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What Factors Drove Fiat Chrysler’s Margins in 4Q16?

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Fiat Chrysler’s profitability

Previously, we looked at Fiat Chrysler Automobiles’ (FCAU) 4Q16 revenues from various regions. In most of its key markets, except North America and Asia-Pacific, its revenues rose. Now let’s take a look at FCAU’s 4Q16 margins and profitability.

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Margins expanded

Fiat Chrysler has a bad reputation for having low profit margins. Compared to its peers (FXD), which include General Motors (GM), Ford (F), and Volkswagen (VLKAY), FCAU’s margins are the lowest.

FCAU reported a significant expansion in its 4Q16 margins. Its adjusted EBIT (earnings before interest and tax) was 1.5 billion euros, or $1.6 billion, with a year-over-year flat EBIT margin of 5.2%.

In 4Q16, Fiat Chrysler’s net profit came in at 409.0 million euros, or $437.0 million, with a net profit margin of 1.4%. That was much better than its net profit margin of 0.70% in 4Q15. It reported a net profit of 196.0 million euros, or $209.0 million, in 4Q15.

Factors that boosted margins

A favorable product mix was the primary factor behind FCAU’s margin expansion in 4Q16. The company’s Jeep and Ram brands delivered solid performances in its key markets, including North America, Europe, and Asia-Pacific. That’s because the margins from medium-sized vehicles such as Jeep and Ram tend to be higher than small-sized cars.

Recent US auto sales data suggest that the demand for utility vehicles and trucks has grown in the last couple of years. The demand for small cars in the United States continued to fall in 2016. 

The company also cited strong operating performance as a reason for improved margins. Maserati, Fiat Chrysler’s luxury car brand, also played a key role in improving the company’s margins.

In the next part of this series, we’ll take a look at Maserati’s 4Q16 performance.

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