Stellantis NV (STLA) 2020 Q1 法說會逐字稿

Good afternoon, ladies and gentlemen, and welcome to today's Fiat Chrysler Automobiles Group Results for First Quarter 2020.

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, Jody, and welcome to everyone joining us today as we review FCA's 2020 first quarter results.

First, however, I would just like to express my personal wishes that you and all of your loved ones are safe and well during this unprecedented situation we are all going through right now.

For today's call, the presentation material as well as the related earnings release can be found under the Investors section of FCA's group website.

Our call today will be hosted by the group's Chief Executive Officer, Mike Manley; and Richard Palmer, the group's CFO.

After their initial presentation, both Mike and Richard will be available to answer questions.

However, before we begin, I just want to point out that any forward-looking statements that might be made during today's call are subject to the risks and uncertainties that are noted in the safe harbor statement, which you can find on Page 2 of today's presentation.

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

With that, I want to turn the call over to Mike.

Yes.

Thank you, Joe.

Good afternoon.

Good morning, everybody.

I'm just going to also add mine and the rest of the FCA colleagues wishes to Joe's that he opened the call with.

Hopefully, everybody in your families, as he said, are safe and well.

So as customary, I'm going to take you briefly through our operational highlights for the quarter and also explain the actions we have taken in response to the COVID-19 pandemic: so firstly and very importantly, protect and support our employees and the communities within which we operate; and secondly, to protect our company to ensure we transition through this crisis.

Richard will then walk you through the financials in more detail.

Now as you have seen, and it's the same with many other companies, COVID-19 has had a significant impact on our Q1 results.

So when Richard has taken you through, I'll be back to talk about our rigorous plans for getting the business back up and running in each region.

And through the immediate actions we have taken to remove costs, preserve liquidity and implement new safety protocols, I believe that we will emerge from this crisis stronger than ever.

So now before we go through the slides, I'd also like to personally thank all of our employees for their continued dedication during this unprecedented period; to those of you who are applying your skills for the benefit of our communities by converting our facilities in Brazil and Argentina to makeshift field hospitals, repairing ventilators, assembling key components to assist ventilator manufacturers and producing face masks; from those who volunteer to keep our part distribution centers running to help keep first responders and commercial vehicles on the road; and to our cross-functional teams who have formulated comprehensive data-driven procedures that will be replicated around the world to ensure that everyone returning to work at an FCA facility is comfortable and confident in these plants to keep them safe.

And finally, to all of those who have adjusted their lives and the lives of their families to work from home, my thanks to all of you for your flexibility and resilience that you've demonstrated during this unprecedented times.

And I have to say, when I look at everything that you have done, whether it's in the community or to support your colleagues or to get us ready for the restart of the business, you make me very proud to be part of this team.

So thank you.

So to begin with, before the virus outbreak and the resulting disruption in demand, I can say we were on track for a strong quarter in terms of both sales and market share, which was in line with the performance we expected when we initially issued our guidance for the year.

Now as the pandemic took hold region by region, we took swift actions to abruptly stop production around the globe, which is something we have never experienced before or envisaged we would have to do.

And as I mentioned earlier, the pandemic had a significant impact on our Q1 results.

Our adjusted EBIT was down 95% year-over-year.

However, we were able to remain profitable as a group as well as in North America, where adjusted EBIT was EUR 0.5 billion with margin of 3.8%.

We went into this crisis with a very strong balance sheet.

And notwithstanding the significant cash outflows during the period, we ended the quarter with EUR 18.6 billion of available liquidity.

This was further strengthened in April with a new EUR 3.5 billion incremental bridge credit facility.

Now despite the market downturn, we significantly increased our market share during the quarter in North America, gaining 40 basis points.

And in Latin America, share was up 70 basis points.

And prior to the pandemic hitting EMEA, we have held our share through February.

Now sales of Ram pickups in the U.S. were also very strong in the quarter, with sales up 7% year-over-year.

And despite the stay-at-home orders initiated through many parts of the market beginning in mid-March, our segment share was up 100 basis points to 24.1%.

So as I said at the beginning, we made a good start through the first 2 months of this year.

Now although each of our regions are at different stages of the virus trajectory, several governments around the world are beginning to progressively ease shelter-in-place orders and allow businesses to reopen and people to return to work.

As such, we resumed production in China at the end of February, and last week, plants in Italy began to reopen.

We've also mapped out detailed plans to resume production in all other regions as local restrictions are lifted.

And I'll be sharing the details of that with you later in the presentation.

Now as you know, we also announced that our AGM will be postponed until late June.

In addition, given the current situation, the resolution related to the EUR 1.1 billion ordinary dividend announced in December is also under review at this time.

Now as I mentioned during my opening comments, a clear priority for us has and will continue to be to ensure the safety and well-being of the FCA family and our communities, including first responders.

And I'd like to spend a little bit of time updating you on what we have done in that regard.

In manufacturing, we immediately suspended production temporarily at all of our plants, and we implemented comprehensive safety protocols in all of our facilities.

In our office locations, we made remote working available to employees where feasible.

And in many cases, this was in advance of local stay-at-home orders.

And I also want to highlight the work being done across the company to help our local communities as well as the support we've given to first responders and health care workers.

In China, when the virus first hit, FCA sourced and donated 500,000 masks.

In addition, our China joint venture donated vehicles and medical materials to local nonprofits and hospitals.

In Italy, our engineering and manufacturing teams are working with Siare Engineering, the only domestic producer of ventilators, to significantly increase their output.

We also made a fleet of 300,000 Fiat and Jeep vehicles available -- sorry, 300 Fiat and Jeep vehicles available to the Italian Red Cross for distribution of food and medicine across the country and also provided several ambulances based upon the Fiat Ducato.

In North America, we're working with nonprofit organizations to provide meals to children who typically rely on meals at school.

And to-date, we have provided over 1,500,000 meals.

We've also donated more than 1 million face masks to health care workers and first responders throughout North America.

In Brazil, we built the first makeshift field hospital for low-income families with a 200-bed capacity in a record 7 days, and we're in the process of building 2 additional 100-bed makeshift field hospitals in Brazil and Argentina.

And we're also supporting ventilator manufacturers to increase production capacity in Brazil, with over 10,000 ventilators already produced for the government.

And in China, we converted a [Kemel] plant to produce face masks.

We were able to install the whole production process, including the clean room, in less than 6 weeks starting from scratch.

We're also converting additional plants in Michigan and Brazil, and we'll be capable of producing 7.5 million mask per month by early June to support our internal needs as well as for donation to first responders and health care workers.

Now during the pause in production, our regional security leads and health and safety teams have been working together to identify and implement best practice at the global level, combining our scale, experience and lessons learned from other locations, obviously with input from external health experts.

We've reconfigured common areas, offices and workstations, including the installation of protective barriers to ensure proper social distancing, and we've expanded our already extensive cleaning protocols.

We're providing personal protective equipment to all employees, and we have implemented new procedures such as temperature checks at all site entrances; work breaks are organized by area and phase throughout each shift; reduced maximum occupancy at company cafeterias and extended hours of service; and we're providing training on safety standards via e-learning platforms.

Our employees at facilities other than our plants will progressively return to work over the next few months, while continuing to leverage the flexibility of remote working.

The first phase of employees to return on-site are those who need to access test facilities and laboratories and then transition others at the appropriate time.

Far from being a simple on/off switch, our reopening -- opening will be gradual and a responsible process, with the safety and well-being of our employees always remaining at the forefront.

So now let me turn to our commercial performance for the quarter.

The overall market was down year-over-year in each of our regions, with a more pronounced decline in APAC and EMEA where the virus hit earlier than in other regions.

In North America and Latin America, where the pandemic hit later in the quarter, the industry decline was limited to around 13% to 14%.

However, despite lower overall demand, we gained significant market share in both of those regions.

Our strong share in LATAM was on the back of performance in the SUV, pickup and commercial vehicle segments, while in North America, our share gain was driven by the substantial increase in Ram pickup sales.

For Europe, and in particular, Italy, an important market for us, we held share at 25.3%, while we did see some share declines in Spain and France.

Now while many of our dealers being mandated to close, we enhanced our online sales initiatives in place across the regions to help minimize the impact on our sales.

As an example, more than 90% of our U.S. dealer network has implemented web-based tools to sell cars and trucks.

Now as I said, Richard will take you through the financials in detail.

So I'm just going to give you a quick overview of our results for the quarter.

Combined shipments were down 21%, mainly due to the temporary production stoppages and the disruption in demand experienced in all regions due to COVID-19.

Although we were on track for a solid first quarter prior to the pandemic hitting and the fact that we took quick and decisive actions to address the impacts of COVID-19, our adjusted EBIT was down 95% year-over-year as a dramatic drop in our global volumes evolved so rapidly and late in the quarter that the effect of our access did not have a meaningful impact.

However, later, I will discuss the range of actions we have and are taking to reduce our cost structure and the relative financial impact of those.

While we typically have negative free cash flows in the first quarter, Q1 has a significantly higher cash burn as the lower volumes had an impact on profitability, and the abrupt production stoppage resulted in the natural unwinding of working capital.

In addition, our CapEx spend returned to a normal level of EUR 2.3 billion compared to an unusually low level last year.

And as noted earlier, despite the significant negative cash flows, we ended the quarter with an available liquidity at EUR 18.6 billion, and we further strengthened our liquidity with the addition of a new EUR 3.5 billion bridge credit facility syndicated in April.

Now with that, I will hand it over to Richard.

Thank you, Mike.

So just to continue on some further details on Page 6. As Mike mentioned, our adjusted EBIT was down 95% following the abrupt loss of volumes in March.

And that led to an adjusted net loss of EUR 471 million, driven by the reduction in adjusted EBIT.

Finance charges were slightly down, but offset by higher taxes at an adjusted level due to the balance sheet remeasurement of our Mexican operations' deferred tax liabilities as a result of the weakening of the Mexican peso.

The net loss of EUR 1.7 billion included impairment charges of EUR 0.6 billion and deferred tax asset write-offs of EUR 0.5 billion, mainly a result of the estimated impacts of the COVID-19 pandemic on the market outlook of the group's operations, mainly in EMEA and Latin America.

Industrial free cash flows, as Mike mentioned, were negative EUR 5.1 billion, driven by the working capital absorption and increased CapEx.

Our available liquidity was reduced by EUR 4.5 billion with part of the negative cash flow offset by reduced financial services portfolio and debt issuances.

The liquidity at 31st of March does not include the EUR 3.5 billion bridge to bond facility signed on March 26 and syndicated in April with a group of 13 banks.

That facility has an initial term of 12 months, extendable for a further 6 months, and is structured to support the group in relation to access to capital markets.

As we announced in a recent press release, we fully drew down our EUR 6.25 billion revolver on April 20.

That revolver has a duration through April 23 for tranche A and April 24 for tranche B.

Moving on to Page 7, where we show the group adjusted EBIT by operational driver.

Volume was down 204,000 units at a consolidated level, mainly due to the production stoppages in all the regions.

EMEA was down 97,000 units and North America down 87,000 units, which contributed to a positive mix due to lower North America reduction.

Negative price were driven mainly by Latin America due to the non-repeat of positive tax credit impacts in 2019.

Our industrial costs were negative in North America for EUR 100 million due to warranty reserve adjustments and some logistics costs, and negative in LATAM due to cost inflation.

SG&A was reduced in EMEA as actions continue to improve efficiency, and in North America and other regions as actions to reduce sales and marketing spend were implemented at the end of the quarter.

Moving on to Page 8. We review the industrial free cash flow.

Our Q1 cash flow is typically negative due to increases in inventory of both work in progress and finished goods as production restarts after the Christmas shutdown.

This year, the negative cash flow was EUR 5.1 billion, impacted by COVID-19, which was largely the reason for a EUR 1 billion reduction in EBITDA and contributed significantly to the EUR 3.5 billion negative working capital impact, as all of our plants ceased production during March and demand slowed significantly in many markets.

The EUR 2.8 billion difference on working capital year-over-year was mainly due to a reduction in trade and other payables for around EUR 2 billion and a higher increase in inventories due mainly to higher work in progress and materials balances from plant shutdowns and increased new vehicle stocks, principally in EMEA.

Change in provisions was negative, in line with prior year, due to a reduction in sequential volumes, partially offset by increased provisions for warranty.

CapEx was EUR 1 billion higher than prior year and in line with our expectations as we invest in a number of key products for Jeep and Maserati.

We closed the quarter with a net industrial cash position of substantially 0 compared to net industrial cash of EUR 4.9 billion at year-end 2019.

On Page 9, we summarize the adjusted EBIT by region, which we will review in the following pages.

And moving to Page 10, we show the NAFTA region -- sorry, the North America region.

Shipments were down 16% or 87,000 units, primarily due to the temporary suspension of production from March 18.

Total North America dealer stock was reduced in the quarter from 672,000 units at the end of 2019 to 635,000 units, and the reduction has continued in April.

Revenues were EUR 14.5 billion, down 9% or 12% at constant FX, with positive mix due to Jeep Gladiator and Ram heavy-duty.

Despite the impact of COVID-19, adjusted EBIT was EUR 548 million with a 3.8% margin, a reduction of nearly 50% compared to prior year.

Looking at the adjusted EBIT drivers, clearly, volume was the main impact, partly offset by positive mix due to Ram heavy-duty and Jeep Gladiator.

Industrial costs were negative due to increased warranty expenses, as I mentioned earlier as well as plant preparation costs at Warren for the Grand Wagoneer.

The savings in SG&A relate principally to reduced advertising spending in March.

On Page 11, we show APAC performance.

Here, the impact of COVID-19 on production started in January, and combined shipments were down 49% to 20,000 units, mainly due to the China JV, which was down 66%.

Consolidated shipments were down 24% to 13,000 units, with Jeep Compass and Alfa Romeo both down, and consequently, revenues decreased 21%.

The adjusted EBIT loss for the quarter was EUR 59 million with negative volume as explained as well as increased industrial costs due largely to reduced royalty income from the China JV, partly offset by cost reduction in sales and marketing expenses.

Moving to Page 12, we review the EMEA region results.

Consolidated shipments were down 97,000 units or 32% to 205,000 for the quarter.

The best-performing brands were Fiat Professional, down 20%; and Ram and Dodge that were positive, admittedly on very low volumes, but growing in the Middle East.

Alfa Romeo was down 45% and Jeep down 40%.

Dealer inventory was reduced from year-end to 227,000 units and to -- in comparing to last year down 20,000 units.

Net revenues were down in line with shipments by 26%, and reduced volume was the key driver of the adjusted EBIT loss of EUR 270 million.

Industrial costs were also negative due to increased compliance costs and the non-repeat of positive reserve adjustments last year, partially offset by lower depreciation and amortization and fixed cost reductions in our plants.

SG&A cost actions were positive for over EUR 50 million, with 50% due to reduced marketing spend and 50% due to ongoing overhead cost containment actions.

On Page 13, we see the Latin America performance.

Shipments were down 12% as production was impacted in late March in both Brazil and Argentina.

Net revenues were down 32%, or 23% at constant FX.

The reduction was due both to lower volumes and the non-repeat of prior-year one-off tax credits.

Adjusted EBIT was a loss of EUR 27 million for the quarter.

COVID-19 was a factor both on volumes and on pricing and industrial costs, where actions to offset inflation were more difficult to execute, aggravated by the weaker Brazilian real, making imported components more expensive.

Net price would have been positive in the absence of the non-repeat of tax credits mentioned earlier.

Industrial costs were negative due to inflation and raw material as well as FX.

On Page 14, we review Maserati.

Sales were down 46%, with China down 75%.

North America was better performing, down 23%.

Shipments were down due to the market disruption in China and Europe earlier in the quarter followed by the suspension of production in mid-March.

As a result, net revenues were down 46%, and adjusted EBIT was a loss of EUR 75 million due to the lower volumes and negative mix as China was more impacted than other markets.

On Page 15, we show our market outlook for 2020.

The significant demand uncertainties in all regions, coupled with regional operating restrictions, led us to withdraw our 2020 financial guidance in the middle of March.

Since then, we are focused on reducing our cost base and slowing some of our investment programs to conserve cash.

We have successfully restarted our plants in China and our LCV plant in Italy and believe we will continue to phase in other plant restarts during Q2.

Despite that, we expect Q2 to be the worst quarter of the year from a financial performance viewpoint, with a significant adjusted EBIT loss and negative industrial free cash flow.

With operations then ramping up through May and June, we expect to have a good level of liquidity at the end of June and then an improved financial performance in the second half.

The market forecast's above our best guess and show our 3 main regions down by 20% to 30% year-over-year.

Now I will hand the call back to Mike.

Thank you.

Yes.

Thank you, Richard.

So as you saw, the pandemic had a significant impact on our Q1 results.

And while throughout this unprecedented global event our first priority has been the safety and well being of our employees and local community, our leadership team has also spent a great deal of time planning and executing on how we're going to restart our business.

And I can tell you that having worked side-by-side with the majority of this vastly experienced leadership team over the past 10 years and through other crises, I am extremely confident in the robustness and successful execution of these plans.

In our plants, we've evaluated several thousand workstations and other work areas and reconfigured certain workstations as required as well as implemented best practices based on our global expertise, to ensure maximum protection for our employees.

I've made regular checks of the work being done in our technology center in Auburn Hills, and changes will be evident to our people before even entering the building.

The overall working day has been rethought to include staggered start times, thermal imaging cameras, revised flows and processes for every site, one-way traffic direction in corridors, hand sanitizing dispensers at all entry points and new face masks provided every day upon arrival.

Now we've worked closely with all relevant stakeholders, including our suppliers and dealers, to make sure they're also ready to restart with the proper health and safety protocols in place.

And together, we have developed and implemented robust plans to restart production of vehicle sales once local restrictions are lifted.

Now we've been working very hard to continue our development activities for key programs in order to minimize any launch delays.

For example, in EMEA, we have focused our initial product start actions on our upcoming launches of the Fiat 500 BEV and Jeep Renegade and Compass plug-in hybrid models.

We've also been working flat out to fulfill our commitments to our customers and dealers.

Now we implemented remote sales programs in key markets, along with a range of commercial initiatives to facilitate the vehicle purchasing process for our customers.

In the U.S., we recently relaunched our new online retail experience, which helps dealers handle the entire purchase process from trade-in to final signatures.

This tool is now available on all of our brand websites, and over 1,000 of our U.S. dealers are using it.

In many European markets, the car-at-home project, which connects customers and salespeople via video chat, has been rolled out.

And in order to support customers who are now faced with unexpected financial challenges, we're offering special incentives such as 0% financing for 84 months and no payment for 90 days on select models in the U.S.

In Canada, we offer no payment for up to 120 days on certain models across all of our brands.

And in Italy, we deferred payment of first installments until next year for all customers financing a vehicle purchase through FCA Bank.

Now despite this unexpected crisis, we remain committed to the merger with Groupe PSA that's going to create a leading global mobility company.

And together, we continue to make progress on the multiple work streams being led by senior leadership at both companies, and we remain committed to completing the transaction by the end of 2020 or early 2021.

And to no doubt preempt one or more of your questions, despite certain market rumors or speculation, the term of the deal have not been changed.

I'm now going to take you through 3 key areas of the business: firstly, the actions we've taken to minimize the loss and to preserve cash; then I'll detail the plans and current projected start dates for our plants around the world; and finally, having carried out detailed cash stress tests, I'm going to talk about our liquidity going forward.

Now given the unprecedented nature of this event, we've taken this opportunity to challenge the historical norms of our business model.

We've taken quick actions to safeguard the earnings power of the company and preserve cash.

Many of the actions put in place will continue to benefit us beyond the crisis and will help us to emerge as a healthier company than we were precrisis.

As I will show you in a minute, our plan is to continue implementing our production restart plans across the regions during the second quarter.

However, during the period where all plants are shut down, our personnel costs have come down by approximately 50%.

We expect to reduce CapEx spending for 2020 by approximately EUR 1 billion.

And while no vehicle programs have been canceled to-date, some have been retimed by up to 3 months.

Now in addition to that, based on the collective efforts of our teams, we expect to eliminate in excess of EUR 2 billion of operating costs for the full year from other actions that we have taken.

Now with many dealerships closed and employees under stay-at-home orders in most areas, we've significantly reduced marketing spend and have refocused our efforts to support retail dealer channels where they're open and through the use of digital media elsewhere.

The stay-at-home orders have also caused us to reduce our R&D activities, which includes a suspension of most activities where we contract with supplemental workers.

Now as you can imagine, any nonessential services have also been canceled or at least postponed.

And finally, in addition to pay cuts and salary deferrals taken by most salaried employees, our Chairman and nonexecutive Board members have agreed to forgo their remaining compensation this year.

And I'd like to take this opportunity to sincerely thank our Board and Chairman for the support that they're showing us.

So moving on to Slide 18.

Now this slide shows the details of the planned gradual and disciplined restart timing of our plants in each region.

Production ramp-up will vary by plant, and manufacturing efficiency will, of course, be reduced because of the additional procedures in place to ensure worker safety, including greater distancing between workstations and additional sanitation procedures.

However, one of our weaknesses in the past now becomes an area of opportunity because most of our plants outside North America were not running at full capacity prior to the pandemic.

So we expect to be able to recover this lost efficiency in those regions rather quickly.

We're going to prioritize the production of electrified vehicles, which are a core part of our strategy to meet compliance requirements in all regions, but we will also be focusing on higher-margin products and models where we have low existing inventory levels.

I think the most important point to note is that production levels will be aligned to consumer demand to ensure we do not build up inventory.

Now as you can see from the restart dates, we expect all plants in North America to restart the week of May 18, with the exception of Belvidere, which will be back up and running, we think, by June 1. Now this plan has been developed following continuous discussions with the UAW and the governors of the states within which we operate, particularly Governor Whitmer from Michigan.

This is a reflection of the progress that has been made in our home states and the comprehensive health and safety measures we are adopting in our plants.

Now obviously, we don't expect that to change between now and the 18th, but we will continue to work very closely with each of the governors to make sure that we progress towards that reopening on May 18th.

In APAC, our joint venture plants in China have been back up and running for approximately 2 months, and we're happy to report that we have had no issues to-date, which gives us a high degree of confidence that we can effectively and efficiently restart our production globally as we implement these procedures across the other regions.

And we plan to introduce our operations in India following the lift of the nationwide lockdown.

In Italy, following a breakthrough agreement with the Italian unions, which has become a benchmark for safety protocols for the rest of the Italian industry, we were able to restart operations at several of our facilities on April 27, 1 week before the national lockdown ended.

Now we have resumed production at our Sevel plant, the largest van assembly facility in Europe, and we're already running at 70% of the normal run rate, and the ramp-up was faster than we had expected.

We also reopened some components divisions for other Italian sites, together with R&D activities and pre-series production of some of our new electrified models, specifically, the Fiat 500 BEV in Turin, and the Jeep Renegade and Jeep Compass plug-in hybrids in Melfi.

And we plan to restart the majority of the remaining plants in Europe starting from late May, and our plan is for all plants to be restarted by early July.

In LATAM, we're planning that all of our plants in Brazil and Argentina will be back up and running by mid-May.

And I would say, however, we're watching progress in the region on a daily basis to ensure we restart at the appropriate time.

Maserati will resume production in Turin by the end of this month, while the plant in Modena is currently being retooled for production as the new MC20 super sports car and, therefore, will reopen by early July.

And finally, of course, we're also working with our suppliers to ensure they are ready at the same time and with the proper measures in place.

So based on webinars and surveys we connected with our supplier base across the regions, we have confirmed their readiness is in line with each of our plant restart dates.

But we're obviously as prepared as we can be should anything interrupt that plan.

So let me wrap up by saying that, overall, we recognize the pandemic and its impact are here for the foreseeable future, and it has caused us to rethink our entire business model.

In addition, it will continue to impact our future results, particularly in the second quarter of this year, for which we expect to report a net loss and significant negative cash flows, all of which, by the way, are factored into our liquidity forecasts.

However, as I mentioned, this experienced leadership team has navigated FCA through more than one crisis in recent years and has a proven track record of developing and executing on plans to address such situations and ensure we come out stronger on the other side.

I cannot stress enough, our #1 priority has been and will always be the safety and well-being of our employees and our communities.

And after taking a hard and thorough look through our cost base, we've developed an action plan that is expected to net over EUR 2 billion of operating cost savings in 2020.

Now with respect to liquidity, our internal stress test confirms we have sufficient liquidity beyond 2020 under a scenario assuming at least 50% reduction in industry volumes across all regions.

We have an operational restart plan that we're confident we will execute on as local conditions allow.

And as Richard mentioned earlier, given the fluidity of the current situation, we have withdrawn our 2020 guidance.

And finally, notwithstanding all of this, we continue to push forward with PSA on the merger process and still expect to close the transaction on the timetable we laid out back in December.

And now before taking questions, I just want to add one last comment.

I firmly believe our company is in a position that when the market recovers, we will return to the positive momentum we were experiencing prior to this horrible pandemic.

In fact, looking at our sales performance in April, based on our internal estimates, we were once again able to gain retail share in the U.S. as our retailer retail share increased to 14.1%, which is over 2 percentage points higher than April 2019.

And all of this is because we have a strong portfolio of brands, solid business plan, which includes a robust product pipeline, and a resilient culture.

And all of this will be enhanced with the opportunities planned as part of the proposed merger with PSA.

So with that, Joe, I'm going to hand it back to you.

And if you don't mind, we can start the Q&A.

Thank you, Mike.

Jody, I think we can now open up the lines for questions, please.

(Operator Instructions) We will take our first question from Giulio Pescatore from HSBC.

I would just like some clarification around the cost saving plan.

I mean how much of that is linked to the government support in terms of salaries, especially in Europe?

And how much of that is actually something that can be maintained beyond Q2?

Yes.

Thanks for the question.

Richard, I'm going to answer this one first and then where I mess up, if I mess up, you can correct me.

But the EUR 2.2 billion is really split across 4 key areas.

Manufacturing will account about 30% of that.

Our R&D -- and I talked about some of the postponement of the projects, around 10%.

The largest portion of it is in selling expenses, marketing included, which is around 50%.

And then we have 10% G&A reduction.

Quite a lot of the EUR 2 billion is structural.

The caution, of course, is selling expenses.

This is based upon what we have predicted as a gradual recovery of the industry throughout the balance of this year.

So as we go into next year and we can -- we expect that recovery to come through, that selling contribution towards the EUR 2 billion will obviously be reduced.

But our internal estimates suggest something like EUR 600 million to EUR 800 million of it we can continue to maintain as we get into 2021.

Richard, your view?

No.

I have nothing to add, Mike.

I agree.

Then second one, I mean I'm very interested in this -- in the changing in buyers' behavior that you may be witnessing as you sell more online.

Do you think that this can be maintained beyond the crisis?

Do you think that we're going to see a change in the way you sell a car in terms of the mix of cars you sell?

And are you witnessing anything interesting in terms of how people spend online versus the dealership?

Just a little bit of my observations on what we see.

And I think what -- we have learned so much in such a short space of time, not just in terms of how people are buying, but in terms of how we as an organization can work very effectively and efficiently.

And I think one of the things we've constantly told ourselves is that as we work our way through this and we understand and discover more, many of the things, I think, are going to continue to stay with us as we go forward.

We have to continue to develop our muscle in terms of online retailing, not because I expect us to be in this situation again in the future, but because I think it offers our consumers such level of customer service.

And as we get more and more efficient and effective at it, I think it can become complementary and a differentiator for our brand.

So I do believe you're going to see that happen.

And I do think you have seen significant improvements in our dealer skills around the world.

When I look at what vehicles we're selling, clearly, it's dominated by what I would call vehicles that are required for work.

So maybe not as discretionary as replacing a sedan or something like that.

That's why truck sales have held up.

Some of the heavier metals such as the large SUVs have held up as well.

I think as we get out of this, people are really going to consider how mobility impacts their safety.

And I'm certain that over time, you will see a potential return to the balance that we have seen.

But in the short to medium term, I think people are going to cherish the private space.

So we will see.

Okay.

Sorry, I apologize in advance for this last one question.

You mentioned that -- going back on the merger with PSA, you mentioned that the deal terms have not changed.

I just want to clarify.

Do you mean that you don't expect a change in the major terms so that so far there hasn't been any discussion?

I mean obviously, it's very difficult for me to predict the future.

But what I can tell you is that we have worked very well together on all of the elements to progress as rapidly as possible to the conclusion of the merger.

And that includes maintaining our original time line precrisis for all the regulatory filings and all the approvals that we need.

Those have progressed incredibly well.

And at this point in time, all of the terms and conditions that we agreed as part of the merger process have not changed.

We will take our next question from Philippe Houchois from Jefferies.

I've got 3, if I can.

The first one is how much payment to Tesla have you accrued so far this year?

And how much of that is cashed out?

This I'm going to defer to Richard because I'm not sure we have been that explicit in terms of payments to Tesla.

And if we haven't been that explicit, we're not going to be that explicit on this call.

So that's my 2,500 mile cautionary note to RP, who's at a different location than me.

What I would tell is that we have partnered with Tesla for a long time.

It has been a very clear part of our strategy.

They're an important partner for us, and that will continue going forward with the commitments that we've made.

Richard, do you want to add anything to what I said?

No, Mike.

I don't think it's appropriate to give details like that, frankly.

Okay.

All right.

And I was just wondering otherwise, there's been some reports from dealers through the press about a shortage or maybe a looming shortage of full-size pickups in the U.S. Is that something that you observe, where you might have the biggest opportunity to make up since you were talking about focusing on higher-mix vehicles?

Do you see that shortage in your numbers?

Well, I've reviewed the inventory across all of our regions at the end of April.

From memory, Joe, our inventory in the U.S. dropped down to something like -- retail inventory something like 420,000 units, something like that.

And I have not seen inventory levels that low for -- well, I can't remember when.

And obviously, days supply gets distorted with where we are.

But when you get down to that level of inventory, given the number of configurations on truck, you're bound to be running short of certain high-volume truck configurations.

And I think that's reflective of the number of dealer orders that we've received over the last few weeks that are just obviously waiting there for our plants to restart.

So I -- yes, I'm pretty sure you're going to see another relatively strong month with trucks, being there are certainly configurations that will be running short, and it will be a patchwork quilt across the country because some areas are able to sell much more effectively than others.

But what it does mean is that we bring our plants up with a much higher level of dealer orders than people maybe expect.

Right.

And if I can squeeze a last one was we had this kind of shock update from Manheim on used prices in mid-April, which is misleading because there was no market, basically.

As we see more dealers reopen, et cetera, what do you see right now in terms of both pricing on used cars, but also demand as indicator of the health of the market?

Sorry, could you just repeat that again?

I lost the middle part.

Right.

No, I was just wondering if -- what you can tell us about used cars -- or used vehicle transactions and pricing.

That we had this update mid-April on Manheim that showed a 12% drop, but it was basically no market.

I think as we see dealers reopen, what's your evaluation of used car prices going forward?

Yes.

Across our portfolio, we are seeing a short -- I believe a short term, 8% -- roughly 8% to 10% reduction in terms of residual values going through the auction.

I do believe it is relatively temporary.

We will see what happens in terms of potential stimulus around the world because that can, as you know, distort the traditional volume of new to used.

But I think at this moment in time, I tend to view that as relatively temporary.

Whether it lasts for the balance of this year or into next year, I don't know.

What I do think is that some of that buying behavior over the last -- before also applies to used vehicles.

But I think it very much depends on various stimulus packages and what they look like.

We will take our next question from Adam Jonas from Morgan Stanley.

And first, I want to offer my thoughts on the impact on FCA.

I know you've lost several souls, and I wanted to share thoughts there.

I'm sorry.

It could -- with the opportunity of this call, Mike, Richard, any message you wanted to convey to regulators, particularly in the United States, but also in Europe, perhaps, on what the industry might need short term, not limited to Cash for Clunkers, but things of that nature.

Any thoughts on what we might need -- what the consumer might need into the summer as we start to thaw on the restrictions.

And then maybe, more importantly, a bit longer term, there are, of course, historic precedents for times when governments can work with important and strategically important industries like the autos to make -- to accelerate innovation and make the industry more sustainable and foster economic growth.

Is this, in your opinion, one of those times where, whether it's an infrastructure bill or helping to work and develop EV enabling technologies and the sort, to kind of have that public-private moment to take the industry to a level where it can really create some lasting value?

Thank you, Adam.

This is Mike.

And I personally and from my colleagues appreciate your comment.

Unfortunately, across our group, we have lost 22 colleagues to this point.

And their families are in our thoughts and will be in our thoughts for many, many years to come.

And we hope that despite the tragedy of the situation, that they can recover to a better future.

And to your specific question, I think they have got to be -- I think there has to be 2 things that the regulators are looking at, Adam.

Firstly, I do believe medium-term stimulus, as people talk about infrastructure, infrastructure investment, I think that is a -- I would probably classify that as a slow burn, but is always one that benefits many different industries.

But when you've got high valuable durable goods that rely on a pipeline of inventory already built, I also believe you do need a short-term stimulus to get that kickstarted.

And to some extent, it's different by region because here, as I already mentioned, our inventory on trucks, for example, has continued to be sold down.

But if I look back to the 2008 and 2009 scenario where you saw similar increases -- completely different of course and we are nowhere near where that was, but you did see similar increases in terms of theoretical days to supply.

The so-called Cash for Clunkers scheme actually did have a strong impact here in the United States in terms of kickstarting.

European schemes were quite mixed, to be perfectly honest.

In Germany, for example, it seemed to work well.

In the U.K. it didn't seem to work well.

But I do think there's an opportunity to combine a scheme that recognizes we're heading towards quite a big regulatory change at the end of this year, where, at this moment in time, Euro 6D final kicks in.

And you've also seen different speeds of sales in different countries in Europe.

And we need to make sure, from a union perspective, that in some ways we level that playing field because all manufacturers will need to transition into that new regulation.

And I think some careful thought about what type of stimulus would help that happen is very important.

You saw, for example, in Germany, the magnitude of drop in industry in Germany was nowhere near the magnitude of drop in Italy.

And as you know, there is home country bias in terms of car purchasing.

So I think the regulators really need to do something to recognize what's happened and make sure that we get back to a level-playing field and enable people to make a transition to Euro 6D in a controlled way without destroying prices.

And that's something that I think we should discuss and something that I think is in everybody's interest.

Hopefully, that answered your question.

We will take our next question from Patrick Hummel from UBS.

My first question is about your near-term expectations for free cash flow.

We've heard from your competitor, Ford, last week that they sort of expect the worst in terms of the cash burn to be already behind at this point as payables have been paid down.

How should we think about your cash in the next few weeks as production is reramping?

Can you just share some thoughts for the second quarter specifically?

My second question relates to CO2 compliance and the delays you were talking about for new product launches -- that average 3 months delay you talked about.

Does it mean that you're expecting higher CO2 compliance costs in Europe as a result of that?

Or will that be offset by a lower overall European market so that the absolute number of EVs you need to sell will be lower and therefore maybe getting easier for you or cheaper to comply?

And very lastly, a question for Richard, please.

If you can remind us about the risk-sharing agreement that's in place with Santander Consumer.

I remember that there are some provisions that at certain residual value trigger points, FCA would have to bear part of the burden.

Can you just remind us of those agreements and what's the financial risk for FCA in there?

Thank you, Patrick.

This is Mike.

I'll take the middle question, and I'll leave the other 2 to Richard.

When I think about our compliance, I would tell you, in Europe, we're -- on the passenger car side, we're absolutely on track.

I, at this moment in time, foresee no issue this year on passenger cars because we delayed projects that did not include those vehicles that contribute heavily towards our compliance strategy.

So for example, the 500 BEV, the Compass plug-in hybrid, Renegade plug-in hybrid, a number of the Maserati electrified vehicles continued to be developed and are largely, maybe with a week's slippage here and there, but largely on track to what we thought.

So I think on passenger cars, we are on track.

Where we've got a lot of work to do, frankly, is on the commercial vehicles in Europe.

We have seen some impact and delay on our Ducato battery electric vehicle.

So we've been able to move a number of resources on to that.

That's the area where we've got a lot of focus at this moment in time.

I -- we'll see what happens, but certainly on the passenger car side, no incremental costs that I can see that were not planned.

And Richard, do you want to take the other 2?

Yes.

Thanks, Mike.

So obviously, Patrick, the second quarter will depend on how we start up demand, and particularly via the plants in the key markets.

I think we have a good plan for that, as Mike explained in the deck.

And so we expect to be shipping cars back end of May and June.

And that will allow us to start to obviously mitigate the working capital impacts that we will continue to have through the first -- well, through the quarter, basically, with our payment days sort of on average about 60 days.

We had a EUR 3.5 billion negative in Q1.

I would expect that number to be larger in Q2 as we basically run down the payables, about 75% of our payables.

The rest of our payables actually include a lot of accruals and longer-dated payables for CapEx, which probably will go further out through the end of the year.

And obviously, we have offsets.

So we have collections from receivables, mobile revenues, revenues from property stock, particularly in the U.S. So we're managing all those components very closely.

And based on the restart plan that we've explained, we expect to finish Q2 with a good level of liquidity, but the cash flow, because of the first 2 months, will be worse than Q1, likely.

But obviously, it all depends on how things develop through the quarter.

Thank you.

And on Santander Consumer?

Yes.

Sorry, Santander Consumer, we have a risk sharing, as you said.

And Santander takes -- as far as I remember, they take the first 8%.

Then we share...

Yes, Santander take the first 8%, Richard.

Then we share the next 4% and we take it over 12%.

So at this moment in time in terms of what we're seeing in the auctions -- and I do think prices will come back, not necessarily today or tomorrow, but they will certainly come back.

But what we see at this moment in time, under our risk-sharing agreement, anything is relatively contained.

And as you know, we've already embedded some, not a large, but some provision in terms of our view of -- in our view of this quarter.

We will take our next question from Martino De Ambroggi from Equita.

Back to your presentation in June '18, when you presented a slide with the industry downturn down 30% across the board.

Unfortunately, this seems to be the case this year.

And I was wondering if you could update this sensitivity because I suppose that the decline is so sudden but you are probably not the same -- we are not proceeding at the same speed as the decline in the market to get to the same sensitivity you had in projected -- you have projected in '18, assuming 30% decline for the market.

Yes, this is Mike.

Richard, I'll go first and you moderate.

As I mentioned, we have run numerous scenarios, not just to check our liquidity, but also to continuing the work that we had started in prior years in terms of driving down our breakeven.

With Capital Markets Day, I think we presented at that time a breakeven of [Joe Tamerlane] U.S. SAAR, I think it was, the NAFTA SAAR of 12 million.

What I can say is that based upon the work that we have done, we believe our breakeven is actually marginally below that.

And if you look at all of the projections that we have seen, including our internal projection for this year, the industry, even with a 30% drop, it's not going to get anywhere close to that breakeven, which is why I mentioned before the cash stress test that we have done at 50% reductions of industry.

So hopefully, that answers the question, Martino.

Yes.

And on the cash flow, I suppose the reduction of EUR 1 billion in CapEx could be for probably the first step, but can be reduced further in case of need.

And still on the free cash flow, you commented net working capital.

I was wondering if among providers and dealers there is some action you need to -- someone that need to be supported, and this could further worsen your free cash flow.

Well, I'll take the CapEx question and, Richard, you can take the second.

Clearly, we can go much deeper than the EUR 1 billion.

We can go significantly deeper than that.

Obviously, what we have identified is the various triggers that we may need to pull, depending on what we see developing from here, so that we can, as I said before, manage our organization through this whole period.

So we understand what levers to pull.

With everything that we are seeing in terms of our plant restart, the demand from dealers, for example, here in North America, the way the market is holding up, the way the mix favors us at this moment in time, I'm comfortable with the EUR 1 billion, but we have obviously identified significantly deeper cuts in CapEx based upon priority and future impact on the company.

At this moment in time, I don't see any need at all to pull those levers, but at least we know which levers to pull.

Richard, do you want to answer the second one?

Sorry, Martino.

Could you just repeat the second one?

Because I didn't understand it.

Basically just to know if among providers and dealers you see problems that could affect both the production activity for dealers for shortage of components and the net working capital, if you needed to support some of them?

Well, I think, obviously, we're working very closely with all our supply base and with our dealers.

I think clearly, the industry is under a lot of stress.

And I think if the situation extends further than people expect, then, clearly, there will need to be interventions to support the industry as a system, I would expect, because the level of liquidity that people were holding was much better than maybe in past such crises.

But clearly, there is a point at which there will need to be some level of intervention.

So I think we are clearly working with all of our partners to ensure that we have the right actions in place to be able to start up our plants and effectively sell our vehicles through the dealer network.

And so far, the system is reacting very well.

But obviously, there's a lot of stress in the system.

So there are risks.

I would concede that.

We will take our next question from Monica Bosio from Banca Intesa.

Yes.

The first one is on the exit from the crisis.

How do you see the exit from the crisis in term of potential recovery in volumes after the peak?

And maybe it could be useful for us some flavor on the NAFTA market, the capacity of reaction in term of volumes recovery.

And how do you see the pricing scenario in NAFTA?

Just wondering, the second part of 2019 NAFTA area had high single, up to 10% profitability.

Can you give us some flavor for the second quarter this year?

Thank you, Monica.

This is Mike Manley.

Obviously, the only example that we are seeing today is the recovery of China.

And I think the China market came back relatively quicker than people had expected.

I saw a number of comments from players that are much bigger than us in China, who were very pleased with the speed that it came back.

I think you'll probably see different speed now in the U.S., Europe and in LATAM.

And part of that will be how deep the drop is.

And I think it will be -- and it clearly has been deeper in different markets.

So far, the drop in the U.S. has not been as deep as people expected.

I think what you will see is intervention in the U.S. not aimed specifically at our industry, but I think you will see intervention in the U.S. in terms of getting the economy restarted again because as U.S. entered this crisis, obviously, the underlying economy was very, very strong.

And I'm sure the administration is looking to get it back to that level.

I think in Europe, it may well be different speeds depending on the market.

If you take Italy, for example, I think Italy was hit very, very hard, and now, as we know, progressively reopening.

I think the recovery of the Italian market, again, I believe will surprise us.

But what we're planning on is not planning to build our inventory.

So we're truly having the discipline to build to demand because we really do not want to stuff our channels there.

And then, finally, in Latin America, which is the hardest one for me to call because Argentina, obviously, was in a very different condition to Brazil entering into this.

And this obviously is just bloating on top of that.

But I think a more rapid recovery in Brazil obviously than Argentina, and the rest of LATAM probably mirroring Brazil to certain extent, but not quite so fast.

Very difficult to put numbers on it.

People talk about the V-shape, U-shape, the canoe shape.

I think at the end of the day, that's why we've run so many different scenarios just to understand what it could look like and what advantages we could take depending on how we see different markets reacting in different times.

In terms of pricing in the marketplace here, I think, in January, February, we saw increase in incentives in the truck market moderated somewhat in March, I think come back a little bit in April.

And some of that's driven, frankly, by some of the incentive schemes that are really important to consumers today, longer finance terms, deferral of the payments, et cetera.

And I think that will be with us for a while.

But I do think that the truck market, in particular, as the U.S. comes back, will be one of those markets, depending on what happens, whether it's an infrastructure stimulus, regardless of the type of stimulus it will come back probably quicker.

And I think you will see some mitigation in terms of incentives.

We're still continuing to see, by the way, our average transaction price increasing.

Heavy-duty in particular has increased in Q1 significantly.

And -- but even our Ram light-duty business, we've seen an increase in our net transaction price.

But it's been in light-duty, I've seen more pricing pressure.

But as I said, I think it will mitigate.

We will take our next question from Charles Coldicott from Redburn.

I have 2, please.

Firstly, I was wondering if you could comment on the impact you expect from a lower oil price.

Do you think that encourages consumers in the U.S. to trade up to bigger vehicles?

Or might it sort of adversely impact certain channels for truck demand?

And then, secondly, Maserati, can you update on the revival plans there?

Are inventories now at a level that you'd like them to be?

Do you think it's possible to be breakeven this year?

I know you're still planning the Investor Day in May, Maserati.

Charles, let me start with Maserati.

We're going to move the investment day for Maserati to make sure that everybody can travel and be there.

I think it's a very, very fundamental day to really show people the plans of Maserati, what's happened with the brand, the overall that has been through our product plan and everything else.

So that day is going to be moved for sure, and we'll give people plenty of notice so they can be there.

In terms of the product plans, we did not delay any of the Maserati product plans.

We went through a lot of pain with Maserati last year.

First quarter was obviously very tough because the key markets for Maserati were affected as well as the segments, but we kept our product plans on queue.

The brand development work the leadership team completed and is now in the process of really changing as much of the touch and feel, so our customers feel it, is well underway.

I think the leadership team that's in place are incredibly focused, and I have a huge amount of confidence in them.

It's going to be a bumpy year for Maserati, quite frankly, because if you're trying to compare Maserati's performance to a Porsche or to a high-level Mercedes, you're not going to do it because Maserati, unfortunately, does not have the strength or the reach of the dealer network that those guys have.

So unfortunately, they get hit harder and don't recover quite as quickly because they don't have that muscle.

And in reasonable times, that's not a problem because, obviously, we don't want to sell and not expecting to sell as many cars as Porsche, for example, because we want our price points and our margins to be very well protected.

But it means you're going to see Maserati's performance bumpy this year, but the key focus for us is not to unwind the pain we went through getting their inventory in line with last year.

And that's a big focus for Davide and his team, and we watch it very, very closely.

But I think a bumpy year in store for Maserati.

You're going to see in the Maserati Day, where the plans are and what it means, and you will see, I think, Maserati's performance back end of third quarter, fourth quarter getting much better.

But I think it will be a bit bumpy this quarter.

What was the other question, I'm sorry?

Yes.

So it was the impact of the lower oil price in NAFTA.

Well, I mean the problem that I have in terms of saying that it's helped in segment shifts is it certainly did when we saw oil prices move, not just on the low side, but on the high side, historically.

But I think what we've seen in terms of a move towards trucks and larger vehicles we've traditionally thought would probably survive, frankly, the cost of gas was historically low anyway.

I never thought we would see the levels that it is down now, but it's too -- it's very difficult for me to say I've seen a segment shift because it is true under these circumstances those type of vehicles are the ones that are much more resilient to a downturn because it's less discretionary.

Many of these vehicles are used, obviously, for work.

And when you really have to change it and you have work then, unfortunately, you have to change it, which is why we've put a lot of effort, not us, our competitors as well, in terms of trying to structure incentives that enable that purchase to take into account the fact that revenue from work may be down a little bit, you still need it to earn.

There are no further questions.

I would now like to hand back to Mike Manley for any additional or closing remarks.

Yes.

Thank you.

Firstly, again, I hope that all of you, your families and everyone is safe, and I'd like to thank you for being on the call with us today.

Obviously, as we have said, these are unprecedented times.

I think we have learned a huge amount already.

And much of what we're learning will shape our business into the future.

And I strongly believe that the actions we have taken are not just the right actions in terms of our cost and liquidity in the short and long term, but will have a residual effect in our business.

And when I say I want to emerge from this stronger than when we came into it, to some extent, you can think that's maybe a flippant remark.

But I think if you don't try and learn from these types of situations, because you're forced into experimentation to a large extent, I mean frankly, if you'd have asked me in January, "Mike, what do you think of remote working?" As a more traditional person, I would have said, "I don't really think about it." I want to see, touch and be around people.

But I have to tell you, I have been very pleasantly shocked and surprised at just how well our employees around the world have embraced the remote working need that we've had to impose, how productive they have been, how they have worked together in terms of their motivation, how they get involved in our communities.

And when you're in a period like we are that is, frankly, a horrible period for everybody, you have to look for those moments that say, there are a lot of good things that will come out of this.

And we've just got to make sure we collectively, not just FCA, but our suppliers, our dealers and our competitors, come out of this in a good position.

So thank you for your attention today.

Look forward to talking to you again at the end of this quarter.

Thank you.

That will conclude today's conference call.

Thank you for your participation.

Ladies and gentlemen, you may now disconnect.