Fiat to separate parts unit as no merger deal on table

Fiat Chrysler, lacking a potential deal to combine with another carmaker anytime soon, will push ahead with separating from its components business, chief executive Sergio Marchionne said.

Mr Marchionne, who has actively sought a partner for Fiat Chrysler in the past, cooled speculation of a pending deal to tie up with a competitor, saying he hadn’t received any approach or offer for the Italian-American car maker. He also said that the upscale Alfa Romeo and Maserati brands aren’t ready to be independent.

That puts the near-term focus on smaller portfolio adjustments. Fiat Chrysler shares dropped on the news.

“There are some activities at the component businesses which don’t belong,” Mr Marchionne said in a weekend interview in Monza, Italy. “The group must be purified from those assets,” he said.

Mr Marchionne, 65, is preparing his final five-year business plan before he leaves Fiat Chrysler in the first half of 2019. He acknowledged that deeper changes might be coming when he said in July that the carmaker will evaluate whether to spin off some businesses. The company is pushing to eliminate €4.2bn in debt by the end of next year.

Spinning off the components operation could reduce Fiat Chrysler’s net debt by 38%, “further strengthening the company’s financial-risk profile,” according to Joel Levington, a senior credit analyst at Bloomberg Intelligence.

Mr Marchionne didn’t exclude Fiat Chrysler eventually starting talks on a tie-up before he leaves the helm.

“It is difficult to make forecasts for the next two years,” he said. “What is important is our 2018 plan, and results are coming,” he said. Fiat Chrysler shares dropped as much as 3.6%, the steepest daily decline since June 29.

The CEO has long been a vocal proponent of carmakers’ consolidation, arguing that the industry wastes money by developing multiple versions of the same technology. Those pressures have only intensified as countries such as the UK and France set deadlines to eliminate combustion engines, while self-driving technologies and ride-hailing services threaten to upend auto manufacturers’ traditional business model.

Fiat Chrysler has been considering options including separating components operations, which include Magneti Marelli, as well as its upscale Maserati and Alfa Romeo vehicle brands.

The luxury-car operations could be worth as much as €7bn, while Magneti Marelli and other parts businesses are valued at up to €5bn, analysts estimate. Alfa and Maserati are “too immature” to be separated from Fiat Chrysler, he said.

Bloomberg