GOLDING’S TAKE: Fiat spares no quarter and holds the forecasts
Sergio Marchionne, the chairman of Fiat, is the best presenter in the motor industry. He is dramatic, he is articulate, he can improvise. He is very quick on his feet. He is a comedian, can turn a great phrase and can rustle up the perfect quotation for most occasions. In a foreign language.
For example: Fiat has to be a good business. Its 14 quarters of consecutive growth did not arise simply because of good management. "When a bad business and good management meet, the lousy business always wins." It's a Warren Buffett wisdom pearl and is possibly slightly misquoted by him and misreported by me.
Marchionne can escape the drop even when he is in a corner and surrounded by a couple of dozen of Europe's baying analysts. Three of them in Europe are probably really good, but the most inventive is Adam Jonas of Morgan Stanley.
When Fiat reported its first half financial results yesterday (Wed) there was some surprise that the Italian company had done so well: best quarter for 109 years, revenue up 12%, margin up to 6.7%, trading up 20%, volume up 50% from the trough. But even more surprising was that the very sudden downturn in demand in Europe had not provoked a cautious retreat from forecasts by Marchionne.
Jonas had been quoted in the FT the previous day saying that the motor industry was very good at losing money. It just wasn't very good at going bankrupt. Marchionne had seized on that as a point for discussion in the question and banter session after the results presentation. When people look for a likely bankruptcy in the global village of the motor industry, they still turn to Fiat despite its prosperity in these recent years of plenty and its extraordinarily dependable improvement quarter on quarter. Ford, GM and Chrysler have the capacity to predecease Fiat given a real tortoise of a slowdown this year and next.
Marchionne is adamant that if there had been no raw material price hikes he would have made all the cost savings that he had promised back in 2006. But he is now heavily dependent on getting price gains in the market for his product to maintain the forecasts. And he was indecently unsubtle in his presentation with the thought that some price hikes were already visible and that all car makers should give it a shot. Not collusion, he reflected sheepishly. Just independent thoughts. As if. Carmakers only know how to discount their way through difficult times.
But when Jonas asked him online if he did not feel like pulling back the forecasts of profit growth in order to let the boys loose in engineering to accelerate design and production of the next generation of green products, he said no. "We have to balance the commitment to the future with the commitment to deliver what we promise." The reference was to his unbroken quarters of earnings growth and to his forecast of further earnings growth this year and next.
"Is there any scenario under which you might not make the numbers?" was the next question.
"If demand went down 30% it would be dreadful. We would have to take capacity out."
Last word to Warren Buffett. What you got Warren? "Chains of habit are too light to be felt until they are too heavy to be broken."