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Fiat Chrysler’s Latin American Operation Faces Challenges

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NAFTA operations

Previously, we saw that 58% of Fiat Chrysler Automobiles N.V.’s (FCAU) shipments were in NAFTA (North American Free Trade Agreement). In this part of the series, we’ll take a look at the profitability of Fiat Chrysler’s various operations. As we saw, Fiat Chrysler is the market leader in Latin America, holding a 14.5% market share.

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Fiat Chrysler’s Latin American operations post losses

The above chart shows adjusted EBIT (earnings before interest and taxes) for Fiat Chrysler’s mass-market operations based on 1Q15 earnings. As you can see, its Latin American operation posted a loss in 1Q15.

Other automobile companies operating in Latin America have also faced challenges as economic growth in the region, especially Brazil, has slowed down. Ford’s South American operations posted a pre-tax loss of $189 million in 1Q15.

Ford’s South American operations were also hit by the depreciation of the Brazilian real against the US dollar. However, a stronger US dollar (UUP) works to Fiat Chrysler’s advantage. We’ll look at this in detail in the coming parts of the series.

Automakers like Toyota Motor Company (TM) and Honda Motor Company (HMC) also benefit from the stronger US dollar.

European operations

Fiat Chrysler’s EMEA (Europe, Middle East, and Africa) operations posted an adjusted EBIT of 25 million euros, or approximately $27.25 million, in 1Q15. This translates to a dismal 0.5% margin. Ford’s European operations have posted losses for several quarters now. While US auto sales have reached pre-crisis highs, car sales in Europe are still below those levels.

There’s also a massive production overcapacity in Europe, which is driving higher discounts by automakers. This has hurt the profitability of companies operating in Europe.

How are Fiat Chrysler’s other business segments performing? We’ll take a look at them in the next part of this series.

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