM being at 69%, and Ford being at 39%.

Daily rental margins were significantly lower than the margins in the government and commercial fleet segments, and while we have seen some growth in those areas, we need continue to focus on growing it, because we know it completes our product lineup in terms of both passenger car and commercial vehicles.

Turning to segment mix on the right hand side of the chart, within the US market, FCA has about a 40% mix in SUV and crossover segments, and a 21% mix in pickup trucks and commercial vehicles, with the remaining 38% in the car and minivan segment and specialty vehicles.

Ford and GM both have a higher sales pickup trucks in commercial vehicles, although they have a lower mix in crossover and SUV, with the comparison of the sum of pickup and crossover and SUV as being about 60% for all three of us.

Ford and GM's car mix isn't dissimilar from our car mix, if you include our minivan mix, which has similar levels of the profitability of large car, and those segments make up about a third of the volumes.

And then Ford and GM have a higher mix in specialty vehicles.

Based on this analysis, we don't consider that these levels of mix, our segment or market level, are significant drivers of profitability differences.

However, clearly, as you go into the individual segments, we believe that GM does have advantages, driven principally by its high mix of the large SUVs and also Cadillac volumes.

Moving to slide 4, we look at our average transaction prices in the US retail markets by key vehicle segments where we are directly comparable to Ford and GM.

The main driver of our commercial shortfall is lower overall revenue per unit, driven by -- particularly driven by pickup and large SUV.

Looking at the transaction prices in the key pickup segments, you can see that Ford and GM both have higher revenues per unit.

Our analysis indicates that our MSRP pricing on comparably equipped vehicles is in line with the competition, but that our competitors sell a higher proportion of their sales in the higher-priced extended and crew cab configurations, with the trim mix trending more towards higher-end trim across those vehicles.

They also have a higher option loads in their transactions.

Our net transaction prices in the car segment are higher than Ford, driven by a lower mix of smaller cars, but lower than GM, which has a pricing advantage in large cars.

And our transaction prices in midsize and compact SUV and crossovers are in line with Ford, as the strength of our Wrangler and Cherokee offerings offset the negative mix impact of a higher mix in compact SUVs, driven by Patriot and Compass.

Ford's figures are supported by the Escape and Edge, and its Lincoln mid-sized SUV variant, with limited compact offering.

GM's lower transaction prices in this segment are driven by the lack of entrants in the $30,000-plus range.

Transaction pricing for full size and large SUVs for us are in line with Ford, with Grand Cherokee and Durango competing directly against, principally, the Explorer and the Flex.

We both lag General Motors significantly, due to GM's strength in the large SUV segment, with vehicles such as Suburban, Yukon, and Escalade.

Moving on to the next page, we have broad brush on this page indicating the areas where we're going to be taking action to improve our margin performance.

In terms of commercial actions, we've already reduced our dealer discounts by 1 percentage point, effective April 6, and are working to reduce our mix of leases in some segments where we currently over lease, compared to the competition.

We put some actions in place to remove some supply constraints on our pickup components, which should allow us to continue to improve our mix of 4x4 vehicles and higher car parc versions.

Our parts business is poised for some improvement in its volume growth as the growth in vehicles serviced probably over the last few years, inverts the trend of the declining car parc that was the fruit of the volume challenges that Chrysler had, prior to bankruptcy.

In terms of our industrial actions, we're focused on closing the gaps we referred to earlier here, as the product cost warranty and other industrial costs.

We have a global component and parts standardization initiative across all regions, which we expect to see significant benefits going through in 2017 and onward.

We are working closely with our supplier base on better supply chain capacity management, focusing on throughput management to ensure we reduce, expedite, and better capacity forecasting going forward.

Moving on to page 6, for 2015, we're looking to improve our NAFTA operating margin for the year to 5.5% to 6%, compared to the 4.1% we had for 2014.

Our new vehicle introductions, such as the Renegade and 500X, will help our volume, and together with some growth in Ram pickup, and also improved pickup trims, cabs, and option mix as a key focus to drive the 1% improvement in our commercial comparisons.

US retail pricing increases and the recent dealer discount adjustments, along with continued incentive spending discipline, will more than offset negative FX from Canada and Mexico, and small increases in industrial costs were driven by depreciation of plant costs for the Renegade and 500X.

Overall, we expect to have, in this projection, a similar level of spend for recall campaigns.

Obviously, the intent is to spend less, but the assumption here is that we can make these margins with a similar level of spend as 2014.

And, as you will note on the right-hand side of the top, our objective is to get to a run rate margin by Q4 of around 7% of adjusted EBIT.

So, I will hand the call over, now, to Mr. Sergio Marchionne.

Thank you.

Thank you, Richard.

I'm going to start talking about this final presentation that we posted on our website, which is called Confessions of a Capital Junkie.

Let's start with page 3, just to set the context for the presentation and our comments today.

The goal of the pitch is relatively clear, because, I in particular, but the whole of FCA has been relatively clear on two points.

The first is, and I'll show you some data to back up the position.

The industry as a whole has not been able to earn its cost of capital over the cycle.

That is something which in a normal economic system ought not to be allowed.

And the question is why has this happened, and in our view, which I think this will provide some evidence for the consolidation, for people who are not effectively earning the cost of capital, consolidation is the only key to remedying the problem.

At least in the short term.

I think that the conclusion that will come to is that even if we have a fundamental belief that we have initiatives in place, that will allow us to close the gap, the cost of capital, but the amount of potential savings is associated with a particular combination, just bodes a very large opportunity that cannot go unexplored.

I think it will be, and we'll show you some numbers in a couple of minutes.

I think it is absolutely clear that the amount of capital waste that's going on in this industry is something that ought not to be countenanced, and it certainly requires remedy, and remedy in our view, is through consolidation.

I've had a chance over the last three or four months to read comments from a variety of sources about why this issue has been raised, and why I have made it an issue.

I have heard the most disparate set of the conclusions, the fact is that I'm trying to find a justification for the fact that we are not earning our costs of capital, and that we are in some fashion putting up FCA for sale, or that we feel uncomfortable with our plan, or that it's a matter of life or death, and that we have no alternatives going forward.

And really, the most extreme thing is that I'm actually trying to do my big final deal before I step down and I do something else with my life.

I hate to tell you this, but most of that stuff is absolute hogwash.

There is fundamental problem that cannot be ignored.

The purpose of this presentation is to table facts and for us to intelligently look at them, and really come up with a solution, which I think delivers the proper amount of value to people who have committed capital to these ventures.

As the last two bullets on the page say, this is truly a dispassionate look at this problem from the inside, in the sense that we have used obviously information that is not commonly available, and certainly started from a position of the knowledge that FCA has of this industry.

And, it's looked at the industry overall, trying to find how a potential combination with somebody else will look like, and fundamentally what the benefits associated with a combination would be.

But the overriding theme about this, which is something that I've spent most of my professional life worrying about, is trying to effectively drive businesses away from mediocrity.

In our particular case here, we have what is in my view a unique opportunity to change the paradigm for the industry.

This is an industry that is not, and I will show you some data, this is an industry that has not fared well.

I think it is reflected in the way in which the capital market has valued us, in the level of skepticism that most of our plans have met when they were introduced, and I think we need to come full circle on this.

I think we need to find a way to abandon this fast, and effectively go straight.

The next slide, slide 4, is a quotation from probably one of the most beloved senators in the United States, Daniel Moynihan.

And this statement about, everybody is entitled to his own opinion but not to his own facts is really designed to make sure that we don't start drinking our own Kool-Aid here.

There are a number of data points out there in which we could be looked at objectively.

Assuming we can have an opinion about what that data is, but the facts themselves cannot be put in question.

And the other thing that I think you need to be honest about, in some cases, in order to justify positions, we really get twisted, what I consider to be fundamentally simple concepts into pretzels, and we're bordering on sophistry now.

I think it is very disingenuous way of looking at reality.

One of the things that we try to do in our own shop is to live a relatively simple life where we do not -- we don't believe fiction, we do rely on data, we do approach our options with clarity of mind, unbiased, I think, maybe wishful thinking inside the organization.

I ask you to look at the data in the same way in which we have compiled it, in a very dispassionate way, and really objectively, trying to assess how this industry has performed.

Slide 5 tells you the size of the capital commitments that this industry has been making.

It's based on, if you read the footnotes, it's really the sum of historical commitments, both in terms of capital and research and development costs associated with deploying capital throughout the business.

This number is large, and we're now -- we closed 2015 at about EUR122 million on a combined basis.

Strangely enough, as you can see the premium model makers have been spending less than that than the mass market guys, but the number is growing, and it is growing at a pretty rapid clip.

And for those of you who may have an idea that this is a temporary phenomenon, the last five years are really not indicative of the future, if you look at slide 6, we would like you to just focus on three elements, which are the condition, the development of the investment curve.

We all know that safety is becoming a much larger issue.

It's going to require capital and deployment of engineering results just to get this done.

This whole notion of car connectivity, of autonomy, assisted driving, all of these things are becoming more and more prevalent, and they will become part of the new phase of this industry going forward.

And the thing that cannot be forgotten is this whole push that emission regulation is imposing on the industry across the piece.

We have just finished a series of meetings here.

We are in Brazil, and the plant that just recently opened here in Goiana, in the state of Pernambuco.

And one of the things that we have reviewed is the impact on our investment cycle here in Brazil, just in this country, resulting from the introduction of new emission regulations associated with the [Vuniva] system.

But the capital that is going to be required to make them street compliant by 2016 and 2017, even to our plan, the one that we presented last year.

But it is not an inconsequential number.

We're all in the same box in this.

But the question that you got to ask yourself, is that money being wisely spent, in view of other alternatives that are available to the industry?

Let me get more slightly more granular, and perhaps slightly more provocative in the assessment, if you look at page 7, 7 attempts to determine the amount of capital as a percentage of the enterprise value of these businesses that we keep on committing to maintain their position in the marketplace.

And then we've got a comparison with a bunch of other industries.

What is absolutely clear, I named all the companies, OEM 1, 2, et cetera, just to avoid getting personal on this.

We have identified ourselves, and as you can see, we are protected from the last, we are the second worst performer, if you want to call that a scale, but it does say that we keep on rolling capital as a function of our enterprise value, which is obscenely low.

We keep on rolling it over and over, and it's been going on for a long period of time.

And the reason why this happened was because fundamentally enterprise values don't reflect the level of capital that is being committed in this business.

We are risking capital at a tremendous rate, and the markets are not buying it.

I think the fundamental argument supports this view, that we cannot prove a reasonable proposition is this capital that is being pumped into the business is going to yield the returns that we all expect when we do make the capital commitment.

Average across the industry is 20 years, the automotive industry, including some star performers is at 4.1.

The number is not even remotely connected.

We live in a world of our own.

We have, I mean, this is incredibly insular, and in some fashion, it does not compare itself to the rest of capital opportunities available out there, and it is reflected in the way in which the capital markets view us.

If you go to page 8, we have attempted to present EBIT operating margins for OEMs, and we effectively have broken them down into two categories between premium and non-premium.

So without leaving really getting mysterious about this, but the premium OEMs are BMW and Mercedes, and we couldn't get the rest of the numbers for Mercedes for the capital side.

The EBIT margin side industrial, that they have consistently -- certainly in the last five or six years, they have consistently outperformed the mass market OEMs, of which we are one.

And even after the crisis in 2010, 2011, when we should have benefited from the resurrection of the NAFTA automotive industry, and even in Europe, the recovery in Europe, and certainly the good years that Latin America has had, the combination of all of those factors have not yielded margins that are even remotely close to what we are in pursuit.

But the most disturbing thing about this is, and you look at page 9, is what that has meant in terms of return on capital.

As I've seen, I've said before that I've seen some relatively interesting calculations in return on invested capital.

I think this is as a fair representation, as we could make it.

The definition is included in the footnotes.

But it shows those two things.

In my view, this stock is incredibly volatile.

We have been all over the place.

There appears to be no consistent trend in performance.

It is volatile, but more importantly, if you look at the post-2010, 2011 period, even in bumper years, like we have had in NAFTA, even after restructuring in NAFTA, where we have not been able to achieve a return on capital which is sufficient to cover its costs.

And we are unique in this position.

We are unique in the context of all the other industries that we've laid out, which are pretty well representative of other alternative investment opportunities.

We have failed, collectively, as an industry, to try and deliver values which are commensurate with the amount of capital that is being consumed.

If you move on to page 10, page 10 gives you some -- and these are obviously the generalized numbers.

I mean, they do reflect, I think properly, the relative split of expenditures that have to be made in OEM, and if you look on the left, you can tell where this money is going.

And it is going to a variety of pieces of the car-making business.

If you look on the right, you realize that about half of this is really reverent relevant, in terms of positioning the car in the marketplace.

The other half, in our view, is stuff which is neither visible to the consumer, nor is it relevant to the consumer.

It is not going to bias the decision that a consumer is going to make, because it is not relevant, in terms of the offering, in the marketplace.

I think it would be incredibly futile, and foolish on our part, if you look at slide 11, to assume that this industry is not trying to deal with this.

And so we have gone through, we all have, and I, for one, have preached for platform consolidation for a long period of time.

You can see a couple of quotations from our competitors at the bottom, but this is something that has been going on for quite a while.

We have decreased the versatility of these platforms to yield more than one cross-plat, but this has become a level playing field.

And if you look at slide 12, we have now gone as far as Volkswagen and Toyota have recently announced, in terms of the architecture of MQB for VW, and the MC-M for Toyota, which are supposed to drive a phenomenal amount of commonization across a the variety of brands, and a variety of platforms.

And this is significant, and it is interesting that these two companies, by the way, are the ones that when you look at the chart that I showed earlier, are earning their cost of capital.

But it is interesting that this commonization exercise has not really delivered what we expected.

I will show you in a couple of moments, even after this all this work, all of this commonization exercise that's gone on, we still haven't made it.

The other way in which we have tried to deal with this issue is by looking at a variety of means of sharing costs of development.

You go from one-off industrial cooperations to full integrations.

You can see the reds and the greens.

The reds are intended to represent successful ventures, the reds are not our failures, but it does look like a pretty inconsistent array of data.

The ones that are by definition more successful are the ones, one-off industrial cooperations, and we will talk more about this in a moment.

But the ones that I've been advocating is the one on the far right, and that by definition is a very poor track record.

We will talk about this in a moment.

Just think about all this going on in the last 10 to 15 years, a phenomenal amount of capital invested by -- in the restructuring of these businesses.

We have had government interventions in both the European and the American side, and after all that work, you stand back and you look at page 14, and you look at the fact that in 2014, our return on invested capital on the average, including the ones that are earning a return an excessive cost of capital, and the average is 7.8%.

But more importantly, when you look the enterprise value to EBITDA, so-called cash generation of this businesses, it's trading at a measly 4 times.

A number which is substantially lower than anybody else's, and which, if we continue going in this line, will not be a remedy.

So the question that we asked on page 15 is why haven't all of these efforts paid off?

I can tell you, we have lived through this process inside our shop.

There is a reluctance to replace all the stuff for the architectures.

We fight against this problem all the time, and were it not for emission regulations, we would continue using our old architectures until the cows come home.

They are the least costly way of staying in business.

And so, architectural renewal, standardization and so on is really constrained by this overriding cost objective of trying to keep the lowest-cost solution as a basis of providing product to the marketplace.

The other thing is that you can only do this effectively if you are sufficiently large.

You need scale.

You need it across platforms, you need it across regional applications.

Without that kind of scale, the exercise becomes relatively futile.

The other thing is that it requires an incredible amount of discipline because you have got to avoid over engineering these architectures to try and accommodate as many possible requirements as you can, and the trade-off between standardization of the architecture and then versatility is an incredibly tough analysis.

We run across this problem all the time.

How much do we want a particular architecture to yield, can it do a variety of things?

The more optionality we build into the architecture, the more built-in cost you provide into the base solution.

And so I don't have a doubt that from a risk standpoint, it is the one that offers the lowest risk, but it is incredibly slow, in terms of execution.

I can tell you this from our end.

I've been doing this for 11 years.

The issue about platform conversions is an incredibly painful process going forward, and entails lower returns over an extended period of time by definition.

Now OEM cooperations that we have had, and we have a couple of successful ones, they are very effective, but they are very limited in scope, and they usually involve things that are not mainstay elements for the portfolio.

And because of their own nature, they are not pervasive, they are really not the substantial omnibus solution to the problem that we've got.

When you move on to page 16, and you ask yourself why, if consolidation has historically failed, the reason why they failed is because cultural divide has continued.

So there has been inequality in terms of the integrating parties coming to the table, the operating models, as I can tell you, is ubiquitous at least twice in our lives.

Operating models have been -- were radically different, and we have never found a way to deal with the consensus.

There was really a lack of appreciation for the brand structures that were coming to the table, and the list goes on.

The lack of trust, of respect for the integrating parties will have to recover.

The reason why this happened is because complexity, the complexity of a venture like this was, in the majority of the cases, too much for the current leadership to manage.

But when you look at those risks, you've got to weigh them against the benefits associated with consolidation.

There is not a single doubt that consolidation allows you, on an incredibly rapid scale, to execute the capital cost reductions that you potentially envision.

It does allow for best of best approach to modularity and commonality.

You have a phenomenal opportunity to try and implement the best possible solution in the simplification structure.

The overriding theme of all this is that even if I acknowledge all the risks and I acknowledge all the limitations associated with consolidation, the real question is, can I ignore the size of the savings that are associated with this structure?

So let me try and take you through what I consider to be the relevant accessible capital cost reduction associated with this idea.

Page 17, there is a breakdown, and defines over here for a particular vehicle, but it tells you basically where the money is being spent, excluding powertrain for the vehicle and platform.

And you can see from the bottom of this chart that there's roughly 45% to 50% of that cost, which is common to the possibility of being shared, used for other top halves, or for multiple applications.

If you move on to page 18 and 19, which deal with engines and transmissions, you see that yields again an incredibly high level of commonality.

You see in the case of engines, you end up with numbers as high as 90% commonality, where the consumer can give a flying leap as to whose engine you're using, because they are irrelevant to the buying position.

The combination of just the powertrain savings associated with commonization is up to EUR1 billion a year.

I didn't say EUR1 billion one-time cost, it's a EUR1 billion a year, it's repetitive cost saving, it's an amount in perpetuity going forward on this one item.

And so, this slide 20 is the slide that any OEM could give you.

Anybody who shares a platform with multiple top halves will tell you that these numbers are about the right size that you're talking about, a substantial reduction in the case of the platform itself of roughly 20% to 30% of the second vehicle that's being engineered.

We're talking about a savings of 25% to 30% on sharing a common platform for engines.

When we go to page 21, you realize that when you start putting this across the same page that I showed you earlier, which had this graveyard map of all deals that have failed, some of which have been successful.

You only get the true value extraction if you get to full integration.

The problem is that you need to achieve a fully integrated product strategy.

Most of the deals that have happened and that have failed on a consolidation basis did not have at the heart of the consolidation an integrated product strategy.

Now, we have run simulations, so we have taken a look at the automotive lifecycle, and we have run a number of scenarios as to what the potential benefits associated with this consolidation would be.

On page 22, we tell you that the majority of the savings are a reduction in technology and product development costs.

This is pure capital expenditures that are being taken out of the capital expenditure function.

There are additional savings that will normally come along with the consolidation exercise.

They undoubtedly are potential benefits associated with cross-selling across a multiple brand structure.

There are other opportunities in terms of purchasing and SG&A.

But the real key issue to me is the reduction of capital and the elimination of capital waste.

The total savings associated with this would range, depending on who you do with us, between EUR2.5 billion to EUR4.5 billion.

That number is a number that FCA sees, and it's an annual number, amount of money that could potentially be available by combining the capital expenditure function of two OEMs.

The impact of all this is on page 23, here on page 23, we have shown you, this is laid out in graphic form where OEMs match up in terms of return on invested capital.

As I mentioned in my opening remarks, FCA is not earning it's cost of capital.

I've been public on this issue, before I confirmed it today.

I think that when you see the first movement up, and close to the 2018 consensus, this shows what the market is saying we will deliver in 2018.

It's not our five-year plan, it's what the market is expecting for us in 2018.

And it says that even if I believe consensus, I want to get close to adjusted cost of capital.

If we adjust that consensus view, which is again not our view, we end up with a number well in excess of the cost of capital, and certainly a respectable return on invested capital, which would allow us to weather a downturn, and over this cycle, guarantee that we would deliver cost of capital back to capital providers.

Not an inconsequential conclusion, but let me try and put this in relatively short form.

If you look at page 24, go back to what I started with in my opening slides.

EUR100 billion, over EUR100 billion a year being invested -- EUR2 billion a week of capital that's going in the expense by major OEMs.

I think we have proven and you can do your own analysis on this, but we have historically as an industry, we have not been able to provide returns in excess of cost of capital, and this is after we went through this incredible restructuring exercise in the US auto industry.

And notwithstanding the fact that NAFTA volumes are at peakish levels now, and have been for the last couple of years.

Not a single doubt that single purpose project JVs and the like are helpful, and they do, and we will continue to use them, but they are not determinants.

They are not enough.

But a horrible part about this, and the thing that I find most offensive is that the capital consumption rate is duplicative.

It doesn't deliver real value to consumer, and it is, in its purest form, economic waste.

I can't come up with one rational argument that would suggest to me that rational economic players should engage in duplicate capital expenditure exercises that deliver no value to no one.

I mean, it is just bizarre, and as we've continued to do this and it's been part of our historical DNA, I think it is time to call a spade a spade and stop this.

Again, if you go back and look at the graveyard of failed deals, there is enough to create concern.

But the problem I'm having with all of those concerns is the benefits associated with this are way too large.

If this was EUR100 million a year, if it was EUR0.5 billion a year in terms of potential savings, I could understand the fact that number could be offset by executional concerns.

But it cannot, and you should not buy into the discussions of consolidation review the potential values that will come out for the combined entities, as a result of the combination.

Of this number that we talked about, the EUR4.5 billion number, nearly 70% of that number is pure capital.

And the great thing about that is that it really does not impact on our manufacturing workforce, it doesn't impact on plant allocations, we are not advocating plant closures.

We're just talking about the elimination of duplicative investments, funds which could be used for much more useful purposes, and which in view of technology challenges that the synergies is facing now, and will be facing for the next four or five years are better spent in guaranteeing the competitive advantage that our house needs to gain in order to stay in this business long-term.

The other thing about this is that it does not require rationalization of the distribution network.

We're not touching dealers, we are not going back and asking them to rationalize their conservatives.

We're not commingling distribution networks.

We're talking about fixing the back end of the thing, so that the industrial side of this house features the lowest possible cost solution to the front end.

And it is, of all the possible options that we've looked at, it is an exceptional value creation opportunity for shareholders.

There is nothing that we've been able to, that we've looked at, that we've studied, that delivers the same level of value generation for our shareholders and theirs.

And the reality out of all of this is that the choice to do this or not to do this is a matter of leadership style and feasibility.

The reason others have failed is because those two elements were not available.

I think, and I know a lot of my colleagues in this business, I think we have matured now, but that should not be an issue going forward.

The thing that really frightens me is this picture that I showed you on page 25, which is -- Lewis Carroll and Alice through the Looking Glass, and I encourage you to read it, even if you have nothing to do with the automotive business.

The Red Queen paradox is something that stayed with me for a long period of time.

And this notion about not being able to move forward, about not making progress by continuing to plod along, and assume that the world has not changed is going to entail the denial of this industry.

And my suspicion is unless we find a better way and a better paradigm to run this business, we're going to be running into problems again going forward.

The capital consumption function of this industry is unsustainable, in any context.

It is unsustainable going forward, and it really does not add any value to society or to consumers.

I think we have an obligation to look to this in a real way, to try and find a way to really reduce that capital commitment, to release an enormous amount of value back to the shareholders who have voted with their valuations about where we belong in the food chain of the capital market.

We're not, to be perfectly honest, I don't think we are held in high esteem.

I think there are other companies that have done much better in other sectors, and where management, I think, has shown the propensity to adjust to change and to move ahead of the curve.

We, in this business, have continued to do the same things for a long period of time, without ever having the courage, the audacity to look at a change in paradigm to make things better.

And on that note, I will pass it back to Joe, and I guess we'll take questions.

Leanne, I will turn it back over to you, and we will begin the Q&A, please.

(Operator Instructions)

Adam Jonas, Morgan Stanley.

Sergio, first I want to thank you for saying what I think a lot of people, perhaps maybe not everybody, but a lot of people been thinking, but haven't had the stones to say.

I wanted to talk about turkeys and Thanksgiving dinner for minute.

Because this seems like a very elegantly laid out road map, where you and the team have put an enormous amount of time into this.

This isn't just preaching, it sounds like a real plan.

But what, to get, like many junkies, they don't just suddenly want to get clean themselves, you need either to hit rock bottom, or to have an intervention.

If I look at some of your US competitors, they are rolling in cash, and making BMW-style margins in China, and in the US.

And by their own admission, they think they are in really rude health.

So is this, do we need an outside interventioner to shake the shareholder base of, be it a US competitor or potential partner here, or do you think, does this road map have any airplay at all with the board rooms and management teams on their own, or is it too soon to tell?

That's it.

Thanks.

The short answer is that it may be too soon to tell.

I can only tell you that one of my hopes in doing this was, in addition to removing all of the debris off the tracks and all the garbage that has been thrown about why we have talked about this, but really to try to provide a factual basis for some of the assertions that we've made in the past about the need to find religion, to go clean, to find a better way to run this business.

So I might sincerely hope also to speak to the capital market, to get you, you and the rest of the capital market participants, to really try and determine whether there is value in this thesis that we're proposing, and it's more than a thesis.

I think we see it as an operating model going forward.

And get you guys to engage.

I think that we need, the best way to try and get these things done is to get the capital markets to act as they should.

The capital markets have historically, I grew up thinking that they were as impersonal as they are, but that they are a phenomenal driver of change, that they are the ones that effectively calls entrenched positions to be moved.

I think it is up to the capital markets to express their views, as to whether this up-and-down can be done.

And we're not prejudging that the capital markets may or may not play in the contest, but I would be find it bizarre, if after the capital markets have signed the total valuation, and you've been assigned to automotive industry, that you would not be interested in finding an alternative business model for this business.

We need to find one, whether it's this one or a modification of this one, we need to find one.

This state of affairs is no longer -- we cannot support it, it's almost embarrassing.

It's at the point now where anytime we stand up and we make an assertions about the future, we always run this incredibly skeptical view back from the capital market that says you and who's army?

Everybody that I have talked to at the end of the day sits back and says, I don't know why you've got these high volume additions, why you want to do this, why you want to do that.

Well, if you do nothing, you would just vanish.

The problem is, we are involved, that's why I showed you that wonderful picture about the Red Queen.

We are involved in this incredible battle for survival which adds more value, and which can be short cut in a very effective way, by allowing rational economic players to share a view, and share direction.

I think to the extent that we've all agreed that we want to be OEMs, then let's be respectable OEMs.

And respectable OEMs provides solutions at the lowest possible cost in our profit generation activities.

There is no ego involved in this, there should be none, and I think the capital market in this context needs to push for change.

I can do what I can do.

I can sit here, I can preach for the next 20 minutes, 3 hours, 20 days.

The fundamental driver of this needs to come from the capital market.

Can I add as a follow on Sergio, on slide 5, when you talked about the EUR122 billion of CapEx and R&D spent in 2014 by the collection of main OEMs, this does not include the now likely many billions being spent by the likes of Google, Apple, Uber, LG, Samsung, and other non-traditional more tech-oriented new business model oriented players that are getting into this industry.

Is that part of your thinking?

That is a spooky concept.

The other thing that it does not include is the amount of capital that's being deployed in Asia.

Out of all of the joint ventures, that we can pick up those equity pickups in our earnings.

if I want to add up the equivalent of what a 20 million a year car business is plowing into the business of capital, the number would be well above this number, I can tell you that now.

Plus, we need to include what you just mentioned.

There is a list of people who are, who may become incredibly active participants.

I have always been intrigued by the notion of having technology disruptors show up in the marketplace and change the paradigm.

I think if they show up, and they're truly successful, with their cash files and their know-how, they could fundamentally hurt this industry to the point where we are unable to respond quickly enough to the channel.

So whatever capital we're overspending, I think we should go after that challenge and not to duplicating effort.

That actually answers my question, which is, I know you have an enormous amount of respect for Apple, for example, you have been outspoken about that.

There are some signs that they are in some way seriously going after some form of automotive or transportation business model.

If your contemporaries in the traditional auto making universe rebuff this plan, is it beyond the scope of possibility to adapt this or take this message to someone like an Apple or Google and say, listen, this model this business model of mobility, it needs to change dramatically.

Could we work with you on this, if we're not going to be able to work with our partners across town?

Thanks.

The answer is that it's possible, and I'll leave it at that.

It is possible and I think we should encourage that dialogue, anyway.

All of us should encourage it.

I think we can go to our next question.

Richard Hilgert, Morningstar.

Good morning, everyone, and thanks for taking my questions.

On Sergio's presentation, one of the things that prevents more consolidation in this industry, I think, is the sense of national champions and unions.

Yes, the R&D, the development, it's definitely costly.

But you've also got things being driven there, not only consumers' choices, consumers' demands, but you've also got safety regulations, you've got clean air regulations that are driving a lot of those costs.

But the other issue here is also capacity.

You've got growing capacity in China like crazy, where demand may or may not soak up some of that over capacity over the next 5 or 10 years.

You have capacity going in, in Mexico, like crazy.

You yourselves just inaugurated Pernambuco plant down in South America.

So how do you get around these issues of national champions and unions trying to force capacity to stay open, versus your view of consolidating, to absorb development costs?

Let me agree that all the issues you just raised cannot be cured.

You and I can get involved in the debate about how many of those are curable and not curable, but let's just agree that it cannot be cured.

Then ask yourself the question as to whether the number that I made reference to on slides, what is it, slide 24.

The EUR2.5 billion to EUR4.5 billion number that I made reference to, and within that number, it's impacted by your consideration.

I think we need to be absolutely careful about one thing.

I can give you a list of things that will happen concurrently with the consolidation of two sites, but you will to know that whether we consolidate it or no, the issue is, can I get there?

Does consolidation cure the problem of capital overspend, and the answer is yes.

Does it improve my return?

Yes.

Does it make all the issues that you raise go away?

No.

But without doing a consolidation, I'm going to face those things anyway, and I will face them alone while I'm completely overspent on capital.

The answer is a bad answer.

It is just a bad answer.

I think we need to focus on the issue.

The issue is, is this an avoidable cost?

If the answer is yes, then we need to avoid it.

I could give you a list of reasons why we might get rain tomorrow, stuff will happen, the governments will change, the unions will do this, all of those factors will happen anyway.

And I think we have proven the fact that national champions in this industry are really not really the relevant standards in which to measure OEMs.

We have a long history of brand DNA, and that brand DNA needs to be preserved.

It's crucial.

Because that is the makeup of the brand, and its appeal to the marketplace.

And we saw this in a breaking fashion here in Brazil, when we opened this plant.

When we launched Jeep here, we took parts of the American DNA and it effectively transplanted them on Brazilian soil.

It keeps its US origin, but it is being adapted to a global marketplace.

You will see this at the end of this year, when the Cherokee goes into production in China.

This will continue, and so it's one thing to talk about the national origins of the brand, and the other one has to do with running a multi-national, more importantly a trans-national, and being able to manage the complexity of moving from place A to place B without damaging the business.

To go in there and effectively change it the local market needs by preserving the highest level of efficiency of a global industrial machine.

This needs to be done.

People have talked about this forever, the question is execution has been horrible.

I agree with you, there's a number of things that we need to consider in addition to that, but they need to be considered anyway, whether we do consolidation or otherwise.

Absolutely.

Everything you've said in your presentation is definitely valid points about the industry and its returns on invested capital, for sure.

Just a couple of follow-ups on Richard's presentation.

Richard, the industrial costs in North America.

Do you have a figure for us what was spent on warranty and recall in the quarter, that drove the EUR125 million increase in industrial costs, and given that Windsor is going to be down for at least another couple of quarters, will we see that number go up as the quarter progresses?

Richard, Windsor is not down another couple of quarters, It is down for three months in total.

It's been down since the middle of February, so it will be coming up in the middle of May, and then we will continue to build the current product through the end of this year, and then we will launch the new product in Q1 of 2016.

So Windsor will be down for half of Q2, and then it will be back up at full capacity for Q3 and Q4.

In terms of the campaign cost, the number for the quarter is about EUR220 million of cost, compared to about EUR120 million last year, so we had a delta year over year.

Well, we had a delta year over year of about EUR120 million, we had EUR100 million last year.

Now it's basically driving all of the negative impact on NAFTA EBIT in terms of industrial cost, because we did offset extra cost, in terms of content in the vehicles year over year with efficiencies in the supply chain, in the purchasing organization.

So I think to your point in the last few calls, I know you've been trying to understand better when the industrial cost equation will start to turn around.

I think in this quarter, we saw a relatively benign impact on EBIT, in terms of costs, campaign costs aside.

Okay.

Final question in EMEA, are you still taking advantage of the government program to reimburse workers as they are laid off at various facilities, or has volume now started to come back enough in Italy and the rest of Europe, that you are no longer having to take advantage of those programs?

We have reduced significantly our utilization of the temporary layoff program, particularly because of the Melfi plant now being up and running.

Getting up to full production of the Renegade and the 500X.

So basically we have one significant installation still in Italy which is a quite low utilization rate, and that will start to improve, as we bring Alfa into the equation at the end of the year.

Martino De Ambroggi, Equita SIM.

Thank you, and good morning, good afternoon everybody.

Still on the aggregation part of the presentation, I remember some quarters ago, maybe some years ago, you commented that you go through everybody, but nobody was willing to share common platforms with you and your Italian plants.

Now FCA is in a different shape, the environment has changed but is the situation referring to the willingness to discuss something dramatically changed, or likely changed compared with quarters or some years ago?

I hate to do this to you but there's an echo on the line, and I cannot hear you.

I change the mic, is it better?

Better.

So I repeat everything.

So I remember some years ago or quarters ago, you commented that despite talking to everybody, no one in the sector was willing to share common platforms in your Italian plants.

Now we are in a different world.

FCA is better than some years ago.

But the willingness to discuss aggregation has changed, basically are there unlocked doors or is it just an interest for you, but nobody is willing to discuss it?

If you are asking me whether people are more willing now to discuss platform sharing, I think marginally yes.

But I go back to what I said, there is a slide in the deck here, which when you look at this you will see the benefits, it was slide number 21.

I think every other step in here, with platform sharing, JVs, single purpose joint ventures, and I said this in my remarks, have undoubtedly value.

But they are not some sufficient in size and intent to change the operating paradigm of this business.

And the operating paradigm of this business needs to be changed.

To be perfectly honest, let me go back, there's a slide in there, the one that deals, slide 23.

I don't know how you get up in morning, to be perfectly honest.

If you are running one of the OEMs that's at the bottom of that chart, you know the cost of capital, how are you going to keep on telling yourself that somehow through some miraculous execution of a plan, you're going to come out of this thing and you will end up being -- our history, that's not going to happen.

And given the size of the opportunity that's available to all of us to try and get this done, I fail to see what people will not just grab it and run with it.

That is the real challenge.

The real challenge is to change the paradigm.

I showed two large OEMs which happen to be number one and number two worldwide, who are driving like mad to try to get platform consolidation, and you saw the early coming out of VW this morning, you see the flawless execution by building on a global scale.

Those are numbers and objectives that would take a lifetime to try to get to, even if you perfectly executed everything you were doing.

And when you have got a ready-made opportunity on the table, that effectively allows you to shortcut that travel, regardless of the risk associated with execution, I think it would be absolutely nonsensical not to do it.

We're talking about values, which if confirmed, they end up giving you an opportunity value which is in excess of the enterprise value of most of the people below the cost of capital chart.

I don't know how you walk away from that opportunity.

Most deals have been done for less.

Yes.

May I can ask a silly question, maybe for this reason, the answer would be very quick.

Are you only considering friendly options or maybe you can force some special situation?

I have nothing to announce to the nature of this.

The purpose of this pitch was to pitch the problem.

I am making statements while standing by a car at the Detroit Auto Show, or giving an interview to a journalist, it wasn't sufficient, because it gave rise to a variety of interpretations out there about what it was that we were already saying.

I sincerely hope that this presentation will put that issue to bed.

These were not hallucinations of somebody who is looking to grandstand in the industry.

You just figure out, that we have spent a lot of time trying to understand what makes this machine tick, and the machine can tick a lot better if certain things happen, and that needs to get done.

It is fundamentally immoral to allow this waste to continue unchecked.

We need to do something.

Something needs to get done.

It cannot continue like this.

Okay.

Thank you.

If I may, one more question on the business side.

On Ferrari.

I know that 10,000 production, 10,000 cars is your critical production threshold.

I saw Q1 was down 6%.

It is not moving up basically.

Is that the trend for the rest of the year?

I think we're confirming the numbers in terms of volumes for the year.

The number is slightly above last year's volume.

One thing that should impress you about Ferrari, not only the fact that we've been podium four times in four races, which is not inconsequential.

But the other thing is earnings are [really good] for the business.

We made EUR100 million in the quarter that didn't have exceptional volume.

So all of our views about the earnings and cash generation of this business are intact, and I think they are a good baseline, which we think we can [do that deal of 10% IPO] in the third quarter this year.

Okay, thank you.

Kristina Church, Barclays.

Thank you for taking my question.

I've another slightly theoretical question about the structure of the industry.

I guess my question, you have said a lot in the past, Sergio, about how suppliers are making a lot higher returns on capital than the OEMs.

Does this not maybe present an opportunity that you're looking at the industry in the wrong way, or the OEMs in total are looking at the industry in the wrong way, and that there needs to be some sort of change in the level of integration.

Not in terms of consolidation among the OEMs, but in terms of more, looking at other industries, like say the tech industry for the way that they deal with outsourcing components, and your parts production to third parties, and being more brand orientated OEMs, along the lines of the mobile phone industry.

Kristina, I am asking for an English translation from Palmer because your echo is bad.

You're asking me whether we should be doing more vertical integration than we're currently doing?

In terms of seeing that the -- if you can't make a return on your capital by producing the cars yourselves trying to be more brand consolidators and outsourcing more of the production side to the supply chain.

If you're asking there is a model that says let's go outsource this, and allow somebody to deliver efficiencies and value back to the car companies, I think that is a wonderful model.

I can tell you right now that the likelihood of that happening is probably less than my being hit by lightning inside a building in Brazil.

I think the level of engineering, of domination of the organization by engineers, will prevent that from happening.

It wouldn't even be on the table.

And as much as I can push it, we'll find there's [any way it's economic].

Over time --

In an ideal world, we should allow the lowest-cost provider to do this component stuff.

Whether that be the architectures, engines, or otherwise.

And by the way this level of disintermediation of product is going on everywhere.

We see this in the cell phone business, we see this in technology, we see it everywhere.

But I think it is way too early for this industry to tackle that problem.

And if we focus on that objective, we will lose this opportunity, because we are still spending EUR2 billion a week.

So while we work on the grand scheme, money is going out the door, and it needs to be stopped.

[Robert Leach], Deutsche Bank.

Thanks for the presentation.

The arguments that you're making for consolidation are very logical, and I was curious about whether you could maybe just address why, over time, larger companies that have multiple brands, haven't necessarily earned higher returns.

If the answer is management of the complexity, what is the assurance to the market that issue can be overcome?

I think we need to be globally logical about this.

If you are in a multi-brand environment, my proposal doesn't make you less or worse than your starting position.

If you're in a multi-brand environment, you already have X number of brands that you're managing, this position is value-accreting.

My proposition.

But the reason we chose VW and Toyota is because you're talking about two completely different operating models.

One, which is fundamentally focused on one brand, and they've had diversions into others, but they incurred a limited extension, and the one that has probably been the most successful is the Toyota with Lexus, and it's very much a North American phenomenon.

But at the end of the day, there are multi-brand environments such as VW, which they claim that they've got 12 brands, and they do.

Which has been incredibly good at executing the commonalization exercise across the brands, and it's been able to maintain distinct identity in the marketplace, including separate distribution networks.

They have done this.

And so the argument to me is not the number of brands that you manage, it's how you manage.

How you lead the organization.

And it requires a completely different set of skills to try to run a multi-brand environment than it does to run a single brand, one focused organization under one brand.

They're completely different.

You do the same thing on the back end, the front end is completely different.

Your go to market approach is [no different], but in the back, you do the same thing.

And I think the thing, I have listened to them all, right?

I was part, I was involved in this restructuring of the US industry, I was asked to play a small part in all this, and we worked with [Chrysler and Chrysler] has come back and ran a multi-brand environment.

I remember when I took Ram away from Dodge, and I created a standalone brand, and everybody said, you're absolutely nuts.

Everybody is trying to convert brands, and you're trying to create another one.

The reality is that the strength of Ram is because Ram is a separate truck brand.

It's one of those things that it does -- it has, it's expansion into commercial vehicles and the purity of that offering, has allowed us to play a completely different role than we would have been able to play, given our history in the NAFTA market.

And Dodge has gone on to do other things.

Dodge is now is achieving its own DNA, it's focusing on what I think it's historically done well.

And that kind of brand purity and offering into the marketplace is quite valid.

I think it works incredibly well.

But you understand that at the time of the crisis in 2009, some of the things that could have happened in NAFTA did not happen, because people had an aversion to the number of brands that existed, which I find to be a ludicrous statement.

If you look at the results prior to six years later, and that thesis, and that view was absolutely fallacious.

It was wrong.

I think we need to be open enough in our thinking to acknowledge that we don't have a single view of an operating model of the front end of the business.

We should share a maniacal fixation with reducing the amount of capital that is being consumed by these businesses.

That often [commonality will bring] the Honda brand to one.

And my only objective here is to ensure that we get that objective, we get to that end role.

We need to bring down the cost of execution.

It's too large.

It is way too large.

Max Warburton, Sanford C. Bernstein & Co.

I had a comment coming back to your response to Adam's question.

Adam's question at the beginning, which is the important one.

Which is really, who is this presentation aimed at?

You were suggesting that you thought the capital markets could be an agent of change, and could drive some of this.

I just think that's completely misunderstanding our influence.

I've been doing this for 15 years for various reasons, and we have no influence.

Do you think German companies listen to us?

Do you think Japanese companies have an interest in what analysts write?

And from a shareholder point view, you should look at the rates at which car companies are borrowing now.

If you that the ease of which car companies can raise capital at the bottom of the cycle or the top, the capital market is not going to be able to do anything to influence this.

So I'm still left scratching my head as to who this presentation is aimed at.

There is probably 5 or 10 men who can make this stuff happened.

You probably have all of them on speed dial.

I just genuinely do not understand the purpose of having this debate in public.

Everyone on this call agrees with you.

You know this, we know that.

I will come away from this call thinking, what exactly was that about?

But I guess that question has been asked already, and it is a comment, rather than anything else.

Before you get overexcited, Max, just let me try to give you an answer.

I could be really rude and ask what you do for living, but I won't.

Let me try, and pitch this in a way in which we can at least share a common view of reality.

You issue edicts out of your position as the leader of the markets, whether somebody should fund or not fund a particular organization.

You come up with recommendations on buy, sell, you do a variety of things.

Arguably, the market reacts to that information and acts in a way in which in some fashion reflects the composite view of what the analyst community believes of being the proper course of action regarding a particular stock.

Don't shy away from your obligation.

Your obligation, at the end of the day, is to direct the flow of capital.

It is not to write fireside chats about stocks, it's not about writing fairytales about things that could and could not happen.

It is to direct the flow of capital.

That is what you do for living.

I make cars, you direct the flow of capital.

Own the responsibility, Max.

I mean I would love to believe that is really my role.

Max, every time I read one of your reviews, every time I read one of your documents and I read some of your colleagues' documents, I take them as a direction and set of instructions to the capital market to direct flow in a particular way.

Don't shy away from this, just don't.

I take you damn seriously, and so does everybody else in this room.

Well, I'm delighted to hear that, but if I think about some of your peers, the idea that Ferdinand Piech ever read a broken note, it's a farcical idea.

I'm not here to discuss personalities.

I will not express a view on Ferdinand Piech, I will not express a view on Winterkom or my colleagues down in Detroit.

I will not do any of that.

This is a dialogue between you and me about good [sense] in the capital market.

I think the capital markets needs to take the responsibility, at the end of the day, for forcing the allocation of capital in a proper way.

You need to be -- you and your colleagues and other people that are active in this business need to allow for companies like us either to get funding or not to get funding.

And I believe you vote it, and the way you vote in.

You've relegated us to a valuations which is a sin.

Look at the valuation multiple.

Look at the chart that shows what we're trading as a multiple of EBITDA.

How far down the food chain do we need to go to be embarrassed, when?

Let's wrap this part up.

I don't think your colleagues are as embarrassed as you are, and that's the problem, right?

That's unfortunate right?

That is truly unfortunate because I have another obligation in my life.

I compete in the marketplace not only for vehicles, but I compete for valuation and the creation and value of others.

Taking my responsibilities seriously, to ask a second question.

If I think back to late 2008, Chrysler was bankrupt, and if I remember correctly, the Rattner Commission or task force, or whatever it was called, recommended to President Obama that Chrysler be allowed to fail and be folded into GM.

Yet I think you said earlier in the call that you were asked to play a role.

My understanding is you put yourself forward to play the role, and the role has obviously been very helpful for Fiat, and a tremendous success.

Am I missing something here?

Could we not have had industry consolidation in 2008, at least in North America that would have resulted in a healthier industry than the one we see today?

Has Chrysler and its resuscitation under your command actually not been part of the problem in the last five or six years?

Max, I love you dearly, but you actually think that the behavior of the remaining survivors would have been any different if I had died?

Are you really that gutsy in making that call?

You just spent a couple of hours of your valuable time telling us that consolidation and fewer players would change behavior, so yes.

No, that was not the argument you pitched.

You pitched that argument that said that the death of Chrysler would have ensured better performance of the others.

Look at the [expletive] track record, nobody's ever been able to do it.

Alive or otherwise.

Put another way, you put GM and Chrysler together in 2008, why is different from putting GM and Chrysler together in 2016?

I didn't pitch that thesis, you did.

And I'm not going to comment, because on hypothetical combinations.

I am answering the 2008 question.

I think it's incredibly naive to assume the that the extinction of Chrysler as an entity in the US market would have fundamentally changed the paradigm for the other two.

In addition to the fact, and you know, because you and I have talked about this, Max.

That we would have thrown the supplier base into absolute convulsions.

And both of the other two would have shut down, because the supplier base wouldn't have been viable.

But even if I removed that issue, what makes you really think that the paradigm would have been different?

What?

Because you would've shared costs and reduced the capital intensity of the industry, which is exactly the point of today's discussion, is it not?

All right, so, if the argument you are saying, you have just rephrased it.

It is not my death, it is the absorption of millions for somebody else in 2008, right?

I thought that I had said that the Rattner Commission's advice was to let Chrysler fold, and fold it into GM, something like that.

Am I corrected that is what the Rattner Task Force originally suggested, that GM should take on Chrysler's stronger businesses, like Ram and Jeep?

Yes, by the time, Ram at the time didn't exist, it was just a sub brand of Dodge.

But without getting to that level, for all I know the discussion was had, and I think the discussion failed.

I am not good at revisionist history.

People, big boys made big decisions at the time, and it went a particular way.

I can't put the milk back in the bottle.

I can only sit here and look at the reality that I face today.

And it is not the 2008 reality, it is 2015.

So if you want to, you can judge a wrong decision back in 2008, it ain't going to change my life.

It is what it is.

I've made a lot of mistakes in my life, Max.

I don't sit here and slash my wrists every time I think about them.

Okay.

Just to wrap this up, I guess the point here would be, if consolidation can't happen at the bottom of the cycle, when companies are technically insolvent, it seems highly unlikely it's going to happen toward the top of the cycle right now in 2015.

Back to Adam's point about how profitable your competitors are, it just doesn't look like anybody else wants to dance.

Sorry, Max, we didn't catch the back end of your comment.

Can you speak slower Max, because the echo gets louder when you accelerate.

I will speak slowly, and I probably spent too long on this call asking questions now.

The point I was making was if the industry can't consolidate in the trough when companies are bankrupt and in flux, it seems highly unlikely that it's going to happen in 2015, when the industry is towards the peak of the cycle and is highly profitable.

It just doesn't seem that anyone else wants to play.

Max, just hold on a second.

Either I'm smoking illegal material when I showed you the ROIC charts, or I'm not.

If I may just do the point, at the top of the cycle, and I can't make my cost of capital, what would you like me to do on the way down?

And why am I distinguishing between top and bottom of the cycle?

I know I can't make it at the top, why do you think I'm going to make it on the way down then?

Why do you think it's going to force me to go clean and find religion and do a variety of other things?

The proposition is as valid now as it is in the down cycle, it doesn't change, it is what it is.

The savings are what they are.

That capital is going to be spent on the down cycle, because we cannot abide down cycles.

We go up again, and that investment function will continue unabated.

Every time we wait for a better time, there will be EUR2 billion a week that will be gone out the door.

I hear you, but I think, to use your words it is just the way it is.

I will try to take my responsibility seriously, but my guess is this industry still looks very similar at the end of this decade as today.

Thanks and thanks for making the presentation.

It's fascinating to hear a CEO talk like this.

But I'll leave it there.

Max, if you are of that view, than I think you should reconsider your ambition in life and just change your objective.

Because that's an admission of failure on your part, and I will stop it here and take another call.

Thanks very much.

Thomas Besson, Kepler Cheuvreux.

I'm going to try to avoid getting into debate, because I must say, I tend to agree with Max, so I will move with business related questions please.

First, on slide 9 of the Q1 deck, can you try to give us more flavor on the EUR75 million volume and mix figure please?

Because particularly, my issue is you are not [American profitability] on an underlying business that's increases by 120 BPs, which implies an operating leverage which is still very minimal, despite very strong volume growth and mix.

So can you try to explain how you are going to get to 7% margins from 5% on an underlying business in Q4, please?

You're asking me to talk about page 6 of the margin improvement deck?

Page 9 of the Q1 deck, which is on the North American models.

Okay.

Could you just repeat slowly your question, sorry, because I can't hear you very well.

Sure, but I think the echo is actually coming from your side, because we are all listening to you, relatively clearly.

I will start again.

On slide 9 Q1 deck please, you report a EUR75 million positive volume and mix development in your EBIT bridge.

And my question was, why is this so low, and why did your margin improve by only 120 BPs, like for like, given the base of volume growth and the mix improvement?

And why should we think that your margins in North America will trend towards 7% in Q4, in that respect, please?

The first [four] had a couple of items in it, one has EUR220 million of campaign costs, which is impacting the industrial cost line on page 9. We don't expect that to recur every quarter.

We do expect to have some campaign costs as part of the industry at the moment, but we don't expect that to repeat every quarter at that level.

Secondly, the volume impact of the minivan plant being down for 90 days is quite significant on the quarter, so that will also hit Q2, but Q3, Q4, the minivan plant will be back up.

In the meantime, we are working on, we will get also more volume in Q3 and Q2 from the Jeep Renegade which was very limited in Q1, since we were just launching the vehicle.

And on top of that, we're working on the improvement actions in terms of margins, which I mentioned earlier.

So for example, we reduced our dealer discount by a point from April 2016 and if that sticks, it's basically a point of margin.

The activities I talked about improving mix in our pickup offering, we have some debottlenecking going on in supply base to improve our mix on the top end of pickup.

We also have some volume coming through on that brand too.

So all those aspects are going to improve our margins going through the year.

So we feel confident that the 7% margin rate in Q4 is absolutely doable.

My second question please, on Maserati, can you give us your best estimate of what's going to happen in terms of volumes for the year?

My memory was that we should have expected volumes to be roughly flat or slightly down for the year, but not to that extent.

And comment on the extent of the margin decline, whether Q1 is an indication for the full year, or whether if you think it's going to improve in the coming quarters?

Maserati?

Maserati in the first quarter was basically impacted by a slowdown in China and the main product offering in China being contra-profit and so we had some significant impact in volume and mix, and reduced [contra] profit volume.

We have some level of stock adjustment as well in the US, so we consider that going forward, we're going to improve our performance in Q2.

It's going to be a hard year for Maserati if China continues as it is.

We don't have any product news until the beginning of next year with the SUV, the Levante coming out.

We expect Maserati to have similar volume to last year.

If China continues as it is, we may have a risk to execute on a similar level of EBIT, because of that marketplace.

So we're going to have to track that carefully.

On the other side, we are maintaining our guidance at a Group level, because we expect both NAFTA to EMEA cover up the risks that we have in both Maserati and Asia Pacific, because of China.

Thank you.

Last question, and I will try to articulate and be slow.

On your net interest line, there has been a big jump in Q1 that you explained in the press release.

Can you give us an update in your view of the full year on the net interest charge, please?

We expect our interest charge for the year to be EUR2.2 billion to EUR2.3 billion.

Some of that increase is basically due to a translation impact of the US interest charge in ex the US and the other impact, which is significant, is the increase in debt in Brazil, as we finance the capital expenditure rate for Pernambuco.

That, from an accounting point of view is booked as we go forward into the interest charge market rate, so we're going to have a slightly higher charge this year than last year for those two impacts.

The other factor is, I think you're [bond] looking at our total debt load, and liquidity load, is that we clearly have an opportunity to reduce our liquidity going forward.

I think as the important step, raising the $3 billion in the US market and European market to refinance the 2019 FCA US bonds.

We have about EUR5 billion in maturities including, if you include the 2021 make-whole as it drops off in June of 20 -- I'm sorry, next year for the 2021 bonds in FCA US.

I think we're going to have, over the next 12 to 15 months, a reduction in our liquidity necessary because we can remove the ring-fence in FCA US, that's going to help us to improve our interest charge line going into the first half of next year.

To finish, can we assume that the net interest charge in 2016 is going to be substantially below EUR2 billion?

Like I said, think the 2015 interest charge will be around EUR2.2 billion to EUR2.3 billion.

Sure, for 2016, can we assume that it's going to be substantially below EUR2 billion?

It should come down, as we refinance the part of the debt, depending on the timing of the removal of the ring fencing, but I think it's going to be coming down and is going to be coming down significantly as we pay down our debt maturities with cash.

Thank you.

Alexis Albert, MainFirst Bank.

Thank you for taking my questions.

The first one is related to the consolidation presentation.

I would like to, just have an idea from the timing you are aiming, or you are looking at, when you look at the synergies, you were talking about the EUR2.5 billion to EUR4.5 billion, because of course, when we look at all the challenges that the industry is facing, the timing is critical.

So if you could help us understand what is the assumption beyond that?

This is my first question.

I think the great value of the amount that we've done is it that it's a value in perpetuity.

The sooner you intervene, the more quickly you intervene on the waste side.

But that opportunity is available at all times.

We could start next year, we could do it in three seconds.

The elimination of the duplication would happen the minute that you institute the combination.

So there is an immediate benefit of doing it.

The execution will take some runway.

Even in our calculation, I think to try and implement both of the capital phase initiatives, we would wait until particular cycles happen, but you could probably take out, over a period of four years, you could probably get to 95% of the savings.

Over four years, you could get to 95% of the savings per annum.

You have to phase them in, as capital gets rolled.

Okay thank you, that's clear.

Regarding my other questions, it's a little bit down to the rest of the business, and I would like to come back on the NAFTA Presentation, especially on slide 4 when you talk about retail transaction price.

Would you say that what you showed us was the, especially on the pickups and I would say on the car, would you say this is the same kind of chart for resale values?

Did you say that same kind of chart for resale values?

What I mean is it the same kind of gap, so are you 5% below, for example, Ford and GM when it comes to pickups, are you 4% below GM when it comes to cars?

You know, the same kind of gap?

It's not dissimilar.

Obviously, on products such as Jeep, we have strong residuals, in line with competition or even better, in some cases.

But where you see pickup and car, we do have lower residuals, and they're not far off the same difference that you are seeing on this chart in terms of average transaction price.

Thank you.

Two last quick questions, the first one is on Windsor.

You said that Windsor was significantly impacted in Q1.

Would you say that is something between EUR50 million to EUR100 million?

Would that sound sensible to you?

What are you talking about?

I'm talking about the impact of having the Windsor plant closed in Q1?

Windsor was down for 90 days.

We make about 30,000 vehicles a month out of Windsor.

So you can think about the type of impact that could have on the quarter.

Is it high double, or low triple?

Sorry?

Is it high double digit, or low triple digit?

It is low triple digit in terms of margin generation for 45,000 vehicles.

It is a significant impact on the quarter in terms of margin generation.

My last question is regarding Asia, because we have seen significant drop of margin in Asia in Q1.

I would like to understand if you expect this region to recover, or if you foresee the pressure going forward in the next couple of quarters?

I think for us, in terms of the market, I think your guess is as good as mine, honestly.

Asia is obviously very competitive, and China in particular.

To some extent, on the higher-priced areas, we have a fair level of price competition, and lower growth than the average growth that you're seeing in the market.

For us specifically, this year is a transition year for us, because we are starting local production of Jeep in the second half of the year, and so we have to carefully manage a transition from an all-import model into the marketplace, to localized production, which has its complexities in terms of that product offering into the network.

I think we will manage it very carefully quarter by quarter.

It is going to be a transition year for Asia Pacific for us as it changes its delivery model into a more localized production basis.

Okay, thank you very much for all of that.

Philippe Houchois, UBS.

Good evening, and thank you for your time and your thoughts on these issues.

I think nobody will disagree with you on the big picture.

If I could just one comment that I thought was missing your presentation, is the issue of cash flow.

I find that what works best in our industry is the families that founded these companies 100 years ago are still in charge, which tells you that structurally, car makers do not burn cash.

They may not create value, but through the cycle, they tend to, maybe unfortunately, generate cash, and a lot of it comes in the working capital.

And I think if you spread the industry [crudely] and broadly between survivors and on board times, you belong to the [comment because] of your on [borrowed] time, because the only way you are still in business today is because of negative working capital requirements, and that is the part that really I thought was missing in your presentation.

And I think in all the other points there is no disagreement.

If I look back on my models over 20 years or so, I look at yours or Renault or Peugeot, and if they have generate cash through the cycle, it is purely because of working capital, and usually more than half of their free cash has been coming from that.

So I don't know if they have an answer to that, but I think if there is a group of car makers that are driving down the industry, unfortunately, it is a select group of car makers that enjoy their very negative working capital requirements.

Without them, I think this industry would probably be healthier.

And that was just the thought that was missing in your expose.

Philippe, if I can just help you, I think your point is well taken.

I think we strive to deal with that issue, by adding on 12.5% of sales to our invested capital calculation.

I think that one of the things that we have all realized post-crisis is that you need a cash pool to sit inert on your balance sheet until the downturn happens.

And there is an opportunity cost associated with that cash, the benefits from holding it are not clear but we built into the calculations for all of us the retention of 12.5% of sales as part of the invested capital just to ensure that we can deal with a negative working capital position on our rewind or on an unwind.

So we have an issue that we can survive a down cycle.

The only way you're going to do that is by holding onto cash.

I have no better answer.

It is a big provider cash flow in our business and you are absolutely correct, it is negative working capital.

It's illusory, because we lived through this in 2008 in the crisis.

When it unwinds it's ugly.

If I remember back, my numbers are right, the comment is that I follow 2008 or 2009, I can't remember, in 2008, you earned collectively EUR19 billion in cash to working capital, and the following year, largely because governments came in and traded incentives, the industry collectively generated EUR20 billion of cash to working capital.

So there was a definitely a missed opportunity in the industry back in 2009 and you can point the finger at whoever you want, but there are a lot of reasons why, that go beyond the car makers themselves, why this industry doesn't want to get fixed.

If I can go back to Earth for a second, and just ask a simple question on the numbers.

With all the respect and what you're doing in terms of sorting out the balance sheet of Fiat Chrysler.

I was bit disappointed by the terms of the refinancing of your bond.

I thought that a coupon or the costs might have gone down a little bit more.

So my question was, did you find that for so many years, and granted the business is different now, it's not just a European business, but Ferrari was that wonderful insurance policy, enabling you to refinance every quarter without pledging anything.

Now that Ferrari is conceptually gone, is that an obstacle or are you finding that actually your financing costs are not going down is much as you might have expected, given the environment that we're in?

I'll give you a facetious answer to your question.

The bank that you are associated was part of the refinancing deal that was put in place and I will hold you responsible for the fact that you're all afraid.

I don't give a Chinese Wall on this one.

(laughter)

I don't have a Chinese.

But the reality is, I don't think that we're running into difficulty.

We can discuss as to whether, I think the best way is generally that we overpaid or had difficulties to look it the post-issuance trading pricing.

I think there's no doubt that things are trading well, but I don't think we left an the enormous amount of money on the table.

Okay.

George Galliers, Evercore ISI.

I had a quick question on actually slide 6 of the capital junkie presentation, and I just wanted to ask whether it would possible at all for you to break out a dollar amount of the annual costs of each of these forces facing the OEMs, or just give some perspective of which of these are the more or less capital intensive?

And speaking to this slide, do you see an opportunity to achieve respectable returns on any of these forces?

For example, can you price connectivity and autonomy to the customer, in order to achieve returns, or does history tell you that it will be very difficult to make decent return on capital on any of these investment?

(Operator Instructions)

George, are you on the line?

I am, yes thank you.

Great, did you get the question?

I'm afraid we didn't, can you repeat it?

Sorry.

I have a question which is really specific to slide 6 of the capital junkie presentation, and I wanted to know if you could provide any break out of the dollar amount associated with each of these forces, either on an annual basis, or over the next four to five years?

And also, sticking to this slide, do you see an opportunity to achieve respectable returns on any of these forces?

For example can you price connectivity and autonomy to the customer to achieve returns, or does history tell you that it will be very difficult to make respectable returns on any of these investments?

I think unfortunately, put you on the left and I'll be coming across on the right.

The left emission regulations and safety regulations are the price to pay.

The short answer to your question is that I think all OEMs will try and pass these on to the market.

I think the most benign view you are going to see a shift in the pricing of the supply function, which will reflect the embedded costs associated with the technology.

I don't think we can escape it.

I think when you look at return on invested capital and you look at the margins that were generated in the business, the absorption of additional costs without the ability to pass it on would be absolutely lethal for the business.

So there is no option, it will all be passed on, in some fashion or another.

I mean, in summary you will look to pass them on, but it doesn't necessarily mean that you'll generate higher returns on capital on these particular factors?

No.

No, because I think this is a level playing field.

Sorry.

We're all doing it.

Great.

And on slide 17 I was just wondering if you could clarify the very bottom of that slide, where you say potential commonality while preserving differentiation.

If I just take, for example, the first category, under body, were you say around 70%, are you saying that the chassis, for example, of two vehicles, could have 70% commonality, but it would still be differentiated from the customer's perspective?

I'm looking at this slide.

Which item are you talking about?

On slide 17, if we just look at the percentages in bubbles at the bottom of the slide.

Is the correct way of reading that, on for example, the first category under body, you can have 70% commonality on two different under bodies, but from the customer's perspective, the chassis performance could still be differentiated?

Absolutely, I wouldn't phrase it the way you did, but fundamentally and directionally, that is correct.

Okay, great.

Thank you.

Stephen Reitman, Societe Generale.

Thank you for that little bathroom break, as well, appreciate it.

Housekeeping question.

First of all, on Maserati, and I'm trying to understand again, the commercial performance in slide 9 of the main FCA presentation, and in particular the reasons for the decline in shipments which say in greater China, minus 33%.

Other data I've seen suggests that Maserati is all delivery to dealers.

When I look at data that was compiled by LMC, suggests that Maserati deliveries were up by 78% in the first quarter, about 2,900 and I'm wondering if these figures are plain wrong, and basically, what has happened in the retail performance in Maserati in China, in the first quarter?

Thank you, that's my first question.

I think basically, these are the numbers in terms of shipments.

We've seen some slowdown in the marketplace, and we're managing our stock levels, as a result.

We don't expect this type of trend to continue through the year at that level, but it is an adjustment to our supply chain function in terms of demand in the marketplace.

Understood.

And if I could go also to then the other deck, which is the NAFTA region profitability and just some questions there on how to narrow the gap with Ford and General Motors.

The first one, I just wanted to ask really, to what extent in your analysis, do you believe the performance and surveys, JD Power, the long-term reliability, vehicle dependability, these kind of surveys, to what extent are they central to improving your ranking, to improving residual values and perceptions of the brand and that might translate into pricing?

The second question, in terms of your industrial costs, you pointed out where you are disadvantaged to Ford and General Motors in terms of the size of your operations and purchasing or maybe sometimes in mix.

You have a substantial, I think, it looks like you have a substantial industrial advantage, when it comes to your hourly labor, in that a proportion of your Tier 2 workers which I believe is around 40%, is substantially more than it is at Ford, which I think is at 21% and 16% at General Motors.

So that translates into a significantly lower hourly labor rate.

My question is, first of all, is this is going to be, are you able to preserve this distinction?

And going forward, on the pressure from the UAW to get more people onto the main contract, onto Tier 1 contracts?

Thank you.

I don't think we can open up a dialogue on this call on what we're going to be doing in terms of UAW administration.

I think it's improper.

We need to start the process, while it's early stages yet.

We will give you more color as we get it, but I'm not in a position to be able to answer your questions to that.

It is obvious that it has been, their classification structure has been instrumental in us getting this far.

But other than that, I also have the view that we need to somehow end up with one class of assembly workers.

And that we need to somehow get rid of this Tier 1, Tier 2 distinction, and my suggestion, not to make every Tier 2 a Tier 1, but to reflect that we cannot come up with a different compensation scheme that allows people to participate in the profit generation to develop the business over time, that allows us to effectively maintain a decent cost structure in a downturn.

We're early stages in the discussion, let's wait until the finish.

Understood.

In terms of improving the perception of reliability and dependability of your vehicles?

Your question about surveys and third-party recommendations, I think it depends on the brand and the segment, and how much it is affecting our ability to compete in the marketplace today.

When you look at the chart, you can see that in terms of pickups, SUVs, we have a strong brand.

Jeep is very strong, Ram is definitely building some very strong equity in the marketplace.

So I think our ability to compete with our direct competition, and to sell effectively at similar price levels is much stronger, and we are quite confident that we can continue to improve our average transaction price on the pickup, also because of the strong brand equity we are creating.

The impact that you are alluding to is much more important on the car segment, where we have Dodge and Chrysler trying to build some brand equity in the middle of the marketplace, where consumers are much more prone to refer to third-party surveys and information to decide on their shopping basket.

And then their ultimate purchase choice, and clearly some of our ratings on those surveys are not as good as we would like, so we are still working on that to improve our position in the marketplace and that's going to take some time.

Thank you.

And just finally, in general US environment, pricing, there was a recent article in the Automotive News about Ford adopting those Vesta programs, similar to what Chrysler's been employing, which have played a role in the sale strategy in terms of the success of the monthly sales, the year-over-year sales increases that you've been doing.

Do you that implies also a high degree of pricing competition in the market?

I think it implies heightened competition.

I'm not sure it's going to translate itself into price competition, but I think it will be -- it's a competitive battlefield.

Nobody is taking volumes for granted.

I think we all work to try and design things to create the highest possible outcome, given the competitive nature of the business, but it's not going to go away.

Whatever where it is that we think we have commercially that is unique to our business, a lot of it can be easily copied.

I think we need to go back to find a solution and the commitment of our leaders to try and achieve our earnings.

We rely on our dealer network to get to those numbers.

So yes, it's going to get tougher for sure.

It gets tougher every day.

I'm not concerned, in the sense that I think we will deliver the numbers that we've committed to in terms of the guidance, or in terms of going forward.

Thank you.

Charles Winston, Redburn Partners.

A question and observation, if you don't mind.

The question is just focusing on the LATAM region.

I wondered if you could give us some helpful guidance as to how you see the trajectory of the losses or potentially the profit developing in the next few quarters?

My guess is that we have got ongoing start up and opening costs relating to the new facility there.

The market is difficult, but then you are opening more efficient capacity, albeit you are adding capacity at a time of weak demand.

Once the new start up costs drop out and as you said, in the third quarter, that was a lot of the losses in the region.

Do we very quickly go back to break even and profit, or because of the market, do you think that region could remain in negative territory for a while?

That was the question.

The observation was just really coming back to the debate with Max, and forgive me just my thoughts on the matter, which is that investors don't catalyze change, they sell shares.

So therefore, even if the sell side, such as Max or anybody else, however influential we might be, and we can debate that, the chances of getting the investment community and the capital markets to catalyze the change you're talking about is limited.

The history suggests that investors just sell stock.

Stocks get very low ratings, you talked about that, but they don't catalyze change, they just walk away.

I think my view is the salt in the mechanism that you are looking at.

It's an observation, but I just thought I would make it.

Let me deal with the less contentious part of this segment.

One is about the LATAM operation.

Yes, we have started up operations.

Yes, in all likelihood we will continue to have some residue of start-up costs associated with Q2.

Hopefully by Q3 and Q4, this plant will be running at cycle.

We have been clear, I was clear yesterday when we met with the press that the opening up of this plant was designed to deal with the market demand that is currently not covered by any of the operations that FCA has in Latin America.

It's the upper segment of the market, it's a developing market segment, which notwithstanding the slowdown of automotive sales, is expected to continue to perform relatively well going forward.

Especially in view of the fact that we are launching Jeep as a brand in this country, with its traction and its recognition.

The answer to what happens to the rest of the operations in Latin America, we have -- and I've said this on repeat occasions, because of the nature of the plant in Bati and the fact that it is the largest car plant in the region, and I think it's the largest car plant in the world, but I think that plant is capable and has done a lot of work in terms of adjusting its capacity to meet demand.

We are, and even in the event that we were to go down and hold these levels, we can guarantee anywhere between a 200 and a 300 basis point advantage against our competitors, because of the nature of the cost structure of the plant.

I feel relatively confident that the profits generated by this plant will be accretive to the position of the Bati plant, and the team should be able to achieve a zero or non-negative number going forward for the remainder of the year, even if levels stay at current levels.

So the real question is how well this car does in Q3 and Q4, in the marketplace.

If it does well, that I think we will continue to have a positive performance of our Latin America, consistent with the prior year.

In terms of your second comment about you're running in support of Max, I would just ask you not to underestimate your value in life.

Just keep that in the back of your head.

Okay, thank you.

Jose Asumendi, JPMorgan.

Double items, first one on pricing assumptions in North America.

Richard, what are your assumptions there over the next quarter, I note that strong exit margin rate in Q4?

Second, also financials, on the free cash flow front.

Can you just walk us a little bit via the assumptions behind that working capital reversing potentially over the next quarter?

Is that how we should be thinking about it?

In terms of pricing, as I mentioned, we see the pricing environment being relatively benign in the US, and obviously, we have a lot of competition in the marketplace, but everyone is being very disciplined and we haven't seen any great downs for a long period of time, so we expect that to continue.

Our margin improvement actions that we're talking about have some impact on our price position.

We don't expect -- we expect that to stick, largely, and we expect that to continue at some level of growth going through 2015, despite those actions.

But more importantly, really, it is a factor of us managing our mix options, and our versions, et cetera, particularly on pickups in terms of that improving our commercial position.

On working capital, in Q1, there is clearly the effect of Windsor and the minivan plant being down.

That will continue to be down for the first 90 days of Q2, but then it will come back up.

So our position should improve in Q2.

We also see production volumes continuing to increase in Melfi.

So I would expect our second quarter cash flow performance to be stronger than the first quarter, and that working capital to basically flip in Q2.

Thanks.

Sergei, just one question for my side, and thanks for the presentation.

I completely agree with some of your thoughts there on the presentation.

When I think about the threats in the industry, and you can name the need of economies of scale, cost of capital, electric cars, factories, Google, Apple, et cetera, you name it.

I think that potentially we're going to see regional corporations taking place much stronger across the OEMs.

If things get really rough in the auto industry, I see the Germans building a common front, in the market share, I see some of the Asian players building also a common front.

I was just thinking about you.

You bring the best of many worlds.

Of course North America, and Europe as well.

What are your chances of cooperating substantially more with Ford and GM?

If that is not the solution, is the solution in China with a Chinese partner?

If that doesn't work, what do you bring to the table to an Apple or to Google or an outside non-auto player?

I'm not sure -- if you're asking me where do I see the high level of collaboration, I prefer not to answer the question.

I think you understand, at least, I tried to explain the context within which our decision-making is going to take place.

I think we need to find a way to get this done, and I think it's imperative, and I think we will look in all possible ways to bring down the cost of execution in this business.

It is important for everybody involved here, not just us.

That's all.

Thank you very much.

Thank you.

That will conclude the question-and-answer session.

I would now like to turn the call over to Joe Veltri for closing remarks.

Thank you Leanne, and thank you to everyone for joining us on the call today.

Should you have further questions, as always, my team and I are available after the call, and in the next couple of days.

We just want to give you a note that our next call related to Q2 earnings will be held on July 31.

Thank you, and have a pleasant day.

And that will conclude today's conference call.

Thank you for your participation.

Ladies and gentlemen, you may now disconnect.