Stellantis NV (STLA) 2015 Q2 法說會逐字稿

Good day ladies and gentlemen.

Welcome to today's Fiat Chrysler 2015 second-quarter results conference call.

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, Elaine.

Good day to everyone on today's call.

The earnings release that was issued earlier today, together with the presentation material from this call, are available on our investor relations website.

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

After introductory remarks, they will both 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 presentation.

As always, the call will be governed by this language.

With that, I like to turn the call over to Mr. Marchionne.

Thanks, Joe.

We're going to start off today's pitch by somewhat of an unusual maneuver.

But we're going to take a few minutes at the very beginning here to set the record straight on a few issues that have now surfaced in terms of an understanding of our settlements with NHTSA.

The press release that we put out Monday afternoon should have clarified matters, and certainly this morning's results should have done so.

But given most of you, or some of you, have expressed, at least on the phone, a wide range of projections about the cost flowing from this NHTSA settlement, I thought it would be to take a few minutes to go back to basics and just set out the facts.

The first slide simply sets out the specific time requirements for NHTSA reporting and customer notices and recall campaigns.

And many of these rules are fairly specific, and for the most part they're straightforward.

Although there can be questions of other triggering dates of some of these requirements.

The unfortunate factor is that we as an industry, and we in particular as a Company, have not always been perfect in complying with these requirements.

And over the last year and a half, NHTSA has begun to take a harder look at these technical compliance issues.

And frankly, we started to do the same thing about the same time.

Over a year ago, we saw the changes were coming; and we began to look more critically at our own governance and process on safety and recall compliance issues.

And we had then identified a number of necessary steps to improve.

And both before and during our discussions with NHTSA, we've been implementing some of the needed improvements that we have identified.

Beyond the legal requirements we need to improve our delivery to customers.

We have to recognize both the concerns of customers and the inconvenience of them anytime a safety or a recall issue comes up.

I think there's an indebted obligation on our part to execute in a way that improves customer experience in every aspect of the safety and recall process.

The next slide, slide number five, sets out the basics of the concerns that NHTSA raised with us and the violations that they claimed in 23 recall campaigns over several years.

For the most part, the concerns related to delays in reporting to NHTSA and, in a few cases, notices to customers.

The late notices generally consisted of delays of several days in meeting the 60-day clock for notices to customers.

That is not an excuse.

We must and will do better about this, while we complied with the notice periods of over 98% of the time, we need to achieve 100% compliance.

There are no questions and no excuses in connection with this objective.

This next slide, slide number six, summarizes the potential payments that we agreed with NHTSA.

We agreed to a $70 million upfront penalty, which we will pay shortly.

And we've also agreed to a $50 million payment if we don't comply with the consent order or the Safety Act during the three-year period of that order.

Neither us nor NHTSA want to see that amount paid.

And finally, we have a $20 million fund for covering expenses of an expanded outreach and compliance effort.

This amount is also available to fund any cost of the repurchase offers that have attracted most of the attention over the past few days.

So that's what I want to turn to next.

Slide seven summarizes the repurchase offer that we agreed to make.

It covers vehicles in three campaigns to the extent that they have not already been repaired.

The press reported the original campaign number of a little over a half a million vehicles, but about 70% of these would've been remedied before the repurchase offer starts.

If any owners take up the repurchase offer, we will repair the vehicles.

We will resell them.

And we have previously accounted for the full amount of any repair costs.

On slide eight, the final slide, gives you some detail on the vehicles involved and the status of repairs to date.

As we said in our Monday press release, we do not expect to incur any material costs for this beyond the $20 million available under the consent order.

We very carefully looked at the vehicles involved in the repurchase offer, many of which are work trucks where the owners depends on the truck for their livelihood.

In the extent that we are among our most loyal truck owners also due to our unique diesel offering in this heavy-duty truck segment.

So we did take a hard look at the population of vehicles.

They are subject to the offer -- their age, likely mileage, and depreciation and other factors.

While there's not much history out there on these repurchase offers, we have made a robust assessment of the likely take-up rate and the premium to develop our estimate of the expected costs.

Hopefully with these comments, we will have clarified matters relating to the financial implications of the NHTSA settlement that was announced last Monday.

If we could just turn now for a moment to slide nine, and I will pass it off to Richard to explain the rest of the quarterly performance.

I am just going to make a couple of general comments about how we see the Business running on a global scale.

There's no doubt that we're pleased with the results of our NHTSA operations.

Following our last get-together at the end of the first quarter, we did completely undertake to remedy the shortfall between ourselves and the competitors in the margin side.

We have started that process, and we're not even close to completion.

But I think we've identified sort of the key areas that require intervention, and we are in execution mode.

And hopefully we will be able to move along the trajectory at a pretty rapid pace between now and the end of 2015.

LATAM has come in as we expected, and we broke even out of our oldest mass market plant in Betim.

And all the losses that you see that we booked for Q2 are related to the startup of our plant in Pernambuco.

Our expectations, not withstanding the significant decline of the Latin American market, over 30% just in Brazil.

They reinforced the view that we had at the time that we made the investment in Pernambuco that the market would effectively split into two segments.

And that we would have to effectively de-risk our position in Brazil to start developing our involvement in the higher end of the market.

Pernambuco, has been built and has been designed to provide cars in the B&C segment.

And I think the initials reactions we're having to the renegade in terms of market penetration, in terms of market share are encouraging.

We expect a significant portion of the segment to be in our hands by the end of 2015 and to continue penetration at that rate throughout to 2016.

Hopefully we'll be able to restore LATAM into profitability in short order, and mainly on the back of this additional investment that was made in Pernambuco.

Europe is encouraging positive earnings for the second quarter.

I think we continue to have positive results from the startup of our plant in Melfi.

As the newly-launched Giulia goes into production in the third and fourth quarter of the share, we will see the utilization of the Italian plants coming up to speed.

In APAC -- and Richard will take you through some of these issues in detail -- but APAC has been probably the one that has concerned us the most in the sense that we have seen a deterioration in the pricing arrangements, especially in China, for important imported vehicles.

This has impacted especially the Maserati brand and the mix that we have sold in that jurisdiction during the second quarter.

And I think that the forecast for the year is that we're going to continue along the margins that we've indicated in the pack for the first semester of 2015.

We have raised guidance for the year.

I think we feel comfortable that we're going to be in excess of $4.5 billion in terms of operating profit.

Obviously, most of this is in the back of an expected continued performance in NAFTA.

We've also raised our top line to over EUR110 billion for the year.

We really have no bad news to report, other than what I've told in terms of market weakness in Latin America and APAC, which I think we will continue to monitor as the year develops.

On that basis, I will pass it on to Richard.

Thank you, Mr. Marchionne.

Good morning and afternoon to everyone.

Moving on to slide 10, we will look at the operating highlights for the quarter.

Shipments in the quarter were up in EMEA and NAFTA, offsetting declines in LATAM and APAC, resulting in a 1% increase at group level.

Net revenues were up 25%, attributable to favorable FX translation and to volume growth and net pricing in NAFTA.

Adjusted EBIT for the Group increased by 58% to over $1.5 billion versus $968 million last year.

And was driven by strong performance in NAFTA and continued improvements in EMEA and in the Components business.

Margin increased to 5.2% from 4.1% last time.

Adjusted net profit of $450 million more than doubled compared to the $204 million posted in Q2 2014.

This amount excludes pre-tax net charges of $177 million, primarily composed of two items.

$80 million related to the adoption of the SIMADI exchange rate in Venezuela for our monetary net assets down there, and $81 million resulting from the consent order agreed with NHTSA that we discussed earlier.

Net profit after these items were up 70% to $333 million.

Net industrial debt at the end of June, with EUR8 billion, down from EUR8.6 billion at the of March, reflecting positive cash flows from operating activities, offsetting our capital expenditure's which were EUR2.2 billion in the quarter.

Total available liquidity was $25.4 billion, in line with the end of Q1 2015 with $700 million of negative FX translation partially offsetting the positive cash flow for the period.

Turning to page 11, you can see the year-over-year changes in adjusted EBIT for the various areas of the Group.

NAFTA was the main contributor to adjusted EBIT growth, up over 120%, with EMEA reaching 1% margins for the quarter and components also contributing positively.

These improvements more than offset declines in Latin America, due to the market slowdown.

And to the launch costs of Pernambuco and in APAC and Maserati due to the slowdown in the Chinese markets for imported it high and products.

The increase in adjusted EBIT compared to Q1 2015 across the bottom of the chart shows similar drivers.

On slide 12, we show the change in net industrial debt during the quarter.

At the end of June, net industrial debt declined to $8 billion versus $8.6 billion at the end of March.

The reduction was primarily driven by the positive cash flow from operating activities of EUR3.1 billion, which included adjusted EBITDA of EUR2.9 billion, a positive change in working capital of EUR800 million, and EUR0.7 billion of financial charges and cash taxes.

This net number offset the $2.2 billion in CapEx for the quarter.

Turning to page 13, we're looking at the regions, starting with NAFTA.

The NAFTA industry remained strong, both in the US, up 4%, and in Canada, up 3% in the quarter.

Group vehicle sales were up 5% in the region year over year.

US sales were up 6% to 576,000 units; and the Jeep brand was up 19% to 223,000 vehicles, the brand's best quarterly performance ever.

Chrysler brand sales increased 29%, led by the all-new Chrysler 200, up over 300%.

Ram brand was up 6%, while the Dodge brand sales were down 17% due to a discontinuance of the Dodge Avenger and lower Grand Caravan sales.

Total market share was 12.4%, up 30 basis points, with the fleet mix at 20% versus 21% in prior year.

US dealer inventory ended June at 78 days of supply versus 72 days at the end of Q2, with the increase due primarily to the launches of the Renegade, 500X, and ProMaster City.

In Canada, vehicle sales were up 1% to 86,000 vehicles.

And the Group confirmed it's market leadership in Q2 with a 15% share.

Jeep brand sales were up 17%, Chrysler up 9%, and Ram up 4%.

In the quarter, two new models of the Ram 1500 were introduced: the Limited and the Rebel.

Each model features the bold, unique appearance with the Limited targeted to the premium customer and the Rebel targeted is the off-road enthusiast

. Moving to slide 14, NAFTA shipments were up 8% year over year to 677,000 units driven by the US, which was up 9% and Mexico, which was up 25%, while Canada was down 2%.

Net revenues increased 40% year over year or 16% at constant exchange on the back of higher shipments and pricing.

NAFTA adjusted EBIT more than doubled versus last year to EUR1.3 billion, and adjusted EBIT margin came in at 7.7% compared to 4.9% a year earlier.

For the first half of 2015, NAFTA adjusted EBIT margin improved to 5.8% from 4.1% last year and is now within the 5.5% to 6% target set for the full year.

The improvement was driven by volume growth, primarily due to the all-new Jeep Renegade and the all-new Chrysler 200; positive net pricing and a reduction in dealer discounts; purchasing efficiencies; and positive FX translation.

This was partially offset by higher industrial costs due to increased base material costs for vehicle content enhancements.

Compared to Q1 2015, adjusted EBIT improved by $725 million, driven by better volume and mix lower, industrial costs, and the higher net pricing.

Moving to slide 15, in Latin America, the industry was down by 18% versus last year driven doing by the continued macroeconomic weakness.

The Brazilian market was down 23%, while Argentina was down 3%.

Sales for the Group were down 30%, with Group share in the region declined to 13.9% for the quarter, down 220 basis points versus last year.

This was driven by a market share in both Brazil, which was down 190 basis points due to the strong competition, and our increased focus on pricing improvements to cover inflation on costs.

Despite this, FCA increased its market leadership to 360 basis points over its nearest competitor.

Palio retained its market leader position, with 12% of share and 125 basis points lead over its newest competitor.

Strada and Fiorino confirmed leadership with segment share at 53% and 69%, respectively.

In Argentina, market share declined by 360 basis points to 12.2%, due mostly to the effective import restrictions on supply.

Dealer inventory was down to 39 basis supply at quarter end versus 40 at the end of Q2 2014 and down from the 46 we had at the end of Q1 2015.

In the quarter, we launched the all-new Jeep Renegade in Brazil which reached a 15% share in its segment with 6,000 units sold.

Turning to page 16, shipments in LATAM were down 32% with Brazil down 33% and Argentina down 28%.

As a result, the net revenues were down 15%.

Adjusted EBIT declined from EUR63 million to loss of EUR75 million, mainly due to the lower volumes, higher industrial costs primarily due to higher input cost inflation and ramp-up costs of operations in Pernambuco and increased marketing costs for the launch of the Jeep Renegade.

This is partially offset by over EUR110 million of positive net pricing actions.

Excluding the impacts of the Pernambuco ramp-up costs and the Renegade commercial launch, LATAM results would have been a break even for the quarter.

Compared to Q1 2015, EBIT declined by $14 million with higher industrial costs being partially offset by the positive net pricing mentioned earlier.

Moving to Asia-Pacific on slide 17.

Industry demand rose by 1% with growth in all major markets except Japan.

Group sales declined 20% year over year, driven by China, down 27%, and Australia down 9%.

Jeep, which accounts for over half of group sales in the region, declined by 6%.

Group share the region declined by 20 basis points compared to last year.

Inventories at the end of June were 104,000 units, slightly below last year's level.

On the product side, the Dodge Journey 2 Litre Diesel was launched in China in May.

Turning to slide 18, shipments in APAC were down 15% with all brands down year over year.

Net revenues were flat versus prior year and down 12% at constant exchange.

Adjusted EBIT for the quarter declined to EUR47 million from EUR110 million last year, driven largely by the heightened competition from local OEMs in China, which also resulted in negative net pricing.

In addition, there were unfavorable foreign exchange transaction affects for vehicle sales in Australia.

These factors were partially offset by lower marketing spend.

Adjusted EBIT declined by $18 million versus the first-quarter, mainly due to negative net price effects partially offset by a better mix and lower SG&A costs.

For the EMEA region on slide 19, the passenger car in Europe was up 8% year over year to 3.8 million vehicles, with growth in all major markets.

For the Group, sales rose 12% to 275,000 units.

Share increased by 30 basis points to 6.4%, driven by improvements in Italy, Spain, and France, while share was stable in Germany and down in the UK.

In Europe, Fiat maintains its market leadership in the A & L0 segments, and the all-new Fiat 500X became market leader in its segment in Italy.

For light commercial vehicles, the industry in Europe was up 11% to 500,000 units driven by increases in all major markets.

Group sales were up 16% with stable share at 13%.

Ducato continued its segment leadership with 10% sales growth over prior year, and for the first half of the year Ducato recorded sales and share.

On the Fourth of July, we introduced the Refreshed Fiat 500, which has both refreshed exterior and interior design.

Slide 20, looking at EMEA's financial performance, shipments were up 13% to 322,000 units with passenger cars up 13% and LCVs up 12%.

Net revenues were up 19% on the back of the higher volumes and favorable mix.

Adjusted EBIT was EUR57 million versus breakeven last year.

This is the third consecutive quarter positive results for the region.

The main contributing factors were higher volumes and favorable mix driven, by the all-new Fiat 500X and the Jeep Renegade.

Improvement pricing in non-EU markets and cost efficiencies.

This was partially offset by higher cost of vehicles imported from the US due to the weaker euro, and higher advertising to support Fiat and Jeep launches.

Compared to the first-quarter, EBIT improved by EUR32 million driven by positive volume and mix and slightly offset by higher SG&A for product launches.

Moving to Ferrari on slide 21, shipments for the quarter were up 6% to 2,059 vehicles, with 8-cylinder models up 15% and 12-cylinder models down 16%.

Shipments of the US and APAC were up 16% and 26%, respectively, while shipments to the main European markets were down 8%.

Net revenues were up 5% year over year, driven by higher volumes and favorable mix, partially offset by lower engine sales to Maserati.

Adjusted EBIT was up 18% to EUR124 million during the quarter, driven by volume increase, the product mix, and margins were up 16.2% versus 14.4% last year.

The process for the previously-announced IPO of 10% of Ferrari shares was initiated in July, with the filing of a registration statement with the SEC.

Moving to slide 22 on Maserati.

Shipments in the quarter were down 13% due to lower volumes of Quattroporte, particularly in China where total shipments were down 37%.

Shipments in North America were down 5%, while shipments to Europe were up 10%.

Net revenues were down 17% as a result of these decreased volumes and unfavorable mix.

While lower shipments and revenues were partially offset by reduction in SG&A, adjusted EBIT decreased to $43 million from $61 million last year.

Slide 23 covers the Components businesses, which all had improved operating results year over year.

For Magneti Marelli, net revenues were up 17%, thanks to positive performance in the lighting and electronic systems businesses.

Adjusted EBIT increased 38% to EUR76 million, with margins of 4.1% versus 3.5% last year.

Growth was primarily related to higher volumes, in addition to the benefit of cost containment actions in Latin America.

Partially offset by start-up costs related Pernambuco plant.

Comau revenues were up 58%, primarily due to body assembly and robotics business.

Adjusted EBIT increased to $20 million due to volume and mix.

Teksid revenues were up 4%, with growth primarily attributable to 18% increase in aluminum business volumes.

Slide 24 provides an update on recent and upcoming events.

On June 24, 2015, the all-new Alpha Romeo Giulia sedan was unveiled to the international press at the newly renovated Alpha Romeo Historic Museum.

The new Giulia has state-of-the-art innovative engines, including a 510 horsepower V-6 inspired by Ferrari technologies to be introduced on the Quadrifoglio version, as well as other dynamic vehicle attributes, to allow it to effectively compete in the premium segment of the market.

Production will begin in the fourth quarter of this year.

On July 7, 2015, SG&A renewed the company-specific collective labor agreement with the trade unions in Italy.

This new four-year contract applies to over 67,000 employees and is now extended to all FCA companies in the country.

On July 1, 2015, FCA announced a $280 million investment in its JV in India for the manufacturing facility in Ranjangaon to support the production of a new Jeep vehicle.

Production is to expected to start the second quarter of 2017.

We can move to slide 25 to review our expectations for industry demand in each region.

For NAFTA we assume the industry is going to grow to 20.5 million, slightly increase from our Q1 projection.

This reflects the slight increase in US markets SAR to 17.3 million vehicles.

The LATAM industry is now forecasted to decline to 4.2 million vehicles versus our Q1 forecast of 4.4 million, due to the continued poor trading conditions.

The Brazilian industry is been reduced to 2.6 million vehicles of forecast for 2015 from the 2.8 million we had in the first quarter.

While expectations for Argentina remain unchanged.

In Asia-Pacific, the industry outlook remains unchanged from Q1, with a slight reduction in the China industry offset by a slight increase in other markets.

Forecast for EMEA, we have revised our forecast up sightly to 15.7 million units from 15.4 million units in the first quarter.

Finally, on slide 26, we show our full-year guidance, which as we mentioned earlier has been revised upwards.

Worldwide shipments are now expected at around 4.8 million units.

Net revenues expected to be over EUR110 billion, with EBIT equal to or in excess of EUR4.5 billion.

Net profit is unchanged at EUR1 billion to EUR1.2 billion, with net industrial debt unchanged at EUR7.5 billion to EUR8 billion.

I'll had it back to Joe Veltri.

Thank you, Richard.

Last week Ferrari filed a registration statement with the SEC, related to its initial public offering.

While Ferrari is in the SEC review process, and before the IPO marketing process begins, we will not be able to comment on the IPO or go into detail on Ferrari's prospectus or value.

Or its recent performance beyond our customary remarks on Ferrari's historical performance as part of our luxury brand segment.

During our Q&A session, we would appreciate your cooperation by not asking questions in these areas.

With that, I'm going to turn it over to Elaine to start the Q&A session.

Thank you.

(Operator Instructions)

Jose Asumendi, JPMorgan.

Thanks.

A few items please (inaudible) the first one on LATAM.

Can you do any restructuring actions or are you planning any restructuring actions over the next two quarters, that would allow you to cut the cost base a bit more and get a quicker back to break even?

On LATAM also --?

Let me answer the first question.

We've already done that, which is the reason we are at break even now, [out of] main operations.

The loss that we booked in Q2 is totally attributable to the start-up costs of the plants in Pernambuco and the launch of the Jeep Renegade.

Once that car goes into market and we start getting adequate volumes it should turn positive quickly.

Okay.

Thank you.

The second item on Alpha plan, Romeo plan, can you give us some guidance on where you stand on the plan, how much CapEx you spent so far?

What was the initial target?

Have you found any actions to basically get smart and spent less CapEx going forward on it?

Three months from the last time we spoke, there's not enough time to me to get smarter.

Just give me the rest of the year, I might surprise you by year end.

On the broader question, I think we spent just under $2 billion, but that involves effectively the industrialization of the first car, the architecture engines.

And effectively all the prep work in connection with the launch of the second vehicle.

Which is coming the at end of the first half, beginning of the second half of 2016.

The plan is progressing as we told you it would go.

We are taking a very hard look at the sequencing of the products that we're launching to make sure that we get the biggest bang for the buck for [neutralization] of the architecture in terms of volumes.

What I would definitely do on this, hopefully by the end of this year in terms of how to move it forward.

But the plans are unchanged and I hate to disappoint you, at least as of now, the numbers in terms of the capital commitment that we're making are not drastically reduced.

Thank you.

The final one, I'm looking at the NHTSA website.

I read the whole (inaudible) recalls have been announced et cetera, I understand the presentation you gave, and the financial impact of that.

If we look at everything that's been listed there, are you addressing everything with the current presentation you have today are you addressing all the recalls that are on the website?

I am especially interested in this 252 on the fuel tank.

Is there anything that could come on top of we're seeing or not?

To the best of my knowledge, everything that I given you so far is comprehensive of every action that's been discussed and undertaking with NHTSA.

I'm not in knowledge of anything else beyond what's already been booked, and more importantly, I don't know the incident that you're referring to this 252.

I can help you that's a specific question.

But whatever was required in terms of booking provisions and recording the cost associated with these actions are reflected in the accounts.

Fair enough.

Thank you.

Rod Lache, Deutsche Bank.

Hello, everybody.

A few questions.

One is first of all, North America I was hoping that you might comment on the margin outlook.

You and other auto makers are at this point hitting or exceeding margin targets that were projected for several years from now.

And I think that a year ago you were thinking that you would get to 6% to 7% by 2018.

Can you talk a little bit about what the implications of hitting these targets already would be?

What you think about -- How you've revised your expectations for the longer term?

To begin with, we're still far away from where our other two competitors are.

I take the numbers that were released out of Detroit in the last week as an indication of the amount of work that remains to be done by FCA and the United States.

I think that the we have a long way to go.

I'm encouraged by direction that's been taken.

I think it shows, certainly at the top of the market, we can extract significant margin generation.

I'm particularly impressed by the results of Ford, which did not have an easy quarter, especially in view of the launch of the F150.

We're the third guy on totem poll so it's no use bragging, we need to keep on pushing it.

I'm relatively happy with the progress we made in Q2.

I think all of it will be seen certainly by the end of this year.

Obviously, around the question is what happens in terms of the long-term sort of volume outlook for the US business.

I do not see substantial deterioration of the market in 2016.

I think it will continue to face benign market conditions.

And so I'm hopeful that we can exceed certainly the target that we set for ourselves for 2015 and exceed the long-term expectations.

The question that remains, is what, over the cycle what can this business yield?

I think we need to be very careful not to fall in love with these numbers as being an indication of what the machine can produce at all times.

But I'm encouraged.

The other two competitors in town should be complimented for what they've been able to do.

We have a lot of work to do but I think we have made good progress in terms of bridging the gap.

Great.

Thank you.

And just two other things I was hoping you can address.

One is maybe you can comment on these reports of delayed product plans from the Company.

I realize it's a dynamic process, obviously if it's from suppliers and media reports there have been some discussions of some significant delays versus the original plan.

And lastly, if you can elaborate on your thoughts on China?

Obviously you're in a different position relative to some of your peers with a lot growth.

What are your expectations?

How does this play out vis-a-vis growth and pricing?

Let me deal with the easier question.

Actually I think they're relatively straightforward.

The China issue for us, is fundamentally different than it is for anybody else.

Because our local manufacturing presence is severely limited.

We're in the process of correcting that now with the launch of the Cherokee at the end of this year.

The launch of the Renegade next year.

I think we will be able to benefit from benign local producer conditions.

And I think it's all accretive to our case that was built into our plan going back into May of last year.

What is impacted is the ability to extract a significant margin for cars that are imported from the outside for a variety of reasons.

I made reference to Maserati, but obviously Jeep is in no different a condition than Maserati, in that sense we have seen a drop both in volumes and the ability to generate margins.

And I think that something that's permanent, and I think it reinforces the commitment that we made to local production and which is being implemented now.

On the postponement issue, we have always run an incredibly fluid product portfolio because we have been able, over time to try and improve the quality of the decision making on the basis of information that is relatively fresh.

What we have not wavered on is the development of both power train and basic architectures.

Those are things that continue unabated, I mean the work on the Giulia architecture, which is fundamental to the relaunch.

(Inaudible) globally of that architecture for the real wheel drive applications as continually goes forward.

As I mentioned earlier we have committed significant capital to that venture.

The minivan is coming out next year, which is a huge step forward for us.

Not just in terms of renewal of a relatively old architecture but also in terms of embracing the plug-in hybrid technology.

There are things that we continue to tweak.

I think that the future of the new Grand Cherokee may be accelerated.

As opposed to being pushed forward.

And we keep on looking at these cases on a relatively frequent basis to make sure that we're making the best economic decisions given our choices.

We have not postponed anything else that I can remember of substance.

We're being incredibly careful on the development on new pickup truck in view of what we see in the market place today.

Especially given the increased competitiveness that we see in pricing.

Other than that, I can't think of a thing that we have pushed off the table.

Richard?

He keeps on shaking his head, I'm not sure you can see it on the phone, so he agrees with me I think.

Thank you.

Stephen Reitman, Societe Generale.

Thank you, a couple of questions please.

On the EBIT walk in the NAFTA region, could you give a bit more information on the change on investments, FX and others, and what happened there?

And secondly, on Maserati I think the guidance early this year was towards flat sales.

We have now had two sequential quarters where you've had declines in shipments.

What's your best guess for how we are going to end 2015?

Thank you.

The first question, basically the EBIT walk is principally FX translation.

Obviously the dollar results being impacted by the rates on average just about [1.12] for the quarter instead of over [1.30] last time around.

Most of that number relates to the FX translation.

Your second question on Maserati volumes.

We're looking at more or less flat, maybe slightly down for the year.

Obviously we haven't had a great first half.

It's impacted by China and also by some management of our stock position in the US.

We should see a number which is going to approach last year's volume for the full year.

Just to add onto what Richard is saying in Maserati, I think the thing that we're watching very carefully, is the mix between Ghiblis and Quattroportes.

They obviously have different margin generation capabilities, and the more we shift upwards Ghiblis and deemphasize the Quattroportes, the more negative the impact is on margin and absolute EBIT generation.

As we have seen the shift, when I look at market share on a global scale, I think Maserati is not lost in the market share.

As a matter of fact I think its held its own.

Especially in China, but the mix itself has been fundamentally different than the original propositions.

We need to be very careful.

A lot of it will be helped when we launch the new Levante in the first half of 2016.

That will change certainly the earnings generation capability of Maserati as a brand.

But I think we need to wait until then.

I am not as negative as a Richard may have sounded about the second half.

A lot of it has to -- we will be able to tell much more at the end of Q3, as to what the fourth quarter will yield.

Thank you.

If I could just ask another one.

On diesel, we are not a rather unusual situation in the US, that diesel prices are now at the pump are pretty similar to those of gasoline.

What impact is that having on diesel demand?

On the Ram particularly, are you going above 20%?

I don't know that we will pass 20% but I can tell you we are sold out.

In terms of capacity of engines for the Ram.

It is progressing well.

I make no comment on pricing, as you well know the issue the decision we're going to make between diesel and gas is one that goes beyond the price of fuel.

It has to do with mileage.

We do have the highest mileage of anybody in the pickup truck segment in the US today with diesel.

That's something that certainly is attracted a large portion of the buying public.

And not to mention issues about the actual performance of diesel in terms of torque and capability.

I continue to be hopeful that solution will continue to get share.

I'm looking at Richard (inaudible) anybody knows whether it's beyond or below 20%.

Richard I think may have made the number up but he's sounding incredibly firm when he made the guess.

So I'm going to rely on his comment.

Thank you.

Thomas Besson, Kepler Cheuvreux.

Thank you very much.

Can I come back on the NAFTA performance and ask you candidly what has changed sequentially so dramatically to drive such a move in profitability?

Because even if we take into account your comments on was included in terms of what [I've] seen in previous quarters, you're materially ahead of what has done before.

So what has really changed?

A variety of things, but the most significant thing that has changed in terms of our NAFTA dynamics, is that we got smarter on pricing.

I think we understood the portfolio impact of particular pricing positions that were being taken in the marketplace.

And I think that we've adapted to market conditions.

We may have been overly generous in some of the positions that we've taken.

We corrected those, there is a continuous process of learning.

I think I learn a tremendous amount from our competitors as I get older.

So we try and emulate them in the best of their traits and we try to avoid the crap that they pull.

At the end of the day we have learned the right things in Q2.

I think we're bound to get better as we go forward.

Maybe -- I'm puzzled that the three of you posts recalled results just into labor negotiations.

Do you mind giving us an update on that where you stand?

Whether you think you'll get to a conclusion on time or whether you think there's any risk as we get to the end of it?

There's always a risk.

I think we have approached these negotiations with an incredibly open mind with UAW.

We both reflect of the pitfalls of a break in talks and the inability to find a consensus resolution to the objective.

I think that all of us will live through the crisis in the last six years.

Recognize the negative implications of a very short-sighted view of wage progression.

I still think that we should not be falling in love necessarily with this [margin] generation stuff that we've had.

Especially with us in the last quarter in the last couple of quarters.

We're playing this game for the long-term, and I think that message is certainly shared in principle with UAW and in particular with [Dennis Williams].

I am a fully cognizant of the fact that our pay arrangements in the US is structurally inequitable.

And I think something that we need to address and I much prefer to address it now.

As we renew our contract, we need to find an intelligent way to get that done that allows people to effectively participate in wealth generation when wealth does exist.

So that continues to be my main theme.

I'm not in a position today to tell you whether we are making rapid or significant progress compared to other negotiations.

I know that the opening has been a good opening of discussions.

And I think the dialogue so far has been constructive.

I think the next four weeks will tell us a lot more.

We just need to wait until the end of August to tell.

I don't think we're going to get past the September deadline and fail.

But that certainly not my objective in its not my hope.

Thanks.

One final question for me please.

On the new guidance can you just elaborate on why it's only affecting the adjusted EBIT?

Clearly your net fund --?

Because Richard was too lazy to work his way down to the net income numbers.

That's why.

We'll fix it in Q3.

I am serious.

Massimo Vecchio, Mediobanca.

Good afternoon.

First question is on the gross cash on the balance sheet which remains at very high level and obviously impacting your financial charges.

I was wondering if you could in part understand how it could double up by year end.

And next year?

The second question is on the pricing in Europe, if you can elaborate a little bit more?

Also if you believe that the slowdown in China could push some of the European players to refocus a little bit on Europe, trying to increase volumes there by reducing the pricing?

And third and last question is on Magneti Marelli.

There's been some articles in the press in the recent days about the potential offers that you may have received.

My question is to what extent you consider a competitive advantage having the component-making company within the Group.

Or how much by decision instincts, in some cases would be better than a [made] decision?

We have an intimate relationship with Marelli.

It's been in our fold for a long period of time.

There are no immediate plans of divestiture of Marelli.

It continues to be certainly a strong contributer to the technical evolution of FCA.

I've been public on this issue.

There may come a time in the future, and it's not something I would certainly forecast in the next months.

When Marelli may find it useful to develop its own strategy outside of FCA, we're not at that stage.

There are no immediate plans to divest to the business.

So we continue to work it and develop it.

As you well know, we have made recently, a significant change in leadership in Marelli.

I'm expecting that Piedro will do a phenomenal job of building the business going forward.

And that remains the key objective for the time being.

In terms of your issue about China, I do think that the slowdown, at least in terms of imported vehicles think is a permanent shift.

It is a permanent condition.

It is very difficult for me to tell as to whether it's going to have any negative impact on pricing in Europe.

As much as I think some of the less-than-rational activities that characterize the past activities in Europe, have now stopped.

I still do not think that there is any (inaudible) benign pricing environment in Europe compared to other parts of the world.

It continues to be incredibly competitive.

And I think we continue -- thank God, we've been able to invest now in products that appear to be getting significant market traction and give us some level of satisfaction in terms of margin generation of a variable cost.

We have a long way to go.

We need to continue to the reindustrialization of the footprint.

The footprint here in Europe which will obviously come with the relaunch of Alpha.

Until that process is complete, I don't think we're going to rest at all.

We have a long way to go.

Having said this, as Richard mentioned, we've had three quarters of positive performance.

It's not a bad indication of the fact that we're coming out of a hole.

But it's a very small recovery, we're at 1% margins, we have a long way to go.

The balance sheet, we have the $21 billion of cash the end of June.

If we look out through the next 15 months or so, there are EUR2.8 billion of euro bond maturities and swiss franc bond maturities falling due through November next year.

There is the opportunity clearly, which we've been very vocal about, of prepaying the 2021 US dollar bond for Chrysler, by the middle of next year.

Obviously depending on how aggressive we want to be about taking the [call] premium.

So I think that's another nearly EUR3 billion.

Between the two, we have nearly EUR6 billion of maturities coming through, and I think our plan today, if we continue to execute as we are and markets remain positive, then I think we'll be using cash, basically, to pay down these maturities.

And as we pay down the Chrysler bond and amend the term loan, take away the [ring fencing] constraints that we have today, that, I think, would be appreciated by investors and by rating agencies.

It will also give us some flexibility to operate with something approaching EUR15 billion of cash, potentially less.

But I think, at the moment, the first step would be to use that EUR5 billion and take the cash balance down to something around EUR15 billion.

Especially now, obviously, that we have put into place the new revolver.

That gives us a bit more coverage also in terms of liquidities.

We have an opportunity over the next 12 months to significantly reduce our overall gross debt and reduce the interest charges.

All right.

Thank you very much.

Alexander Foletti, Bank am Bellevue.

Good afternoon, gentlemen.

Thank you for taking my question.

I'm looking on your slide 12 on the cash flow.

Can you give some indications on how the different components of working capital have been moving?

Yes.

Just a second.

Basically most of the improvement is due to payables increasing.

And slightly offset by receivables and inventories, but basically the improvement of just under $800 million is the payables impact.

What would be your view for the full year on the same position?

For the full year, we're going to continue to have some benefit in the second half.

Because our volumes are going up in Melfi, in Windsor and in Latin America.

We get continued benefit through the second half of the year of working capital as well.

It's not going to be quite to this level.

If you [call it developing] we're going to have our net impact for the year is going to be in excess of this number.

Any other positions that you're booking, [for there] that are not receivables or payables?

No nothing else is significant in there.

Richard Hilgert, MorningStar.

Thank you.

Thanks for taking my question.

I wanted to ask about EMEA.

The $132 million improvement in volume and mix coming from the ramp up of the 500 and the Renegade in Melfi.

I'm wondering was this quarter a normalized run rate?

Or are you expecting additional efficiencies out of that factory in the next couple of quarters?

The factories are still ramping up the full production rate.

It was not [there] for the full quarter in Q2.

It is basically there now in July.

Because we get up to full production on both 500X and Renegade.

We're going to get some benefit in the second half compared to Q2.

Okay.

And then in Pernambuco it sounds like the improvement in EBIT, you'd commented earlier that it could of been a break even in South America if it weren't for the launch costs in Pernambuco.

How long does that launch situation last?

It seemed like, if memory serves right, they're on a fairly long runway for launch in Pernambuco.

This might be something that goes until 2016?

No.

I think will be out of there by Q4 of this year.

Okay.

So we could see break even possibly by the end of the year down in Brazil?

Yes.

Unless the underlying market deteriorates further.

But in the absence of further declines it should go positive.

Okay.

Great.

Thank you very much.

Martino De Ambroggi, Equita.

Good afternoon, good morning, everybody.

My question is on the EMEA region regional sales.

If I remember correctly during the last year presentation in Detroit, you mentioned the normalized or best possible, best case (inaudible) was in the region of 1% or 2%.

Is it still the case?

(Inaudible) invested the market is improving, you're launching new products with a decent success and (inaudible) EMEA is going to be launched or cannot be changed with a cap of 2%?

Our expectation by the end of our business plan to get our margins in EMEA up to 2% to 3% in the business plan.

We're performing probably slightly better than the run rate that we had in our plan.

Obviously we're working hard to improve that run rate margin in EMEA, but I think at the moment that is our business plan target.

Okay.

In the NAFTA region you explained improving pricing is one of the main reasons for the improvement that you had in Q2.

Is it in line with your internal plan?

The second-quarter performance, considering the target you provided last time?

It was better than I explained in Q1.

I gave you a run rate margin by Q4 of 7% and we hit that already in Q2.

So we have that.

Let me try and throw a veil of optimism in Richard Palmer's comments.

The first one is that the EMEA target for 2018, at 2% to 3%, I think embedded a view that the mass market would flatten out at zero.

That whatever money we would be making we would be making out of the so-called premium brands.

And so it involved the margins (inaudible) generations that has been -- it takes a very conservative view of what that generation could be going forward up to 2018.

The fact that we are at 1% now in the absence of the Alpha numbers is an indication of the fact there we're substantially ahead of plan and I feel relatively good about what that will yield going forward.

In terms of the NAFTA numbers, yes, we have made significant progress.

But the best way -- whether they're ahead or behind our internal targets is almost an irrelevant question.

I looked at what our competitors are pulling out of North America, and we're still significantly behind their performance.

And the objective for us is to close that gap and to close that as quickly as we can.

And yes if we do that we're going to be well in excess of the internal target was.

The objective is to close the margin gap with our competitors.

Okay.

Thank you.

Adam Wyden, ADW Capital.

Hello, guys, thank you for taking my call.

I just want to say congratulations on narrowing the gap on the North American margin.

My question revolves around narrowing the gap on the multiple compared to your peer group.

If I look at, based on your public comments, and where you think Ferrari is worth, the Company is trading roughly $1 and some change times EBITDA on 2016.

My question is what tools do you think you have available to narrowing that gap?

Could you spin off [Lam] because it doesn't have any shared platforms?

Could you spin off Alpha Romeo and Maserati?

Adam let me help you with that thinking.

The best way, the best catalyst to crystallize value in an environment like ours, is to prove the value of Ferrari in an IPO and wait for its distribution in the beginning of 2016.

It's shortest way to try to get a very clear evaluation of what is left behind in FCA, which is a very large car company of nearly 5 million cars a year.

That business will be valued on its merits after the unique asset that's represented by Ferrari will have found its own way into the capital markets.

We're not that far away, we're less than six months from that D-Day.

Just tighten up your belt, put your seatbelt on and we'll have a phenomenal ride until then.

In the event that the value -- that Ferrari gets spun into the basically the core company, the stub company doesn't reflect an increase in value, I have to believe that you are thinking about strategies to make sure that the core car company is properly valued.

This North American margin is not that far from your peers at this point.

We have a long way to go in terms of closing the gap with our competitors, but I'm sure that a wise market will recognize the value of what they're looking at.

I count on our ability to deliver performance and to get the markets to understand the quality of the performance going forward.

Give us some time.

We're not that far away.

Congratulations.

I appreciate all the hard work.

Thank you.

Kristina Church, Barclays.

Hello, Kristina Church here.

Just one question coming back to your Q1 call and the capital intensity discussions you had.

Are you any further along in the views on that?

In terms of getting prices to 2020 targets in Europe and Cafe, and in the US.

There's obviously still a lot of spending to be done on products.

Where do you see your plan versus the need for increased spending there?

And do you still see (inaudible) tie ups with competitors that might ease those costs going forward?

Thank you.

My views have not changed from April 29 until now.

The validity of the arguments that I made on April 29 continues I think irrefuted until now.

I've done and I've said all I can in terms of the capital [objective] presentation.

We need to let market participants deal with this issue over time, it will happen.

What the time frame of that realization will be I cannot tell you.

You need to let us work on this and I'm sure that we'll come up with the right answer.

All the concerns that you've raised, Kristina, concerns that we are fully aware of.

And they're incorporated in our concerns about the development of the industry going forward.

We will deal with it and I think the capital (inaudible) presentation provides a good basis for tackling those issues.

Thank you.

Alexander Haissl, Credit Suisse.

Good morning.

Good afternoon, this is Alexander, Credit Suisse.

Three questions if I may.

Two on NAFTA, the first would be on the [uptick], but on volume and mix.

You have shown $253 million year over year and 8% volume gross.

If we go back in the first quarter you [printed] 75 million.

Maybe you could give us some indication here what was driving this meaningful improvement in volume and mix?

This is my first question to NAFTA.

My second question is related to NAFTA industrial costs.

It is pretty much the same figure that in the first quarter, what needs to happen to drive down this industrial costs more sustainably going forward?

And my last question is on EMEA.

We've seen the industrial costs up 70 -- it's minus $70 million versus minus $25 million in the first quarter.

I was just wondering if you can provide more insights?

What is driving this sequential increase in industrial costs?

Is it really just the imported cars?

And that would be a best indication going forward in Europe?

Thank you very much.

NAFTA is basically the mix impact -- the positive mix impact is basically all our volume growth is coming in retail.

We're actually taking our fleet numbers down sequentially.

That is helping profitability.

The volume itself is also coming out of the new launches, the Renegade, the 200, but also on the Ram side, we continue to grow the business.

The volume drivers across a number of the name plates.

But the important thing is most of it is focused into US retail and that is driving good mix.

The NAFTA industrial cost is principally related to the Charger Challenger 300 product renewals that have some level of increase costs.

Everything else is basically being managed with productivity actions, et cetera.

We are going to see that number continue to be mildly negative through the (inaudible) for the year.

As we worked through the comps last year, we didn't have those vehicles yet.

I don't think -- we are obviously at a much lower number than we were running at in the past, then going forward this number should start to become positive.

And then on EMEA, in the quarter, basically all of the impact is negative transactional exchange on the Jeeps, and basically the Jeeps coming out of the US into European market.

The European industrial base is actually being efficient and driving cost out.

But the exchange impact is hitting the cost of those imported vehicles, which is more than offsetting the efficiencies.

Sorry, just coming back on the mix, what is the further upside to the shift over (inaudible) over the two to four quarters?

Is there more upside so that the mix impact should be similar to the second quarter year over year?

I think we're continuing to improve our mix.

In particular, in the pickup segments.

We have been talking about this for a few quarters.

Our Ram product is very well regarded in the marketplace.

It has gained the brand a lot of share over the last four years.

Getting up to near 20% from less than 12% when we started this process.

In the last year, we've been working very hard on also driving the mix up into higher-end product, crew cabs, et cetera, and that will continue.

We're going to see positive mix coming out of that.

The growth in the marketplace that we've seen and the product range that we have is allowing us to force a lot more of the volume into the retail channel because the demand is strong.

That will also give us continued positive mix going forward.

Thank you.

And on the industrial costs, if I understood right, you said mildly negative for the rest of the year.

Does it mean below three-digit losses directionally?

The word losses is not appropriate.

This is the cost of the improved content we're putting into the vehicle, which is obviously one of the reasons we're being able to drive volume and positive mix.

You can't look at it in isolation.

You need to look at it as part of the strategy to improve the brand equity, drive the volume into retail, improve the mix, and moving up diversions, et cetera.

It's not something that we're concerned about, because I think we're investing in the product renewal process to continue to drive our competitiveness in the market and our profitability.

Thank you very much for the clarifications.

Thank you.

John Murphy, Bank of America Merrill Lynch.

Good morning.

Believe it or not, my first question is still on North America.

When we think about the gap that you have with GM and Ford, what specific actions do you think you need to take to close that?

Is it predominantly on pricing and product cadence?

And then also, as we think about North America through the cycle and ultimately hit the next downturn 5 to 10 years out.

In the 14 million to 15 million unit range, do think you can retain, break even, or slightly better in that kind of a downturn?

I will give you the quick answer.

And then I'll get Richard to answer the first part of your question.

Yes, we will survive 14 at positive numbers -- if the number is 14 million.

That's great.

John, we're continuing to the point, to the last question we're investing our product.

It's driving equity in the brand and improving our competitiveness and our mix in the marketplace.

That's obviously key for us to be able to position ourselves at the same set of revenue per unit as our competition across the board.

We still have some improvement areas that the we can continue to go after.

And then, we have been through a very fast and intense process of product renewal in the last five years, with an industrial base that had the need for a lot of investments.

Now, we really need also to focus lot more on the cost equation.

And get the sorts of efficiencies and productivity gains that we've been seeing in some of the variances that our competition have been demonstrating and improving their margin rates over the last couple of years.

We haven't had the focus on that we could of had.

But for various reasons, given the intensity of the product renewal process.

We have an opportunity there to also drive improved margins by working a lot more on the cost equation.

Okay that's helpful.

Then just a second question.

There is a very interesting acquisition that Magna made of [Good Tribe].

Obviously, Magna a great partner with you on the supplier side, The Tribe is a great transition manufacture.

They have a big JV with Ford.

Would you ever consider JV-ing with Magna and Getrag for your transmissions?

Because obviously, this looks like it could become essential depository for transmission technology for the whole industry.

And solve some of this scale issue that you've been talking about across the whole industry.

The answer is it is possible, although I'm not sure that Getrag would be my instinctive first choice.

It's not to take away from their skills.

We do use Getrag in a variety of applications.

I'm not sure they are as widely usable across the car basis as we would like.

But it is something to think about.

I have no objections to looking at ways to get that done.

As you well know, we run the largest transmission plant in the world out of out of a facilities (inaudible) so we are not shy of committing to transmission technology.

I'm not sure that this one will be the right candidate but now that you raise it, we will look at it.

I doubt it though.

Okay.

Thank you very much.

Thank you, ladies and gentlemen, we will now take our final question today from Charles Winston of Redburn Partners.

Please go ahead, sir.

Hello, good afternoon, thanks for taking my question.

I hear what you say about the NHTSA deal.

It's very clear.

Could I perhaps widen the conversation out just to recalls generally?

Obviously, there was quite a theme across the industry last year, in terms of one-time in exceptional recall costs.

Are we done there?

In other words, recalls continue to be announced across the industry.

It's still very much an issue.

Do you think there's any risk of further exceptional one-time recall costs?

Or have you built a big enough warranty provision that you're done the risk to the P&L from here is pretty limited?

Thank you.

To begin with, on the warranty side, I think we have adequate provisions to deal with what we think will happen on vehicles that we have sold.

We have neither excessive provisions or under provisioned the thing.

These things are done in an incredibly methodical way.

And there's recent reason and method in the way in which these numbers are determined.

It is my sincere hope that whatever it is we've done in terms of [one up] costs on recall items, are things that are slowly dwindling away, and that they will disappear.

Especially, if all the things that I said about our commitment with NHTSA is to continue to improve the way in which we interface with our consumers and the speed of response that we have to issues.

For me to make a categorical statement about the fact that the things have come to end require a level of knowledge about the future that I do not have.

That would be incredibly unwise for me to make these sort of categorical assertions about the fact that these things are over.

I can only tell you that our intention is for these things to be over.

It's unwise for a variety of reasons and I think it will certainly be against all the other principals that we have outlined as the basis for collaboration with NHTSA going forward.

I think it is not proper.

I can't tell you that it's over.

I think it will be over when it's over.

When we all feel comfortable that we've adapted to a regulatory environment of this caliber, and that we continue to do things as we've indicated, I think that day we'll make sure that these costs don't come out below the line of the unusual and usual items.

They should be unusual and this should be really rare.

That's why we class them that way.

I think that (inaudible) it's reflected in the pricing dynamics in the marketplace as what is required in terms of intervention with our products going forward.

But I agree with you they are anomalous.

They shouldn't be here.

Thank you.

Ladies and gentlemen, that will conclude the question-and-answer session.

I would now like to turn the call back over to Joe Veltri for any additional or closing remarks.

Thank you, Elaine, and thanks to all of you for joining the call today.

Have a pleasant day.

Thank you.

Ladies and gentlemen, that will conclude today's conference call.

Thank you for your participation.