Good News, Bad News as Fiat Chrysler, Ford Report 2016 Earnings

by Paul A. Eisenstein

There was a mix of good news and bad coming from Detroit Thursday morning as two of the three Motor City automakers closed their books on 2016.
On the upside, earnings jumped to 1.81 billion euros, or $1.92 billion, for Fiat Chrysler Automobiles, which is officially registered in Amsterdam but operates one of its primary headquarters in the Detroit suburb of Auburn Hills. On the downside, Ford reported a net income of $4.6 billion, a 38 percent year-over-year decline.

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But even Ford turned out to do slightly better than expected. The decline in net income largely resulted from accounting changes regarding pensions. The nation's second-largest automaker actually saw adjusted, pre-tax earnings hit $10.4 billion for 2016. That was $200 million higher than expected, and marked the maker's second-best number since 2000.
Ford had previously signaled the revisions to its pension and retirement plans would hit its pre-tax numbers to the tune of around $3 billion. Nonetheless, CEO Mark Fields called the carmaker's overall performance, "solid," declaring in a statement that, after factoring in the one-time hit, Ford built on the all-time record earnings reported in 2016.

America Loves Its Big Vehicles

Both automakers benefited from the ongoing surge in demand for higher-profit SUVs, crossovers and pickups, though they struggled on the passenger car side of the ledger. Ford in 2016 announced it would move all small car production to Mexico, a plan it says it is going ahead with despite threats of a border tariff by President Donald Trump.
FCA, meanwhile, closed two sedan plants in the Midwest, both now being converted to production of light truck models, such as the Ram 1500 pickup. Slow sales of sedans and other passenger cars resulted in a slight decline in overall North American sales and revenues for Fiat Chrysler, though it offset those declines because of the typically higher profit margins on truck models like the Ram 1500 and Jeep Grand Cherokee.
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Globally, FCA also benefited from improving sales in the long-struggling European market and saw global sales of its high-line Maserati brand rebound, in large part due to the introduction of the marque's first sport-utility vehicle, the Levante.
Both automakers also fared well in China, despite being latecomers to the world's largest automotive market. Ford has rapidly been adding both plants and new products, including the launch of its high-line Lincoln brand. FCA is just beginning to gain momentum with the launch of Chinese production of its Jeep brand.

What 2017 Holds

How Ford and FCA will fare in 2017 is far from certain, according to industry analysts. The U.S. automotive market is expected to slip a bit from the 17.4 million new vehicles sold in 2016 — the industry's third consecutive record.
The question is how much the numbers will decline. Forecasters have estimated a dip of about 200,000 to 400,000 units for the year. But the final numbers will likely be influenced by what the Trump administration does with the economy as well as its trade strategy. The new president has threatened to enact a major tariff, possibly as much as 35 percent, on Mexican-made autos and possibly those built in other parts of the world.
The CEOs of all three Detroit makers met with Trump on Tuesday, the discussion reportedly focusing not only on trade but also the desire by the auto industry for both regulatory relief and cuts in corporate taxes.