Investors want auto companies to reorganize or break up to unlock value, but the track record for these moves isn't good.
When Fiat Chrysler Automobiles spun off Ferrari in an initial public offering in 2015, there was plenty of skepticism around one obvious aspect of the plan: increasing Ferrari sales by thousands of cars a year.
Sales had been capped at 7,000 annually, but FCA CEO Sergio Marchionne wanted more. The risk was losing Ferrari's aura of exclusivity.
The fears were unfounded, and Ferrari's stock has been on a tear, up almost 130% over the past year and over 80% year to date. The Italian automaker has outperformed every other asset in the sector, including Tesla.
Ferrari's success has encouraged considerable speculation about which brand Marchionne will spin off next. Bets are on Maserati, which has enjoyed a 2017 sales surge thanks to the debut of the Levante SUV.
It also has the financial community pressuring automakers to break themselves up. At Bloomberg, Eyk Henning, Christoph Rauwald, and Aaron Kirchfeld reported on a planned reorganization of Daimler, Mercedes' parent company.
"Valuations of global auto manufacturers have been squeezed as the industry faces a seismic shift toward electric cars with new digital features such as ride hailing," they wrote. "This has sparked calls from analysts and investors to weed out convoluted conglomerate structures in order to unlock value."
In the US, General Motors has become a candidate for brand spinoffs, despite the carmaker's grim history with what it derisively terms "financial engineering." A spinoff of the parts maker Delphi ended in a lengthy bankruptcy, and GM has recently contended with two activist-shareholder battles in as many years, focused on share buybacks and, in the case of a defeated scheme from Greenlight Capital's David Einhorn, an effort to create two classes of stock.
Investors are misreading Marchionne's objectives, however. Unlocking value isn't his goal — he's trying to ease the Agnelli family, which controls FCA, out of the car business. He's retiring in a few years, and the car business is capital-consuming, low-margin, and depressingly cyclical. The Agnellis and their private-equity concerns would like to concentrate on other opportunities.
In this context, Ferrari was a fluke — but an unexpectedly good one for Marchionne, who may remain CEO of the Prancing Horse after he rides into the sunset at FCA.