Jan. 29, 2014
Executives
Marco Auriemma – Head, Fiat Group Investor Relations
Sergio Marchionne – Chief Executive
Richard Palmer – Chief Financial Officer
Analysts
Rabih Freiha – Exane
Philip Watkins – Citi
Martino De Ambroggi – Equita
George Galliers – ISI Group
Charles Winston – Redburn Partners
Alberto Villa – Intermonte
Tom Shandell – GoldenTree Asset Management
Max Warburton – Bernstein
Georges Dieng – Natixis
Alessandro Foletti – Bank am Bellevue
Stephanie Renegar – JP Morgan
Heinrich Moller – King Street Capital
Richard Hilgert – Morningstar
Stephen Reitman – Société Générale
Fiat S.p.A. (OTCPK:FIATY) Q4 2013 Results Earnings Call January 29, 2014 9:00 AM ET
Operator
Good afternoon, ladies and gentlemen. And welcome to today’s Fiat Group 2013 Fourth Quarter and Full Year Results Conference Call. For your information, today’s conference is being recorded.
At this time, I would like to turn the conference over to Marco Auriemma, Head of Fiat Group Investor Relations. Mr. Auriemma, please go ahead sir.
Marco Auriemma – Head, Fiat Group Investor Relations
Thank you, Barbra. Good afternoon and good morning to you all. And welcome to Fiat webcast and conference call. As announcement earlier this week we are conducting a combined event for the review of our Fiat Group and Chrysler Group fourth quarter and full year 2013 results. The news flow has been pretty intense today, all related press release together with a conference call chart set are available to you on the Fiat and Chrysler website.
As usual, today’s call will be hosted by the Chief Executive, Sergio Marchionne; and by Richard Palmer, the Chief Financial Officer. After introductory remarks, we will be available to answer all the questions you may have.
Before we start just on an housekeeping note, let me remind you that any forward-looking statements we might be making during today’s call are subject to the risks and uncertainties mentioned in the Safe Harbor statement on page two of each presentation material. As always, the call will be governed by this language.
Also Chrysler announced earlier today that it would now get their facilities to refinance the [note head] held by the VEBA, because this will be a private offering that is restrict limit under SEC rules on what Chrysler or Fiat can say about the proposal transaction on this call, so we will not be going into details or answering question on the offering on this call.
With that, I would like to turn the call over to Mr. Sergio Marchionne.
Sergio Marchionne – Chief Executive
Thanks very much. I am going to try and limit my comments to the first two or three pages of this deck and I’ll get Richard to do all the heavy listings to the details. But slide #3 deals with the conclusion of the saga that started back in 2009. All of you know that on January 1st we announced the acquisition of the remaining piece of equity that was sitting with the VEBA and we were able to close the transaction in mid month.
We paid €3.65 billion for this acquisition and Chrysler undertook a series of obligation and exchange for promises from UAW to carryout and extent the application of WCM. But I think from a structural standpoint it completed a project as far as beginning back in June of 2009 on which we have worked pretty diligently over the last four and half years to try and bring together these two car companies.
I am delighted to be personally announce that we are able to close the deal on January 1st more than for anything else that because it removed all the complexity of trying to run two separate organizations with two separate government system that made decision making especially allocation of potential opportunities between the two houses increasingly difficult.
As a result of the completion of that step we were able reorganized Fiat. We have announced today and the details are contained on page four. There will be a merger between a company called Fiat Chrysler Automobiles and VMFiat S.p.A..
Fiat Chrysler Automobiles will be incorporated in the Netherlands. They will be tax resident in the U.K. It will have listings in both New York and in Milan. You will have as part of its structure the loyalty scheme associated with voting rights for the shares similar to what we introduced in CNH Industrial last year. And hopefully, we’ll be able to close the transaction before the end of the year.
We have allowed for the exercise of the same rights to €0.5 billion. It’s going to be highly unlikely that anybody will exercise them, obviously, there the freedom to do so, but I think we have created a basket of sufficiently large to deal with the potential disinterest to some shareholders and continuing to stay on.
In typical style of his house, we will try and get this done as quickly as we can. We have the end of 2014 here. I think it will be great when I make this comment, Palmer who is sitting next to me, hopefully I’d like to replicate the listing in New York as of October the 1st of this year. We’ll see that we get it done. It’s a relatively large undertaking.
But I think we are — we have done a lot of work on the international with the IPO of Chrysler which was Thank God it will start early enough and so that should come in hand and preparation of the SEC filing documents that documents are required to be filed with the SEC in 2014.
Page five, has got our new logo, I think if you are interested in finding out more about this application, I think we do have a short film on our website that describes how the potential functionality of the logo.
Certainly is a break with the traditional historical symbol that have been associated both companies and it was designed effectively to provide a linkage between the two houses as suppose to the retention of one organization or the other.
I think we just completed two days of Group executive counsel meeting, I feel incredibly comfortable about the fact that the team now is working in unit and now we do have I think the leadership skills now to try and manage the seventh largest automaker in the world.
A couple of words about 2013, on page six, we are relatively happy with the performance of the Group for the year. I can spend a lot of time trying to tell you why we were — we do make all the numbers that we are suppose to make.
I think, we were slightly short about 50,000 car short of the number that would have allowed us to certainly exceed Chrysler guidance and left you to a number technical reason some of which you are of including the delay in the launch of the Jeep Cherokee, which came in the market in October of this year and fundamentally almost four months late from the original envisioned launch date.
I said this Jeep has had a tremendous year, we had 732,000 car sold globally. The target this year is to hit a million which is nearly a 50% improvement over 2013 and this is in the back of full year production of Cherokee and the launch of the smaller Jeep both in Europe and in the U.S. out of our Melfi plant here in Italy.
I think one of the things that we — hopefully will become evident as Richard takes you through the deck is that the first encouraging signs of the potential of the premiums strategy have now become visible. You can see a performance in Q4, Maserati which has had an outstanding quarter. We’ll have to see whether it can maintain the space and certainly this type of operating margin performance for the rest of 2014.
But for anybody who sort of playing historical records here, Maserati had higher operating margins than Ferrari in the fourth quarter of 2013. So it is a good indication of the fact that if we execute well on our plan that we’ll be — that we will be able bring up a big portion of product portfolio to the type of margin generation that we have been taking about now for awhile and which hopefully will be visible as we present our plan in May of this year, the multi-year plan that we will be presenting to the markets.
In terms of guidance for 2014, I think we have been cautious after numerous discussions with Richard Palmer about what is really safe. I think he feel safe with the numbers that he is giving you. Revenues of over €93 billion, trading profit of about €3.6 billion to €4 billion and net industrial debt to potentially below €10 billion up to about €10.3 billion.
We understand and I will make this comment, I am sure, there will be questions on this issue after on the Q&A. We understand the notion of leverage and the fact that we are caring substantial amount of debt on our book.
I caution you on two things, one, is that obviously what’s in that number is also this VEBA Note which we have issued a press and which we intend to refinance and there will be a much longer date of maturity than certainly not longer than the VEBA Note but certainly in line with the maturities of the previous debt offerings that Chrysler issued in the spring of 2011.
But the other thing is that there is a portion of this debt which is scrap for and which relates to the buildup of our facility in Pernambuco which has got again its associated with state financing and therefore has much longer maturities and an interest profile which is completed from what we will be otherwise available in the marketplace.
So part of this debt is benign debt. It’s not a friend serving us, lot maybe sitting on our shoulders in terms of other immediate repayment or in terms of owner issuance interest rates.
Having said this, we understand that on a comparable basis these numbers do look relatively high, I made a commitment, I made this point relatively clear, when I was down in Detroit I was sure that we would be looking our capital structure post migration into Holland and we will be looking for ways in which we could strength our capital base in a way in which reflects the true underlying potential of the equity going forward and so we would be doing nothing that we consider to be value the structure in terms of the straight rights issuers, straight issuance of equity, because we think that current levels do not reflect what ultimately will be the value of equity going forward for FCA.
And on that note, I pass it on to Richard who is going to enlighten you with the details of the 2013 performance.
Richard Palmer – Chief Financial Officer
Thank you very much. And so moving on to Slide 7, group revenues were up 3% or 7% at constant exchange to €87 billion. The growth in NAFTA and APAC more than offset decreases in EMEA and LATAM. There was a strong performance in luxury brands, with Maserati more than doubling over the prior year and our component businesses were flat in terms of revenue in nominal terms.
Group trading profit was down 4% but net of unfavorable currency translation was up 1% versus prior year and also included €300 million in higher R&D amortization due to the launch of new products in — principally in NAFTA. The EBIT for the group in 2013 included €0.5 billion in net unusual charges which we will review in a few minutes.
Net industrial debt at year end was €6.6 billion. Net of equity investments, the cash flow during the year was positive €0.1 billion. The strong Q4 cash flow generation drove industrial debt down €1.7 billion since September.
Liquidity remains strong, nearly €23 billion, €2 billion increase over December 2012 and for Fiat ex-Chrysler, the total available liquidity was €12 billion, for Chrysler €10.6 billion.
The group net income was nearly €2 billion, of which €900 million was attributable to the owners of the parent. Income taxes were positive €943 million, including a positive one-off of €1.5 billion in net deferred tax assets, following the release of valuation allowances related to Chrysler.
Net of the positive one-offs taxes were a cost of €557 million, of which €240 million for Fiat excluding Chrysler. Excluding special items, group net income was €943 million for the year, down from €1.1 billion last year due to the reduction in trading profit.
Page 8. EBIT for 2013 was €3 billion versus €3.4 billion in 2012. Net of unusual items, EBIT was €3.5 billion versus €3.6 last year. Regionally EBIT declined in NAFTA due to launch delays in industrial costs as well as increased R&D amortization and in LATAM, the decrease was due to the more difficult trading conditions in the market.
While EBIT improved in APAC and in EMEA, both region showing a year-over-year improvement in all quarters for 2013, net of unusuals. EBIT rose significantly for our luxury brands, driving by Maserati on the strength of the new models introduced during the year.
Moving to Slide 9. Excuse me — as far as unusual items for the year are concerned, net unusual expense of €519 million, included €390 million in asset write-downs mainly related to the rationalization of architectures associated with new product strategy, particularly for the Alfa Romeo, Maserati and Fiat brands as well as charges related to asset impairments for the cast iron business in Teksid.
In addition, there was €56 million write-off of the book value of the Equity Recapture Agreement right considering the agreement closed in January 2014 to purchase the remaining minority stake in Chrysler from the VEBA Trust.
Other unusual charges in the year was €115 million charge related to the June 2013 voluntary safety recall in NAFTA both in Q2 and the €43 million charge related to the February 2013 devaluation of Venezuelan bolivar. Offset by the €166 million gain following amendments to Chrysler’s U.S. and Canadian salaried defined pension schemes. For 2012, there was net unusual expense of €244 million. Going forward, these unusual items would have a cash impact of about €100 million.
Moving to Slide 10, few items on the P&L. Financial charges for the year were just short of €2 billion, €79 million higher than last year. The increase is mainly related to the higher average net debt level, net of favorable repricing of Chrysler credit facilities.
Slide 11 shows the components of the €1.1 billion increase in net industrial debt to €6.6 billion at 2013 year end. Chrysler ended the year in net cash position of €0.2 billion. Operating cash flow for the year at group level was slightly positive driven by industrial, EBITDA together with a positive change in working capital, which more than offset cost to the financial charges and taxes, entire CapEx. CapEx was €3.9 billion for Fiat excluding Chrysler and €3.6 billion for Chrysler. Change in working capital is positive for both Fiatex-Chrysler and the Chrysler.
Moving to Slide 12. The pension and OPEB status at year end, Chrysler reduced its deficit by about €3 billion compared to 2012 driven by higher discount rate moving from just short of 4% to 4.7% on the pension scheme and 4.1% to 4.9% on the OPEB liabilities and also due to contributions in €500 million on the pension plan, together with asset returns of about 7%.
Moving to Slide 13. This deals with today’s announcement across the plans to refinancing — refinance the existing VEBA Trust note in the capital markets. The total due under the VEBA note is €4.7 billion of principal and €0.3 billion of accrued interest. There is no penalty for early repayment while both principal and accrued interest of Teksid taxable upon repayment — upon payment.
The refinancing will be composed of up to €2 billion in secured loan facilities term loan B and up to €3 billion of secured senior notes which was going to be add-ons to the existing notes maturing in 2019 and 2020, 2021.
The transaction will bring three main key benefits, immediate positive impact on earnings, with pre-tax interest expense benefit of approximately €130 million per year, improvement in projected cash flows together with the tax deductions of about €2.5 billion over the next three years as a result of the tax shield and the interest costs and terming out the principal payments and in addition the transaction resulted in no additional debt at the Chrysler or Fiat level.
Moving to Slide 15, reviewing the performance by region, in NAFTA, the industry remains strong throughout the year, supporting robust level of sales for the group. Revenues were up 5% or 9% in U.S. dollar terms on higher shipments. Full year trading profit was down 9% or 6% on a currency adjusted basis.
Trading margin for the year was 4.8% compared to 5.6% a year ago. Full year shipments were up 6% versus prior year, primarily reflecting increase shipments of Jeeps and Ram 1500 pickups and also Ram heavy duties. Vehicle sales in the region were up 8% to 2.1 million vehicles outperforming both the U.S. and Canadian industry trends.
U.S. dealer inventory was at 79 days of supply at year-end. Q4 exit reflecting the seasonal increase in U.S. inventory plus effects of the launch of the all-new Cherokee and the buildout of the 2014 model year Chrysler 200 and Dodge Avenger in preparation for the launch of the new Chrysler 200 in the first half of next year.
Slide 16 shows the walk of EBIT for NAFTA. The EBIT was impacted by unfavorable FX of about €80 million. Among the positives, we recorded higher volumes and positive mix on the back of higher retail volumes and lower fleet mix and positive pricing due to the new vehicle launches.
Instead the adverse impact in industrial cost was due to the vehicle content enhancements on those new launches along with higher manufacturing launch cost particularly in the first half and higher depreciation amortization, partially offset by purchasing savings. SG&A investments increased due to increased advertising spending.
Page 17. The U.S. industry was up 7% versus prior year, with cars up 4% and trucks up 10%. Group sales outperformed the market with a 9% growth, resulting in a full year share increase of 20 basis points. December sales reflected the 45th consecutive month of year-over-year sales gains and the strongest annual sales since 2007.
In Canada, industry recorded the highest full year’s levels of sales ever, up 4% versus prior year with the group outperforming the market with a 40 basis point share gain to 14.6%. In 2013, we recorded the best full year sales in Canada since 2000.
In LATAM on page 18, the industry in the LATAM region was up 1.3% for the full year with Argentina at a historical peak and Brazil at similar levels as the prior year. Group revenues declined 10% year-over-year, excluding the impact of unfavorable currency they were up 1%.
Trading profit reduced 41%, or 33% at constant exchange rates with the decline mainly attributable to the Brazilian operations due to input cost inflation, also due the weakening of the real affecting prices of imported materials, unfavorable production mix and lower volumes as well as initial start-up costs for the Pernambuco plant.
Increased manufacturing efficiencies and product mix only partially offset the above headwinds. Venezuela profit was down mainly due to reduced volumes and negative mix as foreign currency restrictions limited supply levels. The other LATAM markets improved.
Trading margin was at 6.2% for the year. EBIT was down and reflected the reduced contribution from trading profit as well as net unusual charges, namely the devaluation of the Venezuela and Bolivia, and asset impairments due to streamlining of architectures and models associated with the region’s refocused product strategy going forward.
Shipments decreased 3% to 950,000 units, down 7% in Brazil when the group reacted promptly to increased demand last year, following the implementation of the IPI incentives. Argentina shipped 111,000 units, up 32%. The other LATAM markets were up 7%. Company and dealer inventory remained stable at around one month supply at year end.
Slide 19 shows the walk from 2012 to 2013 EBIT, as decline for the region reflected lower trading profit and the impact from the net unusual charges mentioned earlier. The performance in the LATAM region was also impacted by €85 million of unfavorable from an exchanged translation.
The operating performance was negatively impacted by nearly €260 million of higher industrial cost due to labor and input cost inflation, and less favorable production mix between Argentina and Brazil as well as start-up cost for the plant in the Pernambuco state.
Negative volume and less favorable market mix impacted further €100 million. SG&A driven by new advertising campaigns in Brazil was also negative. Pricing was positive but not enough to cover the inflationary increases on the cost side.
Moving to slide 20, the market demand in Brazil declined 1.5%, compared to a year ago. The group retained its leadership in the Brazilian market for the 12th year with an overall share of 21.5%. The continued success of the Palio and Uno, supported to take a combined 25% share in the A/B segment. Siena and Grand Siena recorded a combined 25% year-over-year sales increase and Strada was up 5%, boosted by the contribution from refreshed single and double cab models launched in Q4.
In Argentina, group sales for the year were up 30%, resulting in a share gain of 140 basis points. As per the recent announcement by the Brazilian government, the reduced IPI tax rates will gradually return to pre-incentive levels during 2014, an increase from 1 to 2 percentage points depending by engine displacement, fuel and vehicle type occurred on January, the 1st, with the further and last increase expected on July the, 1st.
Moving now to APAC on slide 21, the region was characterized by strong overall demand in the year, driven by growth in China and in Australia, while India and South Korea were down versus the prior year. The 48% increase in group revenues was primarily driven by higher shipments for the Jeep, Fiatand Dodge brands.
EBIT performance for the full year reflected a 38% improvement in the trading profit, partly offset by start-up costs incurred by the Chinese joint venture. Retail sales including JVs were up 73%, 200,000 vehicles in the region. By brand, Jeep was up 26% over prior year, Fiat was five times last year’s level driven by the Fiat Viaggio in China, while the Dodge Journey became the group’s fourth best-selling vehicle. Strong sales momentum continued in Q4, up 79% versus the year ago to 62,000 vehicles.
Moving to slide 22, the EBIT growth for APAC was driven by the positive impact of higher volumes and better mix, mainly on the back of higher penetration of SUVS. Pricing was impacted by a more competitive environment, particularly in China. Industrial costs increased due to higher R&D and fixed manufacturing costs from new product initiatives and higher volumes.
The SG&A increased to support volume growth and increased continued regional expansion. Other primarily reflects unfavorable FX impact and higher losses of the Chinese operations including start-up costs for the launch ofFiat Viaggio and Ottimo.
Moving to slide 23, the group sales including the contribution from our JVs significantly outperformed the industry driven by strong performance in China and Australia. In China, the group sales for the full year were up 125% versus the 17% market increase, resulting in a group share gain of 40 basis points with Viaggio, Dodge Journey and continued growth of Jeep brand driving the increase.
In Australia, the group sales posted a 53% growth, significantly outperforming the market, which reported a modest growth, mainly thanks to Jeep, up 31%. Also Fiat, Alfa Romeo and LCVs performed well, supported by the consolidation of the sales and distribution activities of the group into one company. The group sales also increased in India and in Japan.
Moving now to slide 24, trading conditions in Europe remained broadly weak throughout the year, which declined — where the market declined for the sixth consecutive year in a row. Although mixed across markets, the overall industry showed some stabilization in the second part of the year in particular the Q4 passenger car segment and the major markets posted the second quarter of year-over-year gains except in Italy, which was still negative.
The LCV industry was flat in 2013 versus the prior year. Group revenues for 2013 were flat, slightly down compared to a year ago due to lower shipments. The trading loss of €470 million for the year shows an improvement of €233 million, or 33% over the €703 million loss recorded in 2012.
EBIT also improved over the prior year’s level, mainly reflecting the improved trading result and slightly lower contribution from equity investments. Unusual charges were flat at €195 million and included for 2013, the write-off of previously capitalized R&D related to new product development for Alfa Romeo products, which have now been switched to a new platform, considered technically more appropriate for the brand.
Overall shipments were down 3% to almost 1 million units with passenger cars down 4%, mainly attributable to lower volumes in Italy. LCV shipments were stable at about 200,000 units.
The EBIT walk on page 25 details an improvement in the year, driven by better mix, mainly 500 family and LCVs, which more than compensated for the impact from negative volumes and negative pricing, which was more concentrated in the first half. The improvement in the industrial costs was driven by the world-class manufacturing program efficiencies and purchasing savings, partly offset by higher R&D amortization. Reduced SG&A spending contributed for about €200 million in the year.
Turning to page 26, the industry for the passenger car segment in EU27+EFTA countries was down 1.8% to 12.3 million units in 2013. The positive performance in the second half was unable to counter a 7% decline in the first half. Among the major countries, U.K. grew about 11% and Spain by 3%. Negative performance in Germany and France with Italy suffering the most at minus 7%.
The Group sales for the full year were down 7%. The Group share in Europe was 6% with the 30 basis points decline, principally attributable to the unfavorable market mix. Italian industry dropped at the lowest level since 1978 and now represents 11% of the total European industry or 500 basis points lower than where it was in 2007. Our share in Europe excluding Italy was similar to the prior year.
Slide 27 deals with the LCV segment. The industry gradually improved throughout the year with Q4 up 9% being the first positive year-over-year industry gain. The market concluded the year at the same level of 2012, however with mixed trend among major markets.
Group sales for the full year were 182,000 units, flat over prior year with the share gain in Italy and the record share of 9.4% in the EU+EFTA excluding Italy. Outside Europe, there was strong share performance in Russia.
Now move on to slide 28 to review the performance of the luxury brands. Ferrari revenues increased 5% in 2013 to €2.3 billion. Consistent with the 2013 announcement the production will be maintain below the prior year’s level to preserve the brand exclusivity.
Ferrari managed shipments to the network down to nearly 6900 street cars down 5% year-over-year, including the first 20 units of the special edition LaFerrari. Shipments of 8-cylinder models were down 12% over the prior year, but there was a 19% increase for 12-cylinder models attributable sales of the F12 Berlinetta.
Trading profit rose 9% to €364 million. Thanks to better sales mix and contribution from licensing and personalization programs. The trading margin increased 50 basis points to 15.6%.
Revenue for Maserati totaled €1.7 billion for the year, an increase of 120% over 2012 on the back of than 15,000 shipments and nearly 150% improvement over 2012 driven by the success of new Quattroporte and Ghibli. Maserati closed 2013 with full year trading profit of €171 million or 10.3% margin, representing a €114 million increase over the prior year.
In Q4, the trading margin — trading profit rose almost 10 times versus last year at €123 million or the 15.9% margin. The EBIT for full year, which included a €65 million write-down of previously capitalized R&D as now totaled €106 million. Shipments for the newly launched products were strong in line with our targets around 8,000 for the new Quattroporte and 3,000 for the Ghibli.
Slide 29, the component business as a whole posted €8.1 billion in revenues with the trading profit of € 200 million — €201 million. Revenues from Magneti Marelli were up 3% to €6 billion, driven by lighting and electronic systems growth and trading profit was up 18%. The topline growth was only partially offset by higher industrial costs associated with the new product launches in NAFTA. The trading margin increased 40 basis points to 2.8%.
Teksid revenues were down 12% year-over-year with the Cast Iron business posting a 7% decrease in volumes in Europe and Americas with lower demand in all segments, particularly light vehicles.
By contrast, the aluminum business posted a 13% increase in volumes. Trading loss for 2013 of €13 million, compared to breakeven for 2012. The decrease was primarily attributable to volume declines. EBIT was a negative €70 million, including €60 million in unusual charges related to the impairment of assets in the Cast Iron business unit.
Comau, revenues were up against prior year with a €15 million increase in trading profit primarily driven by body welding operations.
Moving on to slide 31, looking at the business environment by region. The all-new Jeep Cherokee started shipping at the end of October and in just two month sold 29,000 units worldwide, most of those in NAFTA.
The Group presented the new Chrysler 200 at the Detroit auto show which will be available in the first half of 2014. The benchmark features on this vehicle include 9-speed automatic transmission, all-wheel-drive systems and high-performance engine offerings. The production will start in the Sterling Heights assembly plant at the end of Q1.
In last slide on page 32, the key launches in forth quarter were the new Strada, which continues to have 50% segment share in the pickup market in Brazil. And we launched two refreshed model with single-cab in October and the double-cab in October for the ramp-up production. The new Fiorino will be launch — will also launch at the end of year.
The Pernambuco project is proceeding, CapEx planning through 2016 of about €2 billion in the 2012, 2014 period with Fiat to receive financing for up to 80% of the total investment. The start-of-production is expected in the first half of 2015 and the initial annual capacity will be 200,000 vehicles.
Moving to page 33, on the left hand side you can see where the growth in the APAC volumes came from, spread across the Fiat brand, the Jeep brand and the Dodge brand. Fiat brand sales were up 160% and the strong performance of the Jeep brand with 17 consecutive quarters of year-over-year growth.
On the right-hand side, the new launch — newly launched Fiat Viaggio is performing well in the marketplace and the Fiat Ottimo will be launch in early 2014 but use up the same platform.
Moving to page 34, the strategic re-focus and realignment of the Fiat brand in EMEA continues to proceed. The Fiat 500 family now represents 33% of the brand sales from 20% in the prior year. Thanks to the expanding product portfolio with the 500L, including the Trekking and Living variants.
The latter topped 1 million units sold in Europe since launch in 2007, 3 out of 4 500s were sold outside of Italy. 2013 saw two top positions in the ranking for our products, in the A-segment with the Fiat 500, the first time since its launch and in the B-MPV segment with 500L.
Slide 35 shows our expectations for the market going into 2014. We see the NAFTA market in the growth situation with the U.S. above 16 million SAR and with the Canadian market basically flat.
Latin America, Brazilian industry is expected to grow about 3% in line with GDP, while the Argentina industry is largely to decline due to the import restrictions and the higher sales taxes.
APAC will continue to grow and the Group is targeting to increase sales significantly through the year. Whereas in EMEA, we expect the market to be substantially flat both in Italy and in the rest of Europe.
Moving on to page 36, our volume guidance for 2014 shows an increase from the 4.35 million cars in 2013 to of 4.5 to 4.6 million range in 2014, with most of that growth driven by NAFTA and APAC.
Moving to page 37, show the 2014 financial guidance. We are targeting revenues of €93 billion, about a 7% increase over 2013. We’re targeting trading profit in the €3.6 billion to €4 billion range.
Consolidated net profit is expected between €0.6 billion and €0.8 billion for 2014, lower than the normalized result in the prior year. The contribution from improved trading profit will be more than offset by higher deferred taxes as a result of the reverse of the deferred tax assets recognized in 2013. The EPS is expected to be in 0.4 to 0.6 range from 0.1 on a normalized basis in 2013.
Net industrial debt is projected in the €9.8 billion to €10.3 billion range compared with a €9.7 billion normalized at December 31st, adjusted for the cash outlies — cash outflows for the January 21st closing of the purchasing, of those who purchased the remaining 41.5% minority stake in Chrysler from the VEBA for €2.7 billion and the €0.3 billion impact starting from 2014 due to the adoption of IFRS 11.
The key cash flow movements for 2014 include a high industrial EBITDA, a positive change in working capital and a high level of CapEx than 2013. Financial charges are expected to be stable year-over-year.
Well, thank you and pass the call back to Marchionne.
Sergio Marchionne – Chief Executive
Now moving on to Chrysler. Given overview of Chrysler performance in U.S GAAP Dollars. So on Page 2 of the Chrysler deck, you can see Chrysler full-year results compared to 2012, net revenue totaled $72 billion, 10% higher than 2012, primarily driven by 6% increase in shipments, led by the Ram 1500, and Jeep Cherokee.
Worldwide shipments totaled just short of 2.6 million vehicles in ‘13 versus 2.4 million in 2012. Modified operating profit was $3.2 billion for the year, an increase of 9% versus last year’s $2.9 billion, resulting in operating margin of 4.4%. Modified EBITDA was $5.9 billion, or 8% of net revenue, both increases versus the prior year, reflects the higher shipments, stronger market mix and positive net pricing, partially offset by higher industrial costs which includes the charts taken in the second quarter for the voluntary safety vehicle of all the Jeep products.
Net income for 2013 was $2.8 billion and includes two infrequent items, the largest item which is non-cash is the release of valuation allowances on deferred tax assets of $962 million partially offset by $24 million loss on the extinguishment of debt related to re-pricings of our term loan B in the year.
Exclude these infrequent items, net income was $1.8 billion compared to $1.7 billion in 2012. Cash increased by $1.7 billion for the year. Accordingly, we’re on now in the net cash position versus a net debt position at the end of 2012.
Moving to Slide 3, shows the drivers of the $264 million increase in year-over-year modified operating profit. GDP adjusted shipments increased by 110,000 units while mix is also positive partly due to higher retail and lower fleet volumes. The positive net pricing of $1.2 billion reflects positive pricing actions throughout the year in large part, driven by increased vehicle content and vehicle such as a new Grand Cherokee and a new Ram heavy-duty.
Industrial cost for the year were higher by $1.8 billion and as stated previously include increased costs for additional content along with higher manufacturing launch cost particularly in the first half and higher depreciation, amortization expense. Also this column includes the $150 million charge taken in the second quarter for the voluntary safety vehicle and customer satisfaction action related to the older jeeps.
Overall selling, general administration cost was slightly positive versus the prior year. The other category primarily relates the exchange loss related to de-valuation of the Venezuelan bolivar. For the fourth quarter, the work was very similar, bolivar mix increased primarily reflecting increases of 130 million vehicle shipments versus prior year and a higher level of retail mix.
Turning to Slide 4 shows the change in cash and free cash flow for the full year and for the fourth quarter. Free cash flow was a positive $2.1 billion for the year and $1.9 billion in the fourth quarter raising cash to $13.3 billion at December 31st. During the year, as shown in the walk, modified EBITDA added $5.9 billion to cash, partly offset by capital expenditures of €3.4 billion.
Positive working capital FX added another $1.7 billion partly reflecting the strong shipments of the Jeep Cherokee which our own shipment hold until the end of the third quarter and the build-out of the Chrysler 200 and Dodge Avenger to prepare the plant for the all new Chrysler 200 being launched in the first half of 2014.
On Slide 5, we see the composition of the total financial liability. The carrying value is decreased only slightly from September. As I have discussed, cash increased by $1.9 billion from September 30, accordingly, our formally net industrial debt figure of $888 million in September 30 and almost $1 billion last year, now it’s become a net industrial cash position of over $1 billion. The first time Chrysler Group has been — has reported a net cash position.
Turning to Slide 6, Chrysler Group worldwide sales for the full year 2013 increased 9% over 2.4 million vehicles versus almost 2.2 million in the prior year primarily the result of 14% increase in U.S. retail sales. U.S. market share increased 20 basis points to 11.4% for 2013 versus 11.2% in 2012.
Although that showing Canada market share also increased to 14.6% from 14.2%. Worldwide Jeep sale increase 4% due to increases in all company produced products and the start of sales of the all-new Jeep Cherokee during the fourth quarter.
Worldwide Dodge sales increased 13% with the Dart, Durango, and Journey contributing large increases year-over-year. Ram truck brand sales increased 19% year-over-year led by the Ram 1500 and Fiat sales increased by 13% including contributions from the Fiat 500L. Lastly Chrysler brand sales were up 1%, primarily due to an increase in sales of the Town & Country.
Slide 7 shows the continued reduction in our percentage of U.S. fleet sales to total U.S. sales on a year-over-year basis. So percentage went down from 26% to 22% for the full year.
On the right hand side of the chart shows that the day supply of inventory U.S. deal is as of December 31st increased to 79 days from 73 days at the end of last year and 62 days at the end of September. The day supply increase reflects seasonality and also the shipping and filling of dealer orders for the Jeep Cherokee being launched on the build-out of the 2014, modernly Chrysler 200 and Dodge Avenger as we ready the Sterling Heights assembly plant for the production of the new Chrysler 200.
Slide 8 shows the new guidance for 2014 for the Chrysler Group. We expect to ship approximately 2.8 million vehicles worldwide generating approximately $80 billion of net revenues. We’re also projecting modified operating profit to be between $3.7 and $4 billion and adjusted net income of $2.3 billion to $2.5 billion. Lastly, our free cash flow is expected to be between $500 million and $1 billion. Thank you.
Marco Auriemma – Head, Fiat Group Investor Relations
Thank you, sir. Now we can get started with the Q&A session. Barbara, please go ahead.
Question-and-Answer Session
Operator
Okay. Thank you. (Operator Instruction) We will take our first question today from Rabih Freiha from Exane. Please go ahead.
Rabih Freiha – Exane
Yes. Hello Rabih Freiha from Exane. Thank you for taking my questions. I have a few of them actually. Maybe the first one on the unusual item that you give the break down of on Page 9, I see a big chunk of those is coming from Alfa, Fiat and Maserati we are positioning. Would you mind elaborating a bit on those write-downs and can you give us also what your rough estimate for the unusual lines will be on 2014.
Then my second question is looking at the IFRS versus U.S. GAAP profit [requester], we see that the capitalized R&D came down significantly in the past two quarters, should Q4 be taken as sort of indicative run rate going forward and will the New York listing lead maybe to U.S. GAAP accounting for the Group?
And lastly, on North America, you can see there is a lot of capacity coming on stream between ‘14 and ’16. We’re talking about few 1 million units per year. We’re also hearing mounting concerns about rising inventories and pricing pressure by your peers, do you share these concerns on pricing? Thank you.
Sergio Marchionne – Chief Executive
I think, I will take most of your questions. On the pricing side in the U.S. just to give you our views as to how we see the market. We have seen nothing anomalous than we have seen nothing which is over concern today.
In terms of our view about 2014, certainly the indication that I can give you sort of up to date information as of yesterday, we have seen the market continue to be relatively strong and we have not seen what I would — what I consider our control competitive behavior in the marketplace.
So there is no single doubt there maybe spots where particular automakers are long, particular nameplate, but I don’t think it’s a general condition and certainly, it’s not indicative of a return to the kind of pricing tactics that we have seen in the marketplace and in the mid 2000s.
In terms of the capacity coming on, I think you need to be careful about what kind of capacity you are talking about. I think, a number of us in Chrysler for one as continues to find ways to try and extract additional production out of existing installation, we are putting on additional shifts and to try and meet market demand.
But, with exception of a couple of cases, where I have not seen anything which is of significance, I know there are some foreign competitors that are coming to U.S. I think a lot of it depends on how successful the commercial activities are going to be in the U.S. anyhow. So I am not sure the capacity in and by itself is an indication of increasing pricing pressure.
In terms of the question that you asked about IFRS, I will ask Richard a moment to give you, is answer about whether you should take this is being indicative of anything. But the question about IFRS U.S. GAAP is an issue that we are looking at right now.
Whatever choice we make hope will provide U.S. GAAP reconciliation even if we stay to IFRS as the primary reporting standard. But we have not made a final determination, I think the house is capable of complying with both.
In terms of the unusual, Richard, can give you more technical detail, more numerical details about the unusual charges. I can give you sort of the underlying thinking behind the write-downs.
One other things that happen as a result of our rethinking of the premium strategy which will be an integral part of the plan that we present in the in May, is that it afforded us the opportunity to take a look at the architectural status of both Maserati and the Alfa Romeo brand brands.
And there are number conclusions that have been sort of finalized as part of that and which are the basis of whole part of engineering and development work that’s going on right now within the Group, which has effectively abundant some of the architectures has been the core of the development of the brands going forward.
And it’s impacted mainly out for our Maserati because these are the ones where some work and in some cases some substantial work gone on in the particular direction before we’d a chance to purify our architectural choices.
I think we are starting off the plant that we are starting off our delineation of the development programs for both Alfa and Maserati now with the clean shit of paper without dragging an history, anything that we are doing now is building on what we considered to be the main stay architectures and key component elements of these brands going forward for a number of years.
But we did clean the desk and I think all of the stuff reflects activities which are no longer relevant to the directions of the brands are taking. But I will leave to Richard to give you an answer.
Richard Palmer – Chief Financial Officer
So in terms of the R&D trend, yes, be careful because the disclosure is net of amortization, so clearly we are launching products and as we launch we start amortization of the capitalized R&D.
So the capitalization rate is pretty constant what is increasing is the amortization year-over-year, which was about €300 million of increase in 2014 and ’13, and we are looking at over €100 to €150 increase next year. So the R&D amount will continue to increase year-over-year and obviously, will tend towards the same number as the capitalization of R&D.
Rabih Freiha – Exane
Okay.
Richard Palmer – Chief Financial Officer
And in terms of the unusual, I think we have given pretty detailed explanation of the numerical composition. So I don’t have much anything to add.
Rabih Freiha – Exane
Okay. And to’14, how do you see the unusual items on maybe, roughly, is there going to be a significant GAAP between EBIT and trading profit or should it decrease.
Sergio Marchionne – Chief Executive
I missed up and you are right, there is going to be some, I mean, I think, there is going to be some residual transaction cost on the closing of the VEBA transaction, which will pop up, but its nothing a significance, I mean, and I am not trying to play King Kong here, but I don’t think it’s going to be a material number, it will be relevant, but it will not be material.
Rabih Freiha – Exane
Okay. Great. Thanks.
Operator
Thank you. Our next question today comes from Philip Watkins from Citi. Please go ahead.
Philip Watkins – Citi
Oh! Yeah. Thank you for the booking of Maserati. I think if I can just follow on that issue on U.S. GAAP versus IFRS? I don’t know if you be able to give us a flavor of how different your accounts would look now, if you were to report under U.S. GAAP. Now I know there are some differences around R&D, but I think I struggle that with the pension and tax issues whether it would look materially different?
Sergio Marchionne – Chief Executive
Yeah. I think we are going to be very careful about the speculating about what the adjustments would be. We are not going to get ourselves into a bang here. I think, obviously, we have modeled potential economic results based on the adoption of one standard or the other. The fundamental difference and the biggest one is the way in which R&D gets treated under IFRS and U.S. GAAP. I mean it’s a question balance sheeting cost and amortizing overtime as suppose eating in the P&L was incurred.
Philip Watkins – Citi
Yeah.
Sergio Marchionne – Chief Executive
I have a lot of and I am not trying to be disrespectful of U.S. GAAP, but I do understand, I think the conception underpinnings of the capitalization argument and instinctively, I prefer that right, because I think, it probably — properly reflects the way in which economic activities carried out. But I think it would be improper and probably premature for us to give you an indication in which way coming in one towards the other.
My God tells me, it based on the announcement that I have seen is that the U.S. GAAP will be somewhat punitive to the results that we have shown, but I think we need to spend more time.
And I don’t think we are going to make the choice on the basis of the pay, that is one shows the other. I think we need — we are going to show reconciling numbers in the financials regardless of which standard we pick, so it won’t matter much.
Philip Watkins – Citi
Yeah. I kind of ask that on South America, I mean, the margins down quite a lot obviously, versus last year, what kind of margin do you think you can make there next year, as well in 2014 is the impact of cost inflation so much that it will stay around 3% or going to creep again to 5% do you think?
Sergio Marchionne – Chief Executive
We had this conversation with the Board and obviously, it is something we are analyzing internally in some ways. Our view is that we’ll probably, in terms of absolute numbers in the absence of further aberrations, in exchange rates with current levels that we should be able to produce about the same level as we produced in 2013.
I can only tell you that regardless in — there is no doubt that I think 2013 has been an unusual year and ’14 is starting off with not necessarily in the best of — in the best of conditions or at least in terms of exchange rates. Our assessment of the operating environment is such that volumes remain unaffected. It is certainly our indications in terms of January is the month is going to be fine and we have no early indications of the fact that, that the market will deteriorate going forward.
If in fact the exchange rates keep on moving towards an equilibrium point, which is above the current one. We have now pushed some significant barriers in terms of dollar-reais. And if the dollar continues to strengthen against the Brazilian currency, I think you’re going to see inflationary pressures come into play in Brazil. And the question that we’re all asking is whether we’re going to have the ability to recover the price inflation and price.
In an ideal world, I think you will. I think in reality overtime we will, but the problems that I think there are disasters implications associated with runaway inflation, which is going to push a whole part of our other adjustments in terms of interest rate and so on. And so it’s very early for us to make the call. The basis on which we have made the forecast and we’ll split into the 2014 guidance is an assumption over market that is up on 2013.
I think some of the reactions that we’re seeing in the foreign exchange markets in terms of adjustments. They are just other the newsflash and the Russian Ruble. I think we need to be careful. I think we’re watching a bunch of overreactions and adjustments and realignments of portfolios. I don’t know how much of this will stick. What I’m relatively comfortable around is the fact that there is going to be a fundamental devaluation of the reais against the dollar over 2014 to ‘13.
If it’s a rational adjustment, I think the system will be able to contain it. It’s not just our activities, but I think the Brazilian economy will be able to address. The only thing I can tell you is that we have no indication today of other deterioration and pricing above and beyond normal activity, or a substantial decrease in volumes that will cause us a concern.
The overall picture and the commitment that we have made to Brazil goes beyond this current aberration issue. One of the things that’s been underpinning our analysis and the development of our strategy for Latin America market is that Brazil in and by itself has developed a social class that we cannot satisfy any longer, or the current production structure that we have in the team in the state of Minas Gerais, and the choice of vehicles and platforms that we have and which have been at the heart of the development of the Fiat brand in Latin America is no longer adequate.
The build out of the plant in Pernambuco was clearly design to deal with an emerging social class in Brazil, which requires larger and more complex vehicles. The architecture that has been installed in Pernambuco is one that reflects state-of-the-art technology and reflects, where we consider to be a relevant demand coming from — growing a significant portion of the buying public in Brazil. That plant will be up and running in the first half of 2015 and we have high expectations. So whatever volume decrease we may suffer as a result of a contraction in the base market, will be picked up in 2015 by the production of the Pernambuco plant, including the introduction of Jeep as a brand in Brazil at that time. I don’t know whether I answered your question.
Philip Watkins – Citi
No — I know it’s quite uncertain. But maybe I could just ask one more if I could on capital. I know you’ve talked about — I know I have taken too much time. But on the –
Sergio Marchionne – Chief Executive
Go ahead.
Philip Watkins – Citi
I can only think of an equity-linked tight bond and quite frankly I don’t think you have a mandatory convertible in terms of what you’re talking about to improve the balance sheet. Because I would imagine that whatever instrument you issue has to have some form of delayed equity to be positive to credit. Is there other alternative to something like that?
Sergio Marchionne – Chief Executive
There is no doubt, there is an alternative. There are alternatives to everything in life. And I think one of the greatest things about FCA is that degree of optionality that’s build into the system that is phenomenal. And since you’ve asked me for a tangible proof of alternative, I’ll give you one. It’s a highly, unlikely alternative but it’s possible. To the extent that one could monetize any of the luxury brands inside this organization and particular people keep on harping about Ferrari. One transaction would exist in than in industrial bed of this house.
And if I were to play earnings against proceeds when they want and in terms of relative valuation, I mean it would be up by a mile. I’m not sure that it’s an advisable thing to do, nor do I think that we would not be paying a price in terms of a strategic positioning of the automotive house but it’s possible. And I think we need to be careful that we don’t so to start convincing ourselves that there is an inevitable capital call coming down the line forFiat.
I tried to give some warnings back to some people when I was in an investor road show. But the fact that I will not be advising people that go short to position on Fiat. They got to be very careful. We’ve been able, I think over the last 10 years to execute a variety of things that some people may have thought to be undesirable or undoable at the time and we’ve been able to execute and I’m not telling you to just to bolster.
I think that we have optionality within the system. I think we can execute a number of alternative transactions in the absence of a straight capital call. And the only thing I’ll suggest to you is that these are all things that will be left out as we move into Fiat Chrysler Automobiles. And I think all these things are committed to our U.S., Milan listing and we need to wait till then. We will be doing our homework in the interim to right answer going forward.
Philip Watkins – Citi
It could be debt convertible into some portion of shares of that business?
Sergio Marchionne – Chief Executive
It could be a variety of things. And I think you need to leave it our creativity to come up with what I can say to be the most shareholder-friendly solution for everybody concerned.
Philip Watkins – Citi
Thank you very much.
Sergio Marchionne – Chief Executive
Thanks.
Operator
Thank you. Our next question comes from Martino De Ambroggi from Equita. Please go ahead.
Martino De Ambroggi – Equita
Yeah. Good afternoon. Thank you very much for taking my questions. On the strategic issues, what are the next steps you have in mind? You already mentioned some M&A deals, but I understand –
Sergio Marchionne – Chief Executive
I think you’re going to have to wait till the plan in May. We are not that far away. We are one quarter away in a few days and then you’ll know everything.
Martino De Ambroggi – Equita
Okay. And always on the strategic issues, how are you looking for searching activity? There is possibility of finding a new partner possibly in Asia where you have a limited exposure. Is something that you believe is possible over the next, I don’t know few quarters or is something that is really, really difficult?
Sergio Marchionne – Chief Executive
I don’t — well, start answering the questions backward. I don’t think it’s difficult. As you all know, we have established a very strong relationship with GAC in China. We are now in the process hopefully of finalizing plans to developed the Jeep brand in China and including local production of the vehicle that continues to be the biggest unexploited potential that we have currently in our hands.
In terms of your broader question about whether we’re interested in strategic alliance whether it be in Asia or otherwise. I reaffirm what I said now for 10 years is that we remain totally open to anyways in which we could strengthen our competitive position and market place. And so we are in continuous dialog with the number of other automotive — other specific projects on a broader term alliances, none of which today, I would be willing to subscribe to or suggest that they are likely.
But the dialog continues. It’s in the nature of the industry and I think our people are actively involved in the dialog and at the relevant time, we would announce whatever has to be announced but I have nothing today of significance to tell you.
Martino De Ambroggi – Equita
Okay. And specific question on Maserati, you already commented about the change in programs and with dry down of R&D. Is this affecting your 50,000 target unit — unit target for 2015 and what could be the cap in terms of profitability for Maserati that showed already a very good profitability in Q4?
Sergio Marchionne – Chief Executive
Look, if I would take a step, 18% to 20% margins and that business would be ideal. I think if you started going above that, it would be sort of scraping — scraping the sky. I’m not getting afraid although we’re sitting over here, dreaming in technical numbers, coming out of the map, but — one I see no technical or promotional limitations to a 50,000 number by 2015.
We continue to work on the development of the SUV from Maserati, that’s something which has got the primary importance for the completion of the premium end of that brand. And we’re well on track to get that done. So I — all the signals and connection to Maserati are positive. I think we’re getting phenomenal market acceptance of the product and I think we have some very clear ideas now how to develop the remaining portion of the portfolio which has what’s led to the abandonment of previous architectural choices that have been made.
Martino De Ambroggi – Equita
Okay. And if I may, very last, when you announced CNH-Fiat industrial merger, you mentioned that financial cost of savings were the first upside, 140 million or 150 million into three years. What could be our reasonable gain for the new combined entity Fiat-Chrysler and is there anything else apart from financial cost that could be an additional upside which is not possible having 100% of Chrysler and that maybe before it was not enough developed or exploited?
Sergio Marchionne – Chief Executive
I may have made a comment earlier in my opening remarks but I think one of the programs that we are running into is that, to the extent we were trying to keep that we had to maintain because of the different ownership structures, I think the issue about how we are looking at the corporate opportunities across the globe and into recognition of the value of the contributing brand that begun an increasingly important product and there was no immediate way of resolving the potential conflict. And it added on inordinate amount of time in terms of the decision making process. All that stuff is behind us now.
I think we can move with execution in the speed of light and that remains the key objective. So in terms of the impact on our ability to move forward and to achieve target is the faster way that separation would have allowed, I think we have resolved a large portion of the stumbling blocks. All that stuff is part of history now which is making me a lot more comfortable about some of the assertions that we’ve made including the ability to call over million Jeeps in 2014.
In terms of the interest cost structure, I’m going to take Richard off the hot seat here because he — I think I know for affected years and had the time to go through this. I think it’s part of our presentation in May, we’ll show you what I think we can do in terms of capital structure and reallocation of cash and debt. And then I think he will give you a better indication as to where interest cost will go subject to whatever IAS 19 in terms of the inventory cost. So I think we’ll have a better view by then and I hold them from answering that question until then.
Martino De Ambroggi – Equita
Okay. Thank you.
Operator
Thank you. Our next question today comes from George Galliers from ISI Group. Please go ahead.
George Galliers – ISI Group
Yes. Thank you for taking my call. I have two questions. Just following on from the first question on North American capacity and specifically in relation to the Dodge Ram third-party data seems to suggest you are running at a very high utilization rate. To what extent, can you increase production on this product if required for our U.S. effectively maxed out?
Sergio Marchionne – Chief Executive
Well, to begin with, I like to correct you there is no such thing as a Dodge Ram. There is a Dodge car and there is a Ram truck brand. So if you’re asking me about trucks, I think we have enough capacity in the system to try and get to — I don’t want to start give you some numbers. I — because we are debottleneck in the plant on a continuous basis. We have put in some money in terms of improving the operating efficiency of the plant.
We have and continued to look at the possibility of setting up another truck installation to try and deal with this issue. I’m of the view that we should not be doing it and that we will not exceed to this. Potentially, we are low in concept of creating additional truck capacity in other, in United States or in Mexico.
So I much prefer to run the plants flat out and not build brick-and-mortar capacity in the system. So as much as that may have been sort of raises the possibility, I think the likelihood of that happening is certainly less than 50%. I do think that we’ve got property in the neighborhood of 15% to 20% additional capacity that is available.
George Galliers – ISI Group
Okay. Thank you. And then secondly, Mr. Marchionne, you have achieved a huge amount during your tenure at Fiat, often get the odds and the expectations. Do you have looked at consideration to handing over the reigns to someone else and when would be a good time to start this transition or do you feel there is still plenty of challenges you wish to continue to meet as we move into the new era with Fiat Chrysler automobile?
Sergio Marchionne – Chief Executive
Let me tell — one thing is absolutely certain is the number of challenges is not going to decrease. I think at the Detroit Auto Show, I confirmed the fact that I would be committing to a minimum of a three-year term with FCA. I stick to that commitment. I think one of the things that I have been lucky in doing it, surrounding myself with a bunch of leaders.
That have developed incredibly well, certainly over the last five years and my successor will come from that population. So — and it’s not to entice people to kill themselves to try and get to that role. I wonder why anybody who has a minimum sense of sanity would want this job anyway.
Well, on the assumption that we are summing, it was willing to do so. I think it would be improper to be perfectly honest to try and take somebody from the outside. Given I think the bond that has been created within the organization and the strength of those leadership team, I think it will be improper to give the right to lead to anybody else. I think we have a number of candidates on whom I’m working diligently to sharpen the skills and at the relevant time, I will pass on the leadership to them but it’s not going to be for the next two years.
George Galliers – ISI Group
Very clear. Thank you.
Operator
Thank you. Our next question today comes from Charles Winston from Redburn Partners. Please go ahead.
Charles Winston – Redburn Partners
Hi. Good afternoon. Two quick ones for me and then perhaps a slightly longer one. Just, can I confirm the €2.5 billion cash flow gain on the VEBA refi, that’s including principal payments avoided, I’m guessing and therefore, what would be (inaudible) to look at the impact on net debt? Is there anything at all? So that’s question one.
Question two, just on Chrysler GAAP numbers. Depreciation costs, very, very sharp turnaround, big, big increase in the second half. And actually in the first half they were down, so within the huge ramp up in depreciation, is that something once should read in terms of going forward instead of, should I be looking at the average for the year as a guidance, or is the second half of the guidance of depreciation there?
And I guess the final one, which is perhaps the longer-term one, which is — and I have asked this question before. It’s about the Chrysler gross margin. I mean, the gross margin fell again this year and looks to me round about 100 basis points in total since 2010 Chrysler analysis, seeing 70% revenue growth, good pricing. But the gross margins down about 300 basis points. But I understand that there are number of cost issues there and the capacity constraints and the number of issues behind it. But very few auto companies would see a 70% increase in revenues with good pricing and see their gross margins down 300 bps.
What can you do to turnaround this gross margin and when are we likely to see it? I mean, is it because everything has been run so tightly that actually you are running into inefficiencies and therefore, actually capital spending would address this in terms of actually helping improve the growth. I just don’t understand if that may will illustrate my lack of understanding of how this industry works, but 70% revenue growth and 300 bps growth just close to decline, just seems weird. And if you could help me understand that and how it might correct, I would be very grateful?
Richard Palmer – Chief Financial Officer
Okay. Charles, I will start with the easy one. The €2.5 billion is including the principal payments that we obviously won’t be making any further on the VEBA note. So that include those payments we won’t be making. It includes the impact of putting forward the deductibility of the tax attributes of the notes and it also includes the interest savings on the period. There will be no impact on net debt. We are switching one for the other, so there is no impact on debt but obviously there is an impact on liquidity as we go forward through ’15, ’16.
In terms of Chrysler depreciation, we are basically continuing to launch new products. As we launch those new products, our depreciation will be going up. I think the second half of year was a relatively good indication of run rate, but basically depreciation will continue to increase also in 2014. We are spending around $3.5 billion to $4 billion of capital a year and we have been for the last couple of years. Our depreciation for the full year was just off of 2.8. So, obviously that little mathematics indicates that we will continue to increase the depreciation charge for the next few years.
In terms of gross margins, we’ve had this discussion on a number of occasions. We do have inefficiencies in the industrial system as we launch these vehicles. We had delays on the launches. We had a very intense process of addressing the issues on the vehicles and getting them to the quality levels we needed to launch. We are running a number of our plans as mentioned already at very high capacity levels and our supply chain for a few years will not used to as far as making these numbers and actually exceeding them in terms of capacity allocations. So we need to work on the efficiencies going into 2014, because it represents an opportunity to improve margins.
Charles Winston – Redburn Partners
That’s clear. Can I perhaps take that very last comment of guidance that you think that the gross margin at Chrysler under U.S. GAAP might actually go up in ’14?
Richard Palmer – Chief Financial Officer
Yeah. I think we need to increase the margins in 2014, yeah.
Sergio Marchionne – Chief Executive
The answer is yes.
Charles Winston – Redburn Partners
Okay. Thanks.
Operator
Thank you. Our next question today comes from Alberto Villa from Intermonte. Please go ahead.
Alberto Villa – Intermonte
Hi. Good afternoon and good morning to everybody. Not many question left. The first one is on the targeted net debt at the end of this year. Can you give us an indication of what the CapEx implications are in this target? And the second question is on the negotiation you announced today on the Chrysler debt. Can this include in the future, maybe a negotiation of also over the senior notes that are bounding you to get total access to Chrysler cash generation in the future? Is it something that you are planning to do, or is impossible in your view? Thank you.
Richard Palmer – Chief Financial Officer
So in terms of CapEx, we are looking at the CapEx for the full year ’14 of around €8 billion, about €0.5 billion higher than we had in 2013. And in terms of the second-lien notes that I think as you are aware, the second-lien notes have a make-call provision on early repayment, which extends through 2015 for the 19 notes and 2016 for the 21. So as we get through 2016, there could be a much more economical and interesting argument for looking out repaying those earlier than their maturities.
And clearly there would also be a benefit to consolidating the debt structure of Fiat Chrysler Automobiles at a single level, which would be much more efficient from all sorts of reasons. So we will be looking at that going forward. We have no plans today to do anything because obviously it’s too early. But there is an opportunity there as we move forward.
Alberto Villa – Intermonte
Okay. Thank you.
Richard Palmer – Chief Financial Officer
Thank you.
Operator
Our next question today comes from Stephen Reitman from Société Générale. Please go ahead. Okay, Mr. Reitman, your line is open. Please unmute yourself if your phone is muted. Okay, it maybe that he stepped away. We will move to our next question, Tom Shandell from GoldenTree Asset Management. Please go ahead.
Tom Shandell – GoldenTree Asset Management
Hi. Thank you. I just wanted to clarify if I can. The pro forma balance sheet of Chrysler, you spent in cash for the purchase of the minority interest of Chrysler’s, a $9 billion plus the $175 million initial payment, is that correct? And then I guess just the pro forma for the financing, we just add in the $4 plus billion of new securities, part of the term loan and part of the senior secured notes, is that correct?
Sergio Marchionne – Chief Executive
Yeah, basically. But the last part of this payment, the additional financing that we are talking about that is designed towards extinguished earnings has been debt.
Tom Shandell – GoldenTree Asset Management
Yeah. You can take out the VEBA notes.
Sergio Marchionne – Chief Executive
…which is part of the debt structure at Chrysler today. It’s not new borrowings. It’s just — it’s the repayment of a note with an under set of instruments. But I think what Richard mentioned, which I think we should pay attention to is that at the end of December ’13, Chrysler was in a net cash position for the first time in its history. So since you are doing pro forma numbers, I mean it’s actually has zero industrial debt.
Tom Shandell – GoldenTree Asset Management
That doesn’t change. It will just be more senior in the capital structure with some collateral.
Sergio Marchionne – Chief Executive
Yeah, it’s going to improve over ‘14.
Tom Shandell – GoldenTree Asset Management
Okay. But the change in cash from year end is simply €1.9 billion plus the €175 million first payment?
Sergio Marchionne – Chief Executive
Yeah. That’s correct.
Tom Shandell – GoldenTree Asset Management
Okay, good. I’ll change subject now. In terms of the December sales figures that were released a little bit ago. Jeep is growing, Ram is growing. There is some softness in some of your cars. The Chrysler 200-300, the Dart, I was wondering if you can address trends in cars, car sales and I wasn’t at the Detroit show but if the new announcements are meant to alleviate that?
Sergio Marchionne – Chief Executive
The answer to your question is backward. Yes, the design to alleviate the problem note, Chrysler 200 and the Dodge Avenger are two early of those cars that we have in our fleet. And we did all working them back in 2009-2010. While the new Chrysler 200 is intended to replace both of them in the market place. And so we have — we think we now have a comparative vehicle to really give us a significant presence and what is the largest passenger car portion on the U.S. market. So we needed this car.
The initial reactions for the car have been phenomenal. We will be in market by the end of Q1 of this year, beginning of Q2. So I think we’ll start — we should be able to see the result to this in the first half of 2014. The stickiness that you made reference, you got to be careful because we have actually been along those cars intentionally to make sure that we can deal with the transition into the plant from the old avenger, old 200 to the new one.
The plant will be out of stipulation for roughly 30 days and royalties sometimes to ramp it up to adequate production cycles. So we will not — if we’ll drive down an additional 75 days for the time we take the plant down before you can start seeing some semblance of what I consider to be an acceptable operating performance out of Sterling Heights plant, it would be helpful.
So once you start knocking off that kind of space from the calendar, you’ve got to make sure, you got enough coverage on the ground with dealers to try and bridge you over. And that’s why when you look at the inventory number even at the end of December, it was exceptionally high for that time of the year and surely unusually high for us.
Tom Shandell – GoldenTree Asset Management
And how about the Dodge Dart, I mean, I think people had the greater…
Sergio Marchionne – Chief Executive
Well, people and us on the inside have greater expectations for this performance. I keep on saying what I’ve repeated now in a number of calls. I think we have a phenomenal car at an incredible value but the car is over contented for the market and for the segment in which it plays. And I think the challenges on us to find a solution to that over contenting and we’re working on this and hopefully it would be evident within 2015.
Tom Shandell – GoldenTree Asset Management
Okay. Great. Last question on as recent as the third quarter earnings call for Chrysler, the guidance for operating profit was slightly higher than the actual that you did. The guidance was 33 to 38, you did 32. What happened between the time of the earnings release and year end that led to slightly missing?
Richard Palmer – Chief Financial Officer
I think, we basically expected to ship a few thousand more vehicles, I mean short…
Sergio Marchionne – Chief Executive
We’re short 50,000 cars. I guess the internal forecast at the end of Q3, it’s that simple.
Tom Shandell – GoldenTree Asset Management
Okay. I appreciate that.
Sergio Marchionne – Chief Executive
If we made that…
Tom Shandell – GoldenTree Asset Management
I’m sorry.
Sergio Marchionne – Chief Executive
The number is exactly 50,000. I won’t tell you which one’s they are but it doesn’t take a rocket scientist to figure it out. We’re short 50,000 cars, that’s the single largest difference between September and December.
Tom Shandell – GoldenTree Asset Management
Okay. Thank you. I appreciate it.
Sergio Marchionne – Chief Executive
Thank you
Operator
Our next question today comes from Max Warburton from Bernstein. Please go ahead.
Max Warburton – Bernstein
Yeah. Hi, everybody. Can I just ask you question on Brazil and then I could ask a few questions on — more questions on Asia. On Brazil, you talked that there are about some of the mid-terms issue to that — in the economy et cetera but essentially profitability for everybody in that market has been on a downward trend, it’s the best part of the five year. And simplistically, do you think this can never be the double-digit margin market again for Fiat?
Sergio Marchionne – Chief Executive
Well, I normally don’t disagree with you Max. But I think it’s untrue that it’s been a declining profitable market for all of our competitors. I think, I’d have to back and look at GM and Volkswagen over that period of time. But surely in terms of our experience, we’ve been able to hold the last five years. We have had double-digit margin years and we’ve only experienced a severe contraction of profitability in the fourth quarter of 2013 which is abnormal and certainly out of series with what we’ve been able to do in the past.
In terms of your question about whether I think in the next five years it will be able to do that. I have a high degree of confidence that we’ll be able to do and it is not because of the fact that I think that the market itself is going to be incredibly generous with us going forward. I think that the composition of our earnings profile coming out of Brazil was substantially changed. Once the Pernambuco plant goes on extreme for two reasons, one because the margin retention capability for the product portfolio that has been launched both through the Fiat, the larger vehicles for Fiat, the more importantly for Jeep.
Our debt margin profile was substantially different than toward the mass market production that comes out of our team facility but more importantly because margins will be positively impacted by the way in which the tax regime works for any car that is producer of the state for the first five years of production. So my expectation as the fourth cycle in 2016, you will see a completely different composition of earnings coming out of Brazil and more than like through restoration of double-digit performance in the area. You are either stunned or incredulous or the line went dead.
Operator
No his line is still connected, Mr. Warburton, are you on mute?
Max Warburton – Bernstein
Can you hear me now? Sorry. Technical issues. Can you hear me now?
Operator
Yeah.
Max Warburton – Bernstein
Okay. Sorry. Turning to Asia Pacific and the way this region, is this crest up on us and has become a really quite important part of Fiat earnings. Obviously, a lot of companies make large margins in the region. How is it so profitable, I mean is it accounting fair? Are you properly loading central cost and to the units been sold in Asia Pacific. Does that margin you’re reporting very accurately reflect the pricing environment and a proper profit contribution of those vehicles?
Sergio Marchionne – Chief Executive
The answer to your question is obviously not. I mean, you can’t load all the central costs associated with running at €2.6 million car company into products that are being sold into Asia. But we are properly loading the product cost of those cars. Ignoring, what I can say to be the last — I mean, we sell Jeeps in China. There are lot of costs that are incurred by the Jeep brand globally to maintain brand recognition and brand presence. We don’t allocate all those costs to China as we try and justify the value of the brand in that jurisdiction.
It’s part of a — it’s a result of the global effort to effect of the internationalized Jeep and it’s benefiting our position in the jurisdiction. But it doesn’t — if you work to curb out APAC you can forget about those margins, it will never happen. I can’t spin-off APAC and say, hey, you just do this and it would be the most profitable operations I would like to own personally. It’s got limited capital of commitments, so it makes great margins out of our business. But you can’t disconnect it. But it does reflect proper product costs and proper execution costs in the region with the sales that we are transacting in APAC. But that’s already reflects. It can’t exist without another ship. So without Auburn Hills, without the rest of the Jeep brand, it can’t deliver what it delivers.
Max Warburton – Bernstein
Okay. And just trying to understand what goes in the number. I have asked about this before, but any diesel engine that’s being sold to other companies in India. Is that included in the APAC number and is it significant? And is the arrangement with GAC even if — in China, it’s not yet profitable, is it contributing a sizable chunk of EBIT to FCA as reported in the number?
Sergio Marchionne – Chief Executive
The answer on the GAAP side north and in terms of the engine question, I don’t think I will move the forecast base without profitability of the engines trends. So it’s probably related to the number of cars that are being sold. God bless them.
Max Warburton – Bernstein
Okay. And then just final question, you are very close to announcing something on Jeep. There has been lot of reports in China about whether the product can go down the same line as the Fiat product because it’s got a share of platform, whether you are going to be forced to either take on another of their (inaudible) class of building new one in Guangzhou, is this a big issue, does it affect the economics of the project for you?
Sergio Marchionne – Chief Executive
Not at all, I think it just short terms the time to market. And to prepare for the analysis as one — business capacity that already exists if in fact you want to plan to be the victim of the intervention. And I think you are probably right, but I don’t think it’s going to be — I mean it’s not going to be detrimental to us and so it’s not going to be detrimental through joint venture. It just accelerates the introduction of the product, which is what I want.
Max Warburton – Bernstein
And it follows the Cherokee, right — the new Cherokee?
Sergio Marchionne – Chief Executive
It’s a version of the Cherokee.
Max Warburton – Bernstein
Okay.
Sergio Marchionne – Chief Executive
The Jeep brand is capable of doing just more than the Cherokee so, but it is a version of that platform.
Max Warburton – Bernstein
Got it. Thanks for the answers.
Operator
Thank you. Our next question today comes from Georges Dieng from Natixis. Please go ahead.
Georges Dieng – Natixis
Yes. Good evening. I have a few questions. First of all, on the emerging market currencies, I was wondering if you could give us some color on your sensitivities to the main currencies and in particular what about the devaluation of the Argentine peso could have a similar impact to one you felt from the Venezuelan, Bolivar this year?
Sergio Marchionne – Chief Executive
I can put your mind to rest, nothing well be as disastrous as the Venezuelan and Bolivar. Our earnings would not materially change as a result of the devaluation of the Venezuela, of the Argentina pesos.
Georges Dieng – Natixis
Okay. Fair enough. Second point on, a follow-up on LATAM. You are addressing the both mid-term issues, I was wondering just short-term, are there any countermeasures that you can implement very shortly to offset some of the issues you are facing specially in Brazil and Argentina and again on Europe?
Sergio Marchionne – Chief Executive
Yeah, I think on the Brazilian side, we’ve got a very keen interest in maintaining profitability. So we will apply price increases as required. And if necessary, we will curtail production if capacity becomes an issue. We have not seen that issue in the marketplace, certainly not at the beginning of 2014. And we’ve been successful in pushing through price increases to reflect underlying inflation and component cost but so far so good.
But we will respond to the speed of light. It is a market that doesn’t hold a lot of inventories through distribution. So it’s a market that will require an adjustment and then we can adjust to it relatively quickly. But we’ve not seen an indication of other collapse or the demand or unnecessarily aggressive positions from our competitors.
Georges Dieng – Natixis
Okay. My last question is on Europe. Basically, when we look at the numbers you’ve done a pretty good job in determining the losses in the region. But I’m wondering whether you’ve grabbed the low-hanging fruits, or if there are lots of levers that you can use to take the region to a positive territory very shortly? And in particularly, I’m wondering what about the industrial or the distribution structure needs to be from a downsize, or if the next step is basically just a function of growing the volumes?
Sergio Marchionne – Chief Executive
I think the next step in fixing Europe is utilization of the investor network to produce something other than mass market bound cars. We big think on this issue. We do not see a future for the continuation of this industrial framework to try and satisfy demand in the market, which is over serviced. And so we’re slowly moving our productions assets towards that end you are seeing from the margins that we’ve been able to extract out of Maserati as to what is potentially doable. If these assets are utilized for the right brand for global distribution, I think we need to give us time to continue to develop the rest of the network on that basis.
I think, on completion of the plan, we will be more than in positive territory. But it’s not going to come from the traditional applications or the traditional brands in the European market. They just wont’ happen. And they continued to be incredibly negative about the possibility of this market to the affect of, they coming back in and producing margins that allow anyone to recover the capital of cost associated with the investments.
So we had to get out of the same box. We’ve had this discussion before. And I’m as convinced now as I’ve ever been, but the fact that our strategic direction is correct. But it’s not going to happen — certainly mass market cars. I can tell you it won’t happen. There is not enough margin left in the business to try and get that done.
Georges Dieng – Natixis
All right. But even if we look and admire the strong performance of Maserati, I didn’t find in the charts, the update on utilization rates and so on and so forth. But I was wondering if you look at the system — the industrial system today in Europe, what needs to be done. I mean, do you still need to adjust capacity reduce workforce and also is there anything to be done in terms of the dealership network for instance, is it right sized or do you need more downsizing there?
Sergio Marchionne – Chief Executive
Well, no, I think that we need to redirect and reshape the distribution network in terms of what we are doing with Alfa Romeo which we’re hopefully be in a position to discuss more opening when we get together in May.
But I don’t know how to answer your question, the answer is, correct. If I could do anything I have wanted, what I keep the industrial network that I’ve got today and the answer is absolutely not, right. And you’ll get that answer for me and you’ll get it from the CEO of Peugeot Citroen, you’ll get it from the CEO of Renault, you will get it from everybody.
Everybody understands the issue of overcapacity in this market and understand that we are dealing with sharp contested watchers. Unless you have optionality with the investor network, I think you fundamentally in deep do-do, when I and we have been able to find the way to extricate ourselves when predicaments buy, developing brands that are available within the Group and which have a completely different market application in Europe.
If you look at the Maserati volumes, I mean, these are not European volumes, a small portion of these are Europe bond, the rest of is for distribution across the world and we need to be able to replicate that with Alfa Romeo and overtime deal with the issue of saturation of the industrial network, but it’s going to take time and it’s going to take patience and we need to wait for that to happened. It’s not going to happen in 2014, I can tell you. We’re going to see some significant improvement I think in 2015, but ’14 is a transition year.
Georges Dieng – Natixis
Okay. That’s pretty clear. Thanks very much.
Operator
Thank you. Our next question comes from Alessandro Foletti from Bank am Bellevue. Please go ahead.
Alessandro Foletti – Bank am Bellevue
Yes. Good afternoon. I have two little understanding questions. When I look at the presentation of Chrysler, you have taking the net cash position of $1 billion and in the other one €250 million, what am I not understanding here, this is the first question?
And the second question on the tax, guidance for 2014 basically sort of tax gain €400 million which seems to be reversal of the, sorry, tax charge, additional tax charge of €400 million which seems to be reversal of the €1.5 gain that you look in 2013. We have to expect another two charges of €500 million in 2015 and 2016? Thank you. Hello?
Sergio Marchionne – Chief Executive
Is going to be right within.
Richard Palmer – Chief Financial Officer
The difference in the net industrial cash position is basically that we have a low carrying value for the VEBA Note in Chrysler’s U.S. capital as compared to Fiat. For us accounts because the purchase accounting exercise is what will carried out two different dates and the result of that between 2009, 2011 was that we booked it at base value in Fiat books and carrying value, the carrying value which was a discount in Chrysler. So the first accounting difference in the valuation of the principal on the Note.
Sergio Marchionne – Chief Executive
To translate all that [gaballi goose] in plain English. When Fiat booked the VEBA Note, it booked at the nominal value, which is the amount — the phase value of the Notes went in the original accounting SAR.
For Chrysler, obviously, given the degree of uncertainty about the ability of the company to repay its debt, the discount rate there was a sign to the valuation of that Note was much higher than the one that’s associated with the Note itself. So we booked at much lower value.
So that difference is a difference between two set of accounts, but its pure accounting [gaballi goose] we all them the nominal value of the Note plus accrued a non-paid interest and that number as of the end of December is very close to $5 billion.
Alessandro Foletti – Bank am Bellevue
All right. Thank you.
Operator
Thank you. Our next question today comes from Stephanie Renegar from JP Morgan. Please go ahead.
Stephanie Renegar – JP Morgan
Hi. Thank you very much for taking my question. Some of them have already been address. But just you mentioned talking about potentially in the future consolidating the data Fiat Chrysler. And I was wondering if you we could initially look at the example of Fiat Industrial in terms of this reverse merger. So what happens to in particular the Fiat bonds?
And then also with the secured issuance that you’re planning to take out the VEBA Note, I think on past calls you talked about liking that Note because it was an unsecured Note. Can you talk about your plans in terms of secured issuance in intermediate term?
Sergio Marchionne – Chief Executive
I’ll give you the short answer and then Richard can give you a longer one. I think we’re done after this issuance.
Stephanie Renegar – JP Morgan
Okay.
Sergio Marchionne – Chief Executive
On the secured Note side. All right. Like if you look at the history of Fiat,Fiat is not raised debt on the secured basis, certainly since I’ve been here and all the things it’s done historically. So the Chrysler deal was certainly anomalous and reflect of the times.
I think we find that expedient efficient to access that pool of financing today. I think you need to confine it to debt structure and utilization of that access that our repayment what I consider to be in market conditions high interest costs Note with VEBA and I agree with you that, so that the fact that it was unsecured and had this uneven repayment schedule that was going up to 2022 removed anybody payment pressure from the structure, but it’s economically unwise to keep in place.
When you run through the numbers and you look at the net present value and I using it is non-sensible stuff. But if you look the actual economic benefit of Chrysler are prepaying those Notes, accelerating the tax deduction of the Note and lowering the interest yield, I mean is that been a number of access of a billion.
And leaving a billion on the table with the ability to try and execute over the next 30 days. That route gets the price all the time, for a billion dollars I’ll move it at speed light, I’ll do it for less because you are wondering but for a billion for sure.
Stephanie Renegar – JP Morgan
Thank you. And in terms of the bond structure at Fiat S.p.A., because there is a lot of outstanding Notes. I was just wanting to get your thoughts about, if those bonds are staying where they are, or if the guarantee is moving into this new entity?
Sergio Marchionne – Chief Executive
I think the guarantee of those bonds to the extent that the guarantee was originating out of the Fiat S.p.A. will pass to the success of company.
Stephanie Renegar – JP Morgan
Thank you very much.
Operator
Thank you. Our next question comes from Heinrich Moller from King Street Capital.
Heinrich Moller – King Street Capital
Hi. Good afternoon. I’ve got two questions. The first one relates to the temporary redundancy in Italy. I was wondering whether you can quantify roughly what the P&L impact would have been in 2013 if there was no redundancy?
And then the second questions regard to depreciation. If you look at the sort of your depreciation excluding unusual, it’s roughly €4 billion below CapEx. I’m just curious what your sort of long-term depreciation than they should be?
Richard Palmer – Chief Financial Officer
Yeah. Just give a second? Yeah, $5.5 billion of D&A, it’s not net of anything. So that’s the D&A we’re running through the income statement today. Obviously we’re running at a higher level of CapEx on that because I told you for 2014, we’re going to be 8. So clearly, we’re going through a larger investment cycle and we’re not going to run 8 billion forever. But I think there will be some increase in the D&A over the next two or three year as we complete the product actions we’ve discussed in the last couple of — in the last few calls. So…
Heinrich Moller – King Street Capital
Maybe on the demand into rephrase sorry to interrupt. If I take the EBITDA about €7.5 billion, deduct the training profit then I get to about €4.1 billion so that ignores unusuals. If you would look back historically and not have made many impairments, what would that D&A have been, the ongoing D&A, not the one-off unusuals which you’ve booked some of this year as well?
Sergio Marchionne – Chief Executive
To be frank, if I go back and do — I haven’t done the exercise. So I don’t know the answer to the question. But I don’t think it’s particularly relevant and as much as the D&A today, ex-unusuals, is lower than our CapEx run rate and I expect the D&A to go up by about €300 million or €400 million next year and probably a similar number a year after as we complete the launches of the new products we’ve been discussing.
Heinrich Moller – King Street Capital
Thank you. But €1 million to about €8 million CapEx…?
Sergio Marchionne – Chief Executive
No, no. No.
Richard Palmer – Chief Financial Officer
No, but we won’t be spending €8 billion on the infant item either. So there is a point in time, where these two numbers were.
Heinrich Moller – King Street Capital
Thank you. Thanks for that. The other one is the temporary redundancies in ATM. Just curious what that cost would have been, if none of us redundancies were taken during the 2013. What could be the additional and stuff costs for 2013?
Sergio Marchionne – Chief Executive
We have never given up that number. Let me see whether we have access for this. It’s under a €100 million of — that’s a rough number. We normally don’t give it out but it’s under €100 million, I would not — I wasn’t sure about the number — but it’s roughly right.
Heinrich Moller – King Street Capital
Thank you.
Operator
Thank you. Our next question comes from Richard Hilgert from Morningstar.
Richard Hilgert – Morningstar
Thanks and good afternoon. I was curious to know a little bit more about the Jeep potential. We are talking about a million of units for 2014. Is that kind of stretch number or is that kind of goal that, your view has been solidly attainable and how much of that includes unit volume headed for Brazil?
Sergio Marchionne – Chief Executive
Later to Brazil and the number is attainable and at stretch.
Richard Hilgert – Morningstar
Attainable and stretch. With the import tariffs in Brazil along with your increases in capacity in the region. Is there opening for Jeep production in Brazil?
Sergio Marchionne – Chief Executive
Yes and it will go in production in 2015.
Richard Hilgert – Morningstar
In 2015, do you have to bring in grand share key or is the plant down there to have the Cherokee and potentially a smaller youth at a later time?
Sergio Marchionne – Chief Executive
The Cherokee will not be — another Cherokee nor the grand Cherokeee will be produced in Brazil. We’re talking about smaller segment cars both in the B and the C segment or the medium in the smaller segment everything else becomes into Brazil will be an import to U.S..
Richard Hilgert – Morningstar
Okay. Then with respect to the debt, the change — or the refinancing has no impact on the covenants that are already exists and that limit cash flow between Chrysler and Fiat. However, the covenants that are already in place, they include a $500 bucket along with rolling cumulative net income from Chrysler. Does that net income…?
Sergio Marchionne – Chief Executive
After 50% of that net income.
Richard Hilgert – Morningstar
After 50%, okay. And what you paid out — what was paid out in dividend from Chrysler?
Sergio Marchionne – Chief Executive
$1.9 billion.
Richard Hilgert – Morningstar
1.9 billion?
Sergio Marchionne – Chief Executive
Correct.
Richard Hilgert – Morningstar
After — did that include net income through …
Sergio Marchionne – Chief Executive
The best answer to your question is there is additional unused capacity within the basket.
Richard Hilgert – Morningstar
And those are keys accumulating as Chrysler makes net income for …
Sergio Marchionne – Chief Executive
Correct.
Richard Hilgert – Morningstar
….2014, 2015 and so on?
Sergio Marchionne – Chief Executive
There you are.
Richard Hilgert – Morningstar
Okay. Very good. Thank you.
Sergio Marchionne – Chief Executive
Thanks.
Operator
Thank you. Our final question today comes from Stephen Reitman from Société Générale. Please go ahead. Please go ahead.
Stephen Reitman – Société Générale
Yes, thank you. Apologies before for technical problems. Couple of questions on Chrysler. On the fleet in the U.S., you were 22% in 2013. Could you give us some idea what dated rental proportion was and do you think you’ll see mix is going to decline in 2014 as you launch the 200 which presumably you have a higher retail target for than the current model?
Sergio Marchionne – Chief Executive
I’ve always — let’s begin with the number for ’13 was 22% just wanted to be clear. We were the lowest — one of the lowest and certainly I’ll do the choice history. It’s 75% of that was, what you called daily rental. We’ve always said that we were trying to keep that number an absolute term takes. So but the estimation of the percentage of total sales would go down and that’s our expectation in 2014. We need to be careful because the 200 is a car that has a significant relevance in the rental market. And we’re got to be careful that we don’t chock off several of our significant customers in their business. So some portion of it was there. My expectation although we don’t have sort of refine forecast yet is there — where we will be below the 2013 percentage number.
Stephen Reitman – Société Générale
Right. Moving onto Jeep, on the Cherokee. You — I think the retail was about $15,000 in the U.S. so I think $17,000 that you say for the month, but also cross territories. What is a figure that we could expect as you get to full production on the — as the plant or the monthly selling it would be indicated level of the Turkey’s potential in the United States, what do you say?
Sergio Marchionne – Chief Executive
That’s a tough question and I’m not sure that Mike Manley has given you an indication of overall retail volume that we expect for the car. I can tell you that we have an incredibly strong order book probably enough to fill the plants for the next 75 days which is unusual given the way in which the dealer network places orders, which is much further in duration. So I much prefer to give you a confirmation of that number by the end of Q1 after I see February and March.
Obviously we have high expectations of the plant in principle can make about 240,000 cars a year for global distribution including NAFTA. Let see, I mean, and obviously, I prefer to sell as many retail and NAFTA as I can. Let’s wait till the end of Q1 before we give you a firm number. It’s doing well and I don’t want to jinks with the forecast because you know.
Stephen Reitman – Société Générale
Thank you. Just finally on Brazil and I understand your guidance for the, what you expect the Brazil market to do in 2014. And just so that I fully understand what you also saying about Fiat, we saw in 2013 that in turning passenger car market, Volkswagen and Fiat took a quite a hit in terms of volume falling significantly more than the market itself. You alluded the fact that the market is changing and you need plant will certainly address that from 2015 in terms of having model which more relevant to the change in society in Brazil. Does that mean that you expect in 2014 at least to see still not build to match the market development.
Sergio Marchionne – Chief Executive
But it’s a real full choice on our part of not playing. I think, we need to be very careful here that we don’t start pushing ourselves into market share gains, it’s not worth it. So I — we’re going to transition through ‘14. I think we’ll hold our position. But I know, we will not take ’14 as indicative of anything because I think that the real issue is what happens if ’15 with the new plant comes on and how does that change the dynamics of the business.
Stephen Reitman – Société Générale
And I mean, just going back, sorry, just on Brazil, I mean, clearly we’ve seen some significant gains from the companies that have set up more localized production. I think particularly Hyundai and Toyota who had the significant gains in 2013. Have they change the total dynamic you think the pricing in the market or are they — is that having any impact as well or is it otherwise your business as usual?
Sergio Marchionne – Chief Executive
No. I really don’t think, I don’t think it impact pricing at the current portfolio product. I mean they brought in some newer products and you got to be careful when you talk about capacity expansion is still the truly comparable that the kind of production capacity they were installing in Pernambuco.
And I don’t want to be disrespectful on my Asian competitors. But at least in the contextual while and I think there is an issue as to effectively — as to is effective production in the country or not there maybe more of a CKD operation which obviously has got some really negative implications in terms of margins.
But I’m not concern about how do they’re coming on. I think the three — the ones that you made reference to are not indicative of the — beyond ongoing comparative battle between ourselves, GM and Volkswagen. I mean those are the three players that I think have sort of curved out a particular space in the marketplace and the rescission is to, who takes what is limited to those three. I don’t think that the Asians are today destructive of that competition is that there are almost playing on the side.
It will be much more into to see what happens when Pernambuco comes on and how we handle the additional volume in the presence of the marketplace. That’s why I said 2014 I will be incredibly, I would be happy if we maintained sort of ’13 operating performance and so tackling ‘15 with so only a different view. It’s very difficult to call Brazil in 2014 because of all the things that are going on, there is a Presidential election at the end of the year that the World Series there is — there are a lot of extraneous factors that are going to impact the performance of that market, most of which are designed to be — I think I intended to be positive.
And so I remain cautiously optimistic. The forecast that we gave you, I think is a balance review. It we may do better than that. But you are asking me to start taking you through the intricacies of the way in which we manage Brazil. And I think that and I’ve given you as much as I can in terms of the broad lines. In compare to market, but I think that there is an understanding as to — in terms of the other big players as to what the implications are, particularly offensive practices in a market as disciplined, so let the market adjust this in the process of that now.
Stephen Reitman – Société Générale
Thank you. And finally just on Maserati, congratulations on fourth quarter margin. Suddenly, it’s being achieved on a relatively with low volume compared to the 50,000 target you have for 2015. So, what was it that drove to such a high level of the margin in the fourth quarter and considering that you will have a much higher volume in 2014? If you take 2000, why can we not take the closing quarter as a baseline for looking into 2014 then?
Sergio Marchionne – Chief Executive
We don’t, because there is development work that’s going on in Maserati. And that’s why I said, I mentioned that in my remarks in the opening, don’t take 15% margins as being sort of expected performance quarter-by-quarter. There will be ups and down as we work our way through to 2014. The volumes will be up but there will be additional distribution costs associated with that entry. And we continue to develop the next generation cars inside Maserati, is it got additional costs. We are building capacity within the system together with the development of help of these all things that will ultimately impact on performance.
And I have to be very careful about sort of extrapolating that and going forward. I think we will have a much better view after the Levante comes on stream in ‘15 then you’ll see full cycle and potential earnings coming out of Maserati, because then the expansion of that product range is going to be limited to potentially a group and to replace the GranTurismo, which may happen at a later part of ’15, early part of ’16. So, I would caution you against using the margins generation on Maserati in Q4 as being sort of indicative of baseline performance through out this year.
The best caution for us to do is to give you better guidance when we get together in Q1. And then we will give you a better indication as to where we think we can take margins. Now, the quarter was exceptionally profitable. I think we had — we shipped everything we had. We run a very lean machine. I think that cost structure will levitate up in 2014 and that will notably impact margins for at least part of the year.
Stephen Reitman – Société Générale
Thank you.
Operator
Thank you. That will conclude today’s question-and-answer session. I would now like to turn the call back over to your host, Marco Auriemma for any additional or closing remarks.
Marco Auriemma – Head, Fiat Group Investor Relations
Thank you, Barbara. We would like to thank everyone for joining us today. My team and I look forward to following up any further questions. We look forward to seeing you in early May for the Capital Market Day. Have a good one. Bye.
Operator
Thank you. That will conclude today’s conference call. Thank you for your participation. You may now disconnect.
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