Industry and Firm Analysis
Bennett, J. (2016). Fiat Chrysler to Build Parts Distribution Center in Virginia. Wall Street Journal. Retrieved 25 May 2016 from: http://www.wsj.com/articles/fiat-chrysler-to-build-parts-distribution-center-in-virginia-1463662804
Fiat Chrysler Automobiles NV is investing $12.2 million to build a new distribution center in Virginia amid growing demand for parts used by its dealerships to both repair and customize its vehicles.
The 400,000-square-foot Mopar distribution center, located in Winchester, will employ about 70 people and ship more than 9.2 million parts and other items annually. This will be the 22nd center Fiat Chrysler has in operation in North America. It will primarily supply more than 200 dealers in the mid-Atlantic region after it opens sometime in the fourth quarter.
Mopar is the hidden gem of the Fiat Chrysler operation. Currently, the unit distributes more than 500,000 different parts and accessories to more than 150 markets around the world. That number is only expected to continue to grow since the automaker typically introduces dozens of customization parts with every new vehicle it launches.
Those parts range from a $350 Jeep-branded full vehicle cover and a $225 front grille for the Dodge Charger to a $155 bicycle carrier for the Pacifica minivan and a $347 bed liner for the Ram pickup truck. The unit also supplies wallets, golf shirts and key cases. Fiat Chrysler executives have said that almost every Jeep and pickup truck it sells in the U.S. is customized in some way by customers.
Customization has grown across the industry as low leasing rates have given customers the ability to not only purchase bigger cars but also buy a few extras they may have skipped in the past.
Automakers and retailers have also become more savvy by offering higher quality parts and graphics packages to entice shoppers.
A Fiat Chrysler spokesman declined to provide financial details since the auto maker does not report the unit’s revenues separately.
Justification: This particular article is relevant as it talks about an investment strategy by Fiat Chrysler to invest a new center of distribution in Virginia. This proclamation is expected to have a positive impact on the shares of the company as is perceived, the shares of the company rose from 6.82 to 7.04.
Article 2: Sylvers, E. (2016). Fiat Chrysler Finds New Boss for Alfa Romeo, Maserati. The Wall Street Journal. Retrieved 26 May 2016: http://www.wsj.com/articles/fiat-chrysler-finds-new-boss-for-alfa-romeo-maserati-1464088964
MILAN — Fiat Chrysler Automobiles NV replaced Harald Wester as head of struggling Alfa Romeo and Maserati, the latest sign of the Italian-U.S. automaker’s efforts to shake up operations at its two premium car brands.
Reid Bigland, head of Fiat Chrysler’s sales in the U.S. and the chief of its Canadian operation, was named chief executive of Alfa Romeo and Maserati. Both businesses have suffered recent performance setbacks, including delays in product launches and disappointing financial results.
Mr. Wester, 58 years old, will remain a member of Fiat Chrysler’s executive council and keeps his position as Fiat Chrysler’s chief technology officer. But losing authority over two of the group’s brands likely marks the end of his ascendancy, say analysts.
Fiat Chrysler declined to make either executive available to comment.
Alfa Romeo has struggled in recent years and Fiat Chrysler’s much touted relaunch of the brand a year ago has stalled. The brand has failed to make significant inroads against stiff competition from BMW AG, Audi AG and others. In June 2015, Fiat Chrysler presented the Giulia sedan, the first product to come from what was supposed to be a €5 billion ($6.8 billion), five-year plan presented a year earlier.
Fiat Chrysler has since rolled back investment originally intended for Alfa Romeo so it could be directed to expanding other brands in the group’s portfolio. The company has pulled back from ambitious Alfa Romeo sales targets in China and a much-touted return to the U.S. market, originally intended for 2012 after a 20-year absence, has failed to take shape.
Maserati also has been unable to meet the ambitious forecasts set by Fiat Chrysler CEO, Sergio Marchionne. The brand’s expansion is pinned to the release of the Levante crossover, the luxury brand’s first dip into the rapidly expanding segment. Maserati sales declined 13% last year, as operating profit collapsed by almost two-thirds.
The Levante hits European showrooms this month and will be available in the rest of the world by year-end. The launch is a year behind schedule and comes a decade after the presentation of the crossover as a concept car.
Justification: In particular, this article is very pertinent as it indicates company news by Fiat, which is one of the companies in consideration. The news announcement of the company finding a new boss for the two brands is a positive move for the company in trying to improve and enhance its performance. For this reason, I would expect that it would positively affect the stock prices of the company and therefore causing them to rise. The share prices of the company were indeed affected in this manner as they rose from $6.68 to $6.93.
Article 3: Bennett, J. (2016). Google, Fiat Chrysler Begin Work on Self-Driving Minivans. The Wall Street Journal. Retrieved 26 May 2016 from: http://www.wsj.com/articles/google-fiat-chrysler-begin-work-on-self-driving-minivans-1464200180
Justification: In particular, this article is very pertinent as it indicates company news by Fiat. The news announcement of the company starting to work in partnership with Google is a positive move for the company in trying to improve and enhance its performance. For this reason, I would expect that it would positively affect the stock prices of the company and therefore causing them to rise. The share prices of the company were indeed affected in this manner as they rose from $6.68 to $6.93.
Article 4: Spector, M. (2016). GM Prepares Consumer Compensation for Misstated Fuel Economy. The Wall Street Journal. Retrieved 26 May 2016 from:http://www.wsj.com/articles/gm-prepares-consumer-compensation-for-misstated-fuel-economy-1463612386
General Motors Co. is in the final stages of preparing a program to compensate more than 130,000 owners of large crossover vehicles with misstated fuel-economy labels, said a person familiar with the matter.
GM plans to offer the owners cash in some form, the person said, adding that the compensation program could be rolled out to customers and dealers as early as next week. Additional details of the program remained unclear, but other auto makers such as Volkswagen AG in the past have given customers cash gift cards to address fuel-economy or emissions lapses.
GM halted sales of some 60,000 2016 Chevrolet Traverse, GMC Acadia and Buick Enclave vehicles last week after it discovered labels overstated mileage by 1 to 2 miles a gallon. The Detroit automaker said it alerted the Environmental Protection Agency promptly and that the inaccurate labels were the result of an “inadvertent error.” GM has rushed corrected labels to dealerships and expects the problem to be resolved within days, a company spokesman said.
More than 130,000 customers have purchased the affected vehicles, the person familiar with the matter said. The compensation is likely to address fuel-savings customers would have expected based on the overstated mileage figures, the person said.
GM in a statement Wednesday said the mistake stemmed from failing to shepherd data from new emissions tests the automaker was required to conduct when it calculated fuel economy for the 2016 models. GM had to conduct new emissions tests because of new hardware installed on the 2016 models, the company said.
GM engineers discovered the error while working on 2017 model-year labels, the company said. GM continues to work with regulators on the issue, it said,
“New emissions-related hardware in the 2016 Chevrolet Traverse, GMC Acadia and Buick Enclave required new emissions testing for these vehicles,” GM said in a statement. “The fuel economy data from these tests were not captured in calculations made for EPA fuel economy labels for the 2016 model year Traverse, Acadia and Enclave (causing 2016 model year fuel economy numbers to be overstated). This error does not impact prior model year vehicles.”
EPA representatives had no immediate comment.
Automotive News earlier reported on GM’s compensation plans.
Separately, a Florida man on Tuesday filed a purported class-action lawsuit against GM in a Michigan federal court accusing the automaker of marketing and selling the vehicles with false fuel-economy ratings.
The suit accuses GM of concealing the incorrect fuel-economy ratings and failing to reveal that “the existence of the defect would diminish the intrinsic and resale value” of the vehicles.
A GM spokesman declined to comment on the lawsuit.
Front-wheel-drive versions of the vehicles get an estimated 15 mpg in city driving, 22 mpg on the highway and 18 mpg combined, according to GM. All-wheel-drive versions of the vehicles get an estimated 15 mpg in the city, 22 mpg highway and 17 mpg combined. The incorrect labels boosted those figures by 1 to 2 miles a gallon depending on the category.
Justification: This particular article is relevant and pertinent because it encompasses the company news about General Motors, which is one of the main competitors of Toyota Motors. Being bad news, this is expected to improve the shares of Toyota.
Article 5: Bennett, J. (2016). Lukewarm Supplier Ties Hamper Auto Makers. The Wall Street Journal. Retrieved 25 May 2016 from: http://www.wsj.com/articles/lukewarm-supplier-ties-hamper-auto-makers-1463371262
Top U.S. and Japanese auto makers are losing out on hundreds of millions of dollars in potential cost savings because of lackluster relationships with their parts suppliers, a new report claims.
Four out of the six auto makers operating manufacturing plants in North America experienced erosion in their supplier rapport over the past year, according to an annual survey of the parts makers. Nissan Motor Co., which is fighting to lift its market share, posted the biggest drop as it intensified the pressure on its parts makers to reduce their prices, the report said.
“Given their financial performance, this is the time when the auto makers should be building good relationships, but we just don’t see that happening on the level it could,” said John Henke, president of Planning Perspectives Inc., which conducts the annual Supplier Working Relations Index.
The consulting firm polled 647 salespeople from 492 top suppliers. It is the 16th year the company based in Birmingham, Mich., has polled suppliers.
“We have said time and time again, if you work with the suppliers you benefit,” Mr. Henke said. “You only have to look at General Motors Co.”
GM was the only auto maker to record a significant gain. That improvement, Mr. Henke said, resulted in suppliers contributing more than $3,000 to the profit GM realized on every vehicle manufactured and sold in North America last year. The figure is based on price concessions and other nonprice benefits, such as getting first-dibs on the latest technology offerings.
“We turned the tables on our suppliers last year and we asked them to tell us what we were doing that they didn’t like,” GM purchasing chief Steve Kiefer said. Mr. Kiefer joined GM in 2014 after working at parts maker Delphi Automotive PLC. “We have also been much more flexible not only in awarding long-term contracts that cover two generations of a vehicle but also when it comes to exclusivity agreements. With some of these newer tech suppliers, exclusivity can be a problem. But there are ways to work around it.”
Striking a relationship between auto makers and parts suppliers has always been difficult. Auto makers need cost concessions to help their bottom line. Yet they also need the latest technologies, which cost more to produce. Suppliers, meanwhile, must generate profit in order to invest back in the business. The auto industry is being tested further with the arrival of more high-tech companies that don’t want to follow traditional contracts or tie themselves to one company.
Overall, GM reported the biggest index-score increase, jumping to 250 from 224 the previous year. The move put the auto maker in fourth place overall, but it only brought the auto maker back to the level it held in 2013. The highest-possible index score is 500.
Ford Motor Co. registered a slight six-point uptick to 267, which maintained the auto maker’s third-place ranking. Toyota Motor Corp. led the pack at 332, down from 336.Honda Motor Co. finished at 323, a drop from 330.
Nissan fell 19 points to 225, putting it close to tying the 222 of last-place Fiat Chrysler Automobiles NV.
“Suppliers continue to play an important role in Nissan North America’s growth where we have achieved record sales and production,” Nissan said in a written statement. “We will use the study’s insights to work collaboratively with our supply base on continuous improvement.”
Fiat Chrysler, meanwhile, has improved many of its internal processes but those processes still lag behind those of its competitors, Mr. Henke said. On Tuesday, the auto maker shook up its quality and purchasing teams. Scott Thiele was named the auto maker’s chief purchasing officer, succeeding Scott Garberding. Mr. Garberding was promoted to head of global and North America quality. Mr. Thiele also assumed responsibility for North America purchasing from Tom Finelli, who took over the job in 2014.
The auto maker said in a written statement that it views all surveys “very seriously.” The company said it had taken action in areas suppliers have pointed to as problematic, but it is too early to see the results.
Justification: This particular article is pertinent as is discusses the auto industry news performance, where both Toyota and Fiat operate in. This negative perspective is expected to have a disparaging impact on the share price of the two companies since they will move in tandem.
Collection of Stock Prices
The table below outlines the close prices for Toyota, Fiat Chrysler and the S&P 500 between the period of 16 thMay 2016 to 26 thMay 2016.
Toyota
Fiat
S&P 500
5/24/2016
6.93
2076.06
5/23/2016
99.55
6.68
2048.04
5/20/2016
7.04
2052.32
5/19/2016
99.61
6.82
2040.04
5/18/2016
7.05
2047.63
5/17/2016
7.02
2047.21
5/16/2016
7.52
2066.66
The Final Product
The Toyota Motor Group is a global corporation focused in the manufacturing of a comprehensive variety of automobiles. The company’s headquarters are in Japan. In the 2014 fiscal year, the company sold approximately 9.1 million cars worldwide (Toyota Group, 2014), making Toyota the largest manufacturer of cars globally. In accordance to the Fortune 500 list, Toyota is ranked the 9th biggest company across the globe, following corporations such as Volkswagen, State Grid, BP and Exxon Mobil (Fortune, 2016). Being in the automotive industry, Toyota faces a great deal of competition from companies such as Volkswagen, Ford, Fiat and General Motors. When making comparisons between Toyota and these companies, the Japanese-based car manufacturer has a good position in the industry. Fiat Chrysler Automobiles (FCAU) is an Italian-American multinational corporation. In the contemporary, the company is ranked 7th biggest auto maker in the world. The group was established in 2014 when Fiat and Chrysler merged and became a new holding company. The headquarters of the group are situated in London (Flak, 2014).
The price earnings (P/E) ratio is a valuation financial ratio that gives a measure of the prevailing share price in relation to its earnings per share investment. The price-earnings ratio is a metric that is utilized in valuing a firm that measures its present share price in relation to its per-share earnings. The financial ratio is calculated using the following ratio:
Price earnings ratio = Market value per share / Earnings per share
The price earnings ratio of Toyota Motor is 8.414 while the industry price earnings ratio is 4.73. In this case, Toyota Motors has a higher price earnings ratio than Fiat Chrysler. To begin with, as a firm’s earnings per share starts to increase, so does their market share value per share. With Toyota Motors having a higher price earnings ratio compared to Fiat Chrysler, this is indicative of a positive future performance and investors are ready and enthusiastic to pay more for the firm’s shares. On the other hand, with Fiat Chrysler having a lower price earnings ratio, this is indicative that the company has had a relatively poor performance. Therefore, in general, with Toyota having a higher price earnings ratio, it implies that the investors expect higher performance and growth in the forthcoming periods (Weygandt et al., 2008).
Several factors can affect the stock prices of a firm causing them to rise or fall. One of these factors encompasses company news and performance. For instance, in this case, the company news made by Fiat Chrysler had an influence on the stocks of the firm. For starters, the company announced it would build a parts distribution center in Virginia (Bennett, 2016). This proclamation is expected to have a positive impact on the shares of the company as is perceived, the shares of the company rose from 6.82 to 7.04. This is because it indicates positive growth of the company in the forthcoming period and therefore cause a rise in the shares of the company. The same case applies to the news by Fiat Chrysler in finding a new boss for Alfa Romeo and Maserati. In particular, the premium car brands have been struggling and this was a move made by the firm to shake up its operations (Sylvers, 2016). For this reason, I would expect that it would positively affect the stock prices of the company and therefore causing them to rise. The share prices of the company were indeed affected in this manner as they rose from $6.68 to $6.93.
Another factor that has an impact on the shares of a company is industry performance. More often than not, the stock price of the firms operating in the same industry will shift in tandem with each other. This is for the reason that market conditions, in general, have an impact on the companies in the same industry in a similar manner. However, sometimes, the stock price of a firm will benefit and gain from a set of bad and disparaging news for its competitors if the firms are competing for the same market. This in particular can be perceived in the company news and performances of General Motors, which is one of the main competitors of Toyota Motors. As pointed out in the article by Spector (2016), General Motors has faced negative perspectives owing to the fact that the company has had to come up with a program with the main intention of compensating over 130,000 owners of big crossover vehicles with misstated fuel-economy labels.
References
Flak, A. (2014). Fiat Chrysler to spin off Ferrari, issue $2.5 billion convertible bond. Reuters. Retrieved 26 May 2016 from: http://www.reuters.com/article/us-fiatchrysler-ferrari-divestiture-idUSKBN0II1DB20141029
Weygandt, J. J., Kimmel, P. D., & Kieso, D. E. (2008). Financial Accounting, (6th Ed.). Hoboken, NJ: Wiley.
Bennett, J. (2016). Fiat Chrysler to Build Parts Distribution Center in Virginia. Wall Street Journal. Retrieved 25 May 2016 from: http://www.wsj.com/articles/fiat-chrysler-to-build-parts-distribution-center-in-virginia-1463662804
Sylvers, E. (2016). Fiat Chrysler Finds New Boss for Alfa Romeo, Maserati. The Wall Street Journal. Retrieved 26 May 2016: http://www.wsj.com/articles/fiat-chrysler-finds-new-boss-for-alfa-romeo-maserati-1464088964
Spector, M. (2016). GM Prepares Consumer Compensation for Misstated Fuel Economy. The Wall Street Journal. Retrieved 26 May 2016 from: http://www.wsj.com/articles/gm-prepares-consumer-compensation-for-misstated-fuel-economy-1463612386
Bennett, J. (2016). Google, Fiat Chrysler Begin Work on Self-Driving Minivans. The Wall Street Journal. Retrieved 26 May 2016 from: http://www.wsj.com/articles/google-fiat-chrysler-begin-work-on-self-driving-minivans-1464200180
Toyota. 2014. Annual Report. Retrieved 25 May 2016 from: http://www.toyota-global.com/pages/contents/investors/ir_library/annual/pdf/2014/ar14_e.pdf
Fortune. 2016. Global 500. Retrieved 25 May 2016 from: http://fortune.com/global500/
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