FCA Presentation – Confessions of a Capital Junkie

In this post I have attached a presentation by the CEO of Fiat Chrysler Automobile (FCA) Sergio Marchionne. Mr. Marchionne is a unique personality in the CEO world because he’s not afraid to speak his mind and tells it like it is. Basically there’s no double speak with him (he would be a terrible politician but great for investors). GM recently rebuff his merger push.

Confessions of a Capital Junkie -An insider perspective on the cure for the industry’s value-destroying addiction to capital

To summarize the presentation, Marchionne states automakers are wasting billions in product development. Too much cost duplication, R&D on the rise, regulations expenses up…etc.

The long version: He argues that the auto business has not generated its return on capital over its last cycle and that without significant structural changes, it will continue to under perform. He then diagnoses the reason for the under performance as over investment in R&D and capital costs, with companies duplicating each other’s efforts. He concludes with the remedy of consolidation, where with mergers and joint ventures, companies could co-operate and reduce their capital costs, and asks analysts and investors in auto companies to apply pressure for change.

That’s very unusual to have a CEO to ask for analysts and activists for help.

Below is my favorite slide which breaks down product development cost. The most expensive is upper-body exterior with 38% of cost and the less expensive are brakes and steering with 1% of cost. Interior and assembly/paint is where most of the rest of the money goes.

Breaking down car manufacturing cost


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