Joseph Veltri - Fiat Chrysler Automobiles NV Richard Keith Palmer - Fiat Chrysler Automobiles NV Sergio Marchionne - Fiat Chrysler Automobiles NV.

George Galliers - Evercore ISI Brian A. Johnson - Barclays Capital, Inc. Martino De Ambroggi - Equita SIM SpA John Murphy - Merrill Lynch, Pierce, Fenner & Smith, Inc. Rod Lache - Deutsche Bank Securities, Inc. Thomas Besson - Kepler Cheuvreux SA Stephen Reitman - Société Générale SA (UK) Richard Hilgert - Morningstar, Inc.

(Research) Philippe Jean Houchois - Jefferies International Ltd. Lello della Ragione - Intermonte Sim SpA José M. Asumendi - JPMorgan Securities Plc.

Good afternoon or good morning, ladies and gentlemen, and welcome to today's Fiat Chrysler Automobiles 2017 Third Quarter Results Webcast and Conference Call. For your information, today's conference is being recorded. At this time, I would like to turn the conference over to Joe Veltri, Head of FCA Global Investor Relations. Mr.

Veltri, please go ahead, sir..

Thank you, Sergei, and welcome to everyone who is joining us. You will find today's presentation material along with the related earnings release that we posted earlier today under the Investors section of our group website. Our call today is – will be hosted by our CEO, Sergio Marchionne and Mr. Richard Palmer, our Group Chief Financial Officer.

After their presentation, we will be holding the customary question-and-answer session with both of those gentlemen.

Before I begin, I wanted to point out that any forward-looking statement that we might make on today's call are subject to the risks and uncertainties that are mentioned in the Safe Harbor statement that can be found on page 2 of today's presentation and the call will always be governed by that language.

With that, I'm going to turn the call over to Richard..

improved EBITDA of €160 million; improved finance charges, down nearly €200 million; and reduced cash taxes, down €130 million. And also lower pension contributions with no repeat of the €300 million pension contribution we made last year in the U.S.

So all of those factors helped us to maintain our net industrial debt at €4.4 billion in the quarter, notwithstanding the seasonality of negative working capital, principally in the European region. Moving to page 9, we talk about NAFTA segment. The U.S. SAAR for the quarter was 17.4 million units.

The retail SAAR was 14.9 million units, slightly down from 15.3 million units. The Canadian SAAR was up to 2 million units from 1.9 million units last year. Our U.S. sales were down 10% and retail was down 4%. So most of the reduction was driven by fleets as I mentioned before. Fleet mix of U.S.

sales was down to 15% versus 21% last year, and the 20,000-unit reduction in retail sales was driven by – principally by the discontinued Dart and Chrysler 200, and Cherokee, as we continue to transition into Belvidere, slightly offset by improved performance from Ram and from Alfa.

The fleet reduction of 39,000 units was mainly driven by discontinued old Compass and Patriot, and constrained journey as we ramp up the Compass in Toluca.

If we look below at the margins, as we mentioned, margins were up 40 basis points to 8% in the quarter, positively impacted by market mix and nameplate mix, principally the improvement in retail compared to fleet, and the improvement in Ram and Alfa. Net price was basically flat in the quarter as we transition also to model year 2018s from 2017s.

We had some increased warranty charge in the quarter for some old model years on powertrain, which we had a higher spend on than our forecast rates and so we've adjusted that. We had also some costs as we continue to spend money on the realignment of our industrial capacity, slightly offset by purchasing efficiencies in the quarter.

SG&A was flat, and that gets us to the 8.0% margin performance. Moving to Asia-Pacific on page 11, the industry in China was up 8%, Australia was flat and India was up 13% driven by launches in the SUV segments in India and which has included our locally produced Jeep Compass.

FCA combined sales were up 8% to 66,000 units, of which Jeep sales were up 18% to 58,000 units. Our regional market share was flat for the quarter. Inventories were up from 97 to 108 days, driven by the launch of the all new Jeep Compass and the Alfa Romeo Giulia and the Stelvio ramp-ups. Consolidated shipments and revenues were basically flat.

And revenues were also impacted by exchange. If we look at our adjusted EBIT walk, you can see that the volumes were up slightly at a consolidated level. And our positive mix was driven mainly by Alfa and the non-repeat of the sellout of damaged Tianjin units last year. If we look across, we have some unfavorable FX in the industrial costs.

And on the other column, you see the impact of the Tianjin insurance claim. So overall, we would have margins up slightly year-over-year, notwithstanding the impact on (12:12) exchange. Going to page 12, we see EMEA performance. Sales were up 5%. And our share in passenger car was up 10 basis points.

LCV, the industry was up 5% and our share was down 10 basis points to 10.9% due to a non-repeat of a fleet deal last year in Italy. Our passenger car sales as a whole were up 4%, continuing to be driven by the Tipo family and also by the all new Alfa Romeo Stelvio. And our LCV sales were up 9% mainly due to Ducato.

Shipments were down 10,000 units, mainly due to lower volumes in the UK as we manage profitability in that market following the depreciation in the British pound. And net revenues were basically flat at €5 billion. Adjusted EBIT moved from 2.1% to 2.6% and continues to be driven by positive mix.

We had, as I mentioned, some higher incentive spend and also the impacts of the British pound was about €40 million in the quarter. And then we had some positive impacts from cost management both in the industrial area and in G&A cost, getting us to the 2.6% margin for the quarter.

Maserati on page 13 had another strong quarter with margins up to 13.8% from 11.8% last year. Volumes were down due to normal market seasonality as we already talked about on the prior call, and we expect Q4 volumes to be strong as seasonality, and particularly in NAFTA, impacts the market. Our performance in general – all right.

Our performance in general was up because of Levante, slightly offset by Quattroporte. And revenues were impacted by unfavorable FX, but we offset this with better option content and also industrial cost actions in the factory environment. Overall, a strong performance from Maserati. I think I've just been told I missed LATAM on page 10, I apologize.

So I'll go back to page 10. Latin America, we're starting to see some positive trend in Brazil, in the market which was up 15% year-over-year, and also continues to be up in the first half of October. So it doesn't appear to be solely an impact of the Enova energy efficiency measurement period that ended in September.

And also Argentina was up 19% in the quarter. Our market share was slightly down in Brazil due to strong competitive actions on price from some of our competitors in the A and B segments, and we're managing our margins accordingly. And our Argentina share was up 12% – up to 12% from 11.2% last time. Inventories were fine at 37 days.

Shipments were up 26% and our revenue were up were up strong 44% at constant exchange, also helped by positive mix of the vehicles coming out of Pernambuco.

So as you can see in our EBIT walk underneath to get us from the 1.1% negative margin last time to the 2.8% positive margin in the quarter, strong performance from volumes and mix as we ship the new Compass and the Argo and the Mobi, positive impacts of pricing in Argentina and lower tax impacts in Brazil following the closure of the (16:20) issue as we talked about on the last call, slightly offset by inflation and depreciation, amortization for the new vehicle launches.

Moving to page 14 on Components. We had flat revenues impacted by unfavorable FX to some extent. But notwithstanding that, we had a strong performance on margins with an improvement from 4.7% to 5.3% last this time. And in particular Marelli was strong on the industrial efficiencies.

Marelli also acquired a stake in LeddarTech for joint development of LiDAR technologies for autonomous driving. Page 15, the industry outlook for the rest of the year. We're basically remaining unchanged in our outlook, with the exception of a small change on Latin America.

Following the continued strong performance in Argentina, we've moved our full-year estimate from the 3.8 million units to 3.9 million units. The U.S. industry remained stable, with SAAR year-to-date at 17.4 million units and so we're holding our full-year estimate. And then moving to the last page of the presentation, page 16.

As I mentioned before, we're confirming our overall full year guidance, despite some impacts of negative exchange as the dollar weakened against the euro which impacted us for about €200 million in the quarter at an EBIT level and for about €200 million for the quarter in the net industrial debt as well, but confirming all targets.

As such, I'll hold it – I'll a – thank you and turn you back to Joe..

Thank you, Richard. Sergei, I think we are ready now to start the question-and-answer session. Please open up the lines..

Certainly, sir. The first question comes from the line of George Galliers of Evercore. Please go ahead..

Yes. Good afternoon, and thank you for taking my question. The first question was just around 2018 targets. Mr. Marchionne, at the start of the year you said you were confident that you could get there and I think gave the probability of more than 50%.

Has that probability changed and what in your view are the biggest risks to getting there right now?.

I think the number is substantially higher than the 50% I gave you at the beginning of the year. I think the biggest risk that I see is the execution of what Richard referred to in terms of the – on getting the industrialization plan up and fully functional. We got three product launches coming in the next 90 days.

And if I add up the sum of all those products on a full year annualized basis, you're talking about over 1 million cars that are being launched between now and January of 2018. And I think flawless execution of that plan will pretty well guarantee that we'll deliver 2018.

And so – and we're quite confident now and we have reviewed the numbers for 2018, we think we're up the target as well within sort of the achievable range, including the cash generation associated with the volumes. I'm encouraged by what I see, I think that we are – we're in good shape.

So I'm – certainly, I can tell you that if we launch properly in Q1 of 2018 by the second quarter of next year barring any sort of instability events in the system, we should be able to confirm and pretty well guarantee delivery of 2018. So let's see..

Great. Thank you. And then one of the targets also that has been mentioned in the past was potentially doing €1 billion of EBIT at Maserati. Clearly if I look at results over the last 12 months, there's been huge improvement I think a 13% average margin and around €550 million of EBIT.

What are the next steps to get that close to the €1 billion target?.

It needs another car, and that's something that we just – we had just finished our executive meetings today, I think we're well on our way to getting that done. It needs a smaller SUV than it has today. And I think we're already invested in the architecture.

So the Alfa Romeo venture so that's probably coming by 2020, and I think we'll be in good shape to hit the €1 billion then..

Okay. Great. Thank you..

Our next question comes from the line of Brian Johnson of Barclays. Please go ahead..

Yes. Good afternoon. Three questions. Hope I'm not overstaying the welcome. First is on the changeover plan on Fiat, I like the clarity around how the plants are being reshuffled around.

When you have the overlapping production, is that just to offset the lost production from the ramp time or as I think you've commented in the past, are you using that extra production of the old vehicles to address markets you haven't addressed before? And if so, how far into 2018 on both the Ram and separately on the Wrangler side could the old factories continue production?.

Just – let met deal with the Wrangler issue, which is somewhat easier. I think, it will not make a lot of sense to have both the old Wrangler and the new Wrangler in market concurrently. I think we need to make sure there is absolutely no lapse in market coverage, not just in the U.S., but also globally.

The new plant in Toledo has substantial capacity in excess of what we currently produce in Toledo.

We're going to be hitting well over 300,000 annual production of the new Wrangler for global distribution and it's something that we have had to neglect because of scarcity of product and we are now positioned to try and take it internationally in a more significant fashion.

The more interesting question that you asked, Brian, is about the Ram, because the Ram has always been – the Ram realignment was always designed to allow for parallel production both in Sterling Heights and in Warren.

And effectively, when we get the new truck up and running at full scale in Sterling, we will bring down capacity to one full shift and that will continue indefinitely as long as we see market needs not being satisfied by the overall production capacity. So I think it's going to be an interesting exercise in 2018 as we run it out.

My expectation that we'll run the old installation – and at least for the whole of 2018, we'll supply our end capacity. Production capacity are confirmed, so it's up to us to decide how long we run it. I'm confident that we'll need all the Warren (23:52) for 2018, if not longer..

Which gets to the second question and sort of your confidence around 2018. There is some very aggressive goals for things like Jeep in China.

When you express confidence in it, are you expressing confidence in each of the subcomponents or are you just saying that, and let me just hypothesize, perhaps a strong NAFTA could offset slowness in other markets?.

Right. It was always part of the pitch that we made back in 2014 that the plan was the aggregation of a variety of objectives which had margins of errors associated with them.

And as is true in all things, we could never – I think it would have been miraculous if we had hit all the component elements of the plan in their nature and in their size exactly as we had planned. Richard and I were talking about this yesterday. We did not forecast in 2014 the industrial realignment of NAFTA.

And effectively, if you – I'm going by memory now, but I think that when you look at the way in which we've exited car and we have reinforced our position in pickups and SUVs, that realignment was not in its entirety reflected in the 2014 to 2018 plan.

The fact that we moved midstream in that direction was designed to guarantee the delivery of the overall plan. So, the answer to your question in short fashion, I am confirming the total numbers for the group and including the fact that we'll be debt free and sitting on nearly €5 billion worth of cash. And I'm looking at Richard.

Richard has a tendency to correct my exuberance from time to time, but I think it's between €4 billion and €5 billion, isn't it?.

Yes, indeed..

Yes, it is. €4 billion and €5 billion. And then we're going to make about €5 billion net. And I think those numbers are deliverable now especially because of what I just finished telling you on the industrial realignment. I think that gives me all the comfort that I needed. It moves the number substantially over 50%..

And final question, it should be quick.

The FCA, BMW, Intel, et cetera partnership, are you contributing capital and expense to that or are you more of a customer for that?.

No, no, no. I mean, we are contributing and it's built into our – we're contributing both capital, resources. We're a full participant in the venture. So it's going to cost us some money, it's built into our R&D plan. But it's the safest bet, the safest way for us to get into that market.

We're doing it with a reputable organization and there are reputable suppliers at the table too. So, I think we've put that issue to bed. And there was a big issue. I've read a couple of the comments that people continue to make which I think probably reflect a very poor understanding of the state of the industry.

But we're not laggards here, we had just chosen our spots very carefully before we started playing, because I think that you can destroy a lot of value by chasing your tail in autonomous driving. We wanted to make sure that we did it with the right people..

Okay. Thank you..

Martino De Ambroggi, Equita. Please go ahead. Your line is open..

Thank you very much. Good morning, good afternoon, everybody. The first question is on Alfa Romeo. First, if you confirm the breakeven in Q4 this year. And secondly....

Let me deal with that question. We did not breakeven in Q3, and I don't know whether we'll break in Q4. To be honest, I think our U.S. penetration, given our distribution has been slower than we expected, we understand the commitment that we have made and we want to try and close that gap as quickly as we can.

I cannot confirm for you that we'll breakeven in Q4..

Okay.

Any problem (27:51) in China, specifically for Alfa Romeo?.

No. I mean, we just started distribution, just everybody slow down here (27:58)..

Okay. The second question is on net working capital. In Q4 last year, you had a €2 billion reversal for seasonal reasons. I assume a similar trend for the current year..

I think it will be enough – between earnings generation and net working capital movements, it will be enough to deliver a number which is below €2.5 billion in debt..

Okay. Specifically on net working capital in your net debt bridge accumulated 2017, 2018, you had a €3 billion contribution from net working capital. If I assume €2 billion reversal, I don't know if it's true, but assuming that will figure in Q4, I have a positive contribution of €0.6 billion, €0.7 billion (28:48).

So the €3 billion is in any case part of the plan as confirmed as a €3 billion contribution in two years?.

I'm looking at Richard, yeah, I'll leave it to you..

Yeah. Martino, we're going to give – we'll give you a better look at 2018 and the components of that cash flow when we give you the guidance for 2018. But I think we do expect working capital to turn positive in Q4 as it seasonally does, mainly due to the EMEA seasonality, also the U.S., the NAFTA seasonality, because of a lack of the changeover.

So it will be positive. But I'll give you a better look at 2018 working capital in January..

Okay. And the last question, maybe it's a tricky question. I understand, if you are not willing to discuss it, but as you mentioned many times, GM is your most preferred partner for a merger sooner or later.

But if I ask you, what could be number two, number three, because in the past few months, we saw several names, I don't know, if you are willing to discuss it?.

No, I'm just monogamous. We'll leave it at that..

Okay. Thank you..

The next question comes from John Murphy of Bank of America. Please go ahead..

Good morning and good afternoon, guys. If we look at page 5, just to kind of follow-up on what Brian was asking. As we look at this, there's a lot of costs that's going on here, that's outside of sort of your normal changeovers and really sort of your industrial realignment cost.

I'm just curious, as we think about it, I mean, I think on page 9, you guys highlighted €87 million industrials sort of costs that maybe to deal with these changeovers.

And how should we think about these costs on an annual basis? And once you get to some kind of steady state after you go through this realignment in 2019, 2020, how much of these costs do you think could fade away or essentially just go away?.

Well, it's – I mean, there are obviously like cash costs related to the changeover. There's also a lower D&A because we have less production of vehicles, yeah. So I think as we go into 2018, we'll see a reduction in the cash cost side and we'll see a higher D&A as we launch the new vehicles, John.

So I mean, obviously, we have a net positive impact in 2018 as a result of not having this type of activity ongoing as we have had in the 2017..

Yeah..

I'm not sure that we answered your question. I think that the answer is that the bulk of those things will go away in steady state. This has been a – it's been an incredibly – I think you're right, I think it's been an unusual year because of all the changes already.

The simple idea of just – and it looks anomalous when you look at the chart, and it was one of the things that I mentioned to the guys this morning.

The simple fact that we moved the Cherokee into Toledo out of Belvidere and ran it for less than a year on the old model and re-launching again in Q1 of 2018, it tells you how much the economic benefit was of accelerating the shift of the Wrangler into that location in order to allow all this thing to happen.

We ran the numbers on that switchover a gazillion times to make sure that – because it looked anomalous and it looks strange on paper, and instinctively it's something that we should have avoided.

But the economic benefit of us accelerating a launch in the Wrangler at the end of this year and having it in market in January 2018 was sufficiently large by a multiple. So when you compare it to the industrial costs associated with an early move of the Cherokee and less than a year later intervention and style to re-launch the car in Q1 of 2018.

So it tells you how momentous all these things – to be perfectly honestly if you ask me for a number that will go away once things settle I couldn't tell you. I think we will tell you at the end of the quarter – at the end of Q4 because by then I think the buckle to stop we'll know it.

But I think we'll tell you what the one-off cost has been in 2017 and where we expect it to be in 2018..

I mean, I would guess in the €0.5 billion to €1 billion range be too aggressive?.

Yeah. I think it's too aggressive. If you include loss margin, the answer is absolutely, yes. But if we're talking about raw industrial costs that hit our P&L I think €0.5 billion, maybe at the outer edge of the possible, let me – let's look at it, we'll give you a number at the end of the fourth quarter..

Okay. And then just sticking on that page 5, I mean, an optimist on the Wrangler could argue that your – I think you had mentioned 300,000 units in Toledo North.

Is that Toledo North and Toledo South? But even with that, I mean, if the Wrangler is a smash hit here, I mean, changing over Toledo South to the Jeep pickup, I mean, I've got to imagine you got some room to potentially produce some Wranglers there if need be.

I mean, what would be the max capacity of the Wrangler, if it's a smash hit and you go (34:01) North Toledo (34:02)?.

It's well over 400,000 units, John. And, and you're right, I think that the truck and the Wrangler are interchangeable..

Got it. Okay. And then just the last question on the tech portfolio. I mean, Sergio, it sounds like you're really alluding to the fact that you think some people might be throwing money out the door on early developing....

John, let me just remove that. So I'm not alluding it, I'm saying it..

Okay. So you're absolutely saying it.

So as you look at this, the consortium that you're running with BMW and some of the suppliers, and this LeddarTech acquisition that you bid in Magneti Marelli, I mean, as you look at this, I mean how much lower of a cost do you think you can produce an autonomous vehicle versus the other players in the market by maybe being a fast follower or a fast advancer, and doing this more cost efficiently? Is it half the cost, or I mean – I'm just trying to understand what you're thinking there..

My thinking is the actual ability to deliver a product that's commercially viable and technically defensible in the marketplace. The biggest danger is not necessarily in the fact that we can guarantee it.

But there are lot of people out there who are experimenting with architectural solutions, technical arrangements and otherwise that are designed to deliver a level three plus, four, five, whatever you may call type of outcome. Some of these and a lot of these will end up being for naught.

There were – most of these businesses, but especially the startup will just disappear and vanish. You know this, we've all lived to the tech – the tech curves..

Yes..

The problem with these things is that if you chase all or you chase a large number of them, you're going to get lost – you're going to get lost and we are probably the wrong people to try and make the ultimate selection of these things. So the important thing is for us to find a reputable technical house.

And I can tell you honestly, I can find few that are better than BMW with whom to share this journey. Because it is complex, I think it requires a huge amount of discipline.

And I think that the combination of us and BMW and Mobileye and Intel and a group of partners that are being formed here, I think we're going to have best chance of delivering a technically correct solution at a commercially defensible price, that's all I need.

And I don't want to start chasing rainbows here, because if you chase rainbows, you're going to fall off the cliff. And I've seen enough ridings now, I've seen enough sort of accusations of being behind in this rat race.

The reality is that this is going to require a lot of discipline and a lot technical knowhow, which will take time and it will take dedication and perfect execution to get to an answer. Don't believe the fluff, let's just stick to the [knitting and deliver an outcome, there is no shortcut to this..

Very helpful. Thank you very much..

The next question comes from Rod Lache of Deutsche Bank. Please go ahead..

Hi, everybody. I had a couple of questions, just wanted to start maybe first with developments in Washington. There is obviously a lot of talk about tax reform. If tax rates fall to 20% and we see these proposed changes to CapEx deductibility and interest.

What would be the impact on FCA from a cash flow perspective, if there's anything?.

It would be obviously – in the U.S., we're paying taxes at a full rate basically going into next year, and we have used up most of our credits for our losses. So yeah, so going from 34% to 20% is a pure save for us on a cash level and our U.S. profitability..

Have you disclosed what the U.S. pre-tax is for the U.S.

entity?.

No, we have not..

But I think....

Okay..

And, Rod, I'm going to do it on the air here with (38:11) looking. I don't know but it's got to be over €1 billion, the savings..

It sounds like it's a big number if this actually happens..

Not far short of it this year (38:23)..

On the flipside....

So, there you are, I just gave you guidance. It's about €1 billion..

Okay. There's, obviously, a lot of unknowns with respect to NAFTA.

If there is some impact on the Mexico production of trucks, would you be able to mitigate that by shifting the heavy duties or some of the production to Sterling Heights or Warren?.

Yes..

Okay..

And effectively in the industrial plan – I'm going to play a smart ass now Rod, so ignore it. When we did the industrial realignment, it was designed – it was designed to allow for the buffer in the event that that happen..

Okay. That makes sense.

And just lastly, can you just clarify for us what's happening with the localization of Jeep in China? Is that basically the key driver of getting to that 10% margin in APAC?.

Yeah. And we – I think, we need to work really hard. I think the products have been launched. And I think we now got India up and running too on the right-hand drive Compass. I think we need to start devoting a lot of serious group resources to make sure that Jeep lives and lives well.

It's – this is – and I'm going to talk to Mike Manley about this, I think we really need to deploy – so the Jeep resources now on a global scale to make sure that we get all the traction we need, because, I mean, these are different markets and they will react to the brand in a different way. But I think we need to keep on pushing.

I think this has turned out to be and I think we've seen it out of Europe now as to what the potential successes of Jeep, I mean, we've seen what it did in Brazil. We need to keep on pushing and making sure – and make sure that it does become as global and as profitable as we think we can be.

As I – as I've used the number before, but I think when you look at the UV market on a global scale, if Jeep aimed to own one in five of that market, I think we'll be well set for the rest of our lives. We're talking about over 5 million cars a year. I think we're building capacity to get that done.

We have distributed manufacturing know-how globally now. We just have to execute on the plan and get it done..

So presumably that the business is not yet meeting your expectations. Could you just clarify, what you mean when....

It is not..

Right..

It is not because – I mean as you well know this – the attractiveness of UVs has become sort of a global sport now. So, we've seen a lot of UVs come into the Chinese market from local brands, reputable brands.

I think it's going to take us longer to try and get Jeep established as sort of the – as the owner of that segment outside of traditional channels. We need to invest in this, because we have – we haven't done it. We used to import vehicles Wranglers and Grand Cherokees before we've started local production.

And it was a different world, it allowed us to make decent margins by just importing vehicles under the jurisdictions. Being local now has changed the dynamics of that process. So I'm going to be down there tonight and we'll – we'll start building some really core skills on the ground to get that done..

All right. Thank you..

The next question comes from Thomas Besson of Kepler Cheuvreux. Please go ahead..

Thank you very much. It's Thomas Besson. I have three questions about this – I'd like to start with an update and on your thinking about Magneti Marelli. We've seen results for the business improve substantially, the Components business overall.

Can you update us on the timeline of any potential spin-off, if it's still the main thinking?.

It's a 2018 event. I think we've had our preliminary discussions with the board. I think we have sort of broad agreement on options and process going forward. We'll revisit this during the first half of 2018 with better details and better delineation of alternatives.

And I think that probably by the time we get together for this business update, this plan that we've sort of – that we've threatened to show you sometime in the first half of 2018, we'll probably give you the rest of the story on Marelli. But I think the initial reaction by the board has been positive.

So let's work on this and we'll see what happens..

So just to make it clear, the thinking is to separate Magneti Marelli from the other two Components businesses or it's to group the Components business and spin-off the Components business?.

No, I think the whole idea – I don't think we need Marelli in our fold. And I think it belongs – the company or its value belong to the shareholders..

Okay..

That simple..

Okay. Very clear. Second question, please. The interest charge came down a lot faster than I was expecting and that I think you were guiding for earlier.

I mean, how much lower could it still go? I mean, shall we assume that the Q3 rate is the normal run rate at the current liquidity level and net debt or can it still go further down?.

So for the year, I think our average, yeah, I'd say it's about €3.75 million a quarter. And I think that's what we expect to be at around for the full year number. And then, obviously, we have a Swiss bond that we pay the second half of this year. We have another €1.25 billion next year.

So we're going to continue to reduce our gross debt load as we work on the other side at improving our profitability. So I think we're going to continue to see an improvement in the second half of next year when we reduce the gross debt again..

Right. Thank you. Last one. Have you fixed a date for a new event, a Capital Market Day or....

No..

No? Perfect. Thank you very much..

No. So keep your calendar open. First half of 2018, Thomas..

I'm still waiting. Thank you..

Bye..

Stephen Reitman of Société Générale. Please go ahead. Your line is open..

Thank you very much. Good afternoon. Some questions about Alfa Romeo and Maserati if I can. You mentioned that you are not sure yet about the breakeven of Alfa Romeo, if it's going to be a 2017 event.

Could you give some idea about where your thinking is on the volumes that Alfa Romeo will achieve this year, the sort of run rate you expect for the fourth quarter? Also, if you could make some comments as well about some of the press reports about some short time working in Italy surrounding Alfa Romeo and also, I believe, also in Maserati.

And it has been linked to some issues in China. But also you mentioned about the reception of the Stelvio and Giulia in the United States.

How far off is it your expectations?.

Let me deal with the expectation gap here. The product did not hit the U.S. here in a realistic way until the first part of October. So we're just technically late in having physical product on the ground.

We've got a dealer network which is 90% set compared to our objectives, but the product is showing up too late in the year for us to try and have any meaningful sort of market coverage. We had a very interesting discussion at council today on this issue. We'll have to go back and revisit it throughout the quarter.

So I cannot tell you based on what I know today as to what the – within any sort of – within the realm of reasonable (46:11) as to what the overall numbers will be for Alfa. I'm looking at Richard..

I think we're looking at – year-to-date, we're at about 60,000 units shipped between the two vehicles between Giulia and Stelvio. And so, I would expect us to ship – run rate probably 20,000 units plus Q4, but it really depends on how quickly we get distribution through and....

Distribution of Stelvio in the U.S. and that's the real issue. I mean, the cars have just hit and some of them are on the way to get to port, so I – it's difficult. I mean, I think we'll give you a much better read at the end of Q4. So, I mean, there's no alarm here in terms of getting this done.

There's just a mismatch of ambition and the actual physical product on the ground. The reports that have come out of Europe on short workweeks in Europe in connection with both Alfa and Maserati, more in particular to Maserati, this is absolutely normal. We do adjust volumes especially given the penetration in China.

There are no structural issues in China on Maserati. But we made one mistake when we ran the industrial machine out of Maserati in the past flat out in excess of demand, and it took us over a year to clean that up and we're not going to let that happen.

Which is the reason why you see these adjustments and I think we'll get used to them, and it will continue to happen..

Thank you..

The next question comes from Richard Hilgert of Morningstar. Please go ahead..

Hi. Thanks. Good morning and good afternoon, everyone.

Can you hear me okay?.

Yes, we can, Richard..

Okay. Thank you. On the cost side, there has been some discussion on the call about the capital expenditure, the research and development costs going forward and how these things are going to tailor off (sic) [tail off] (48:21) once everything gets set with North American realignment and bringing new products out.

On the other side, there is the partnership with the BMW autonomy group and I would expect that there would be some kind of increase on the R&D side because of that, also maybe possibly on the capital development side.

As those two things intersect, how does that settle out then in terms of the net effect?.

Well, Richard, I think we've been investing heavily in all of the new product introductions we've been discussing recently and in the last three years as we repositioned Jeep, Ram, et cetera, and Maserati and Alfa.

So I think, I don't expect us to have any increase in our overall CapEx plus R&D spend as we get through 2018 and then go forward, because we're basically going to reallocate spending that was put – was destined in the past to put us back into a competitive position on a number of our key products and brands, and we're going to have more of it allocated to the types of technology challenges that you mentioned, but I don't see why we would need to increase the overall spend..

No, actually I can confirm it for you. I think it's well – it's built in well within the parameters of what we would normally expect as capital. This is not an addition. I have read reports by the way where people think that we're going to start incurring these tremendous cost above and beyond normal.

There's being – there's a traditional – there's a shift going on in the profile of research and development and capital that is being allocated to the business, and this is normal.

I mean, it's technology driven, it will happen, it's not going to cause this enormous bubble in R&D, especially if you are careful about the partners that you pick to work with, and I think we have..

Okay. Good. On – going back to the Alfa Romeo and Maserati, again, you commented earlier about the production adjustments that were going on for both of them, and you've talked a little bit about the market in China.

I was wondering, is the market in China actually meeting your demand target and the adjustments that have been have been made were part of the plan over there in that market, and you're still expecting more penetration.

And if so, is that maybe a matter of gaining more dealership, more distribution points in China for both of those brands?.

Certainly in the case of Alfa Romeo the question of getting distribution because we have very little on the ground. So I think there's a huge amount of work that needs to go on to get coverage, geographical coverage in China.

And that started, it's underway, and I think it is going to require – certainly it's a multi-year project as it is here in the United States because this thing is starting from nothing. We haven't had sort of the ability to work ahead of the curve in the U.S. The China is behind in that development, but I think we will – it will quickly catch up.

There is – the question that you've asked about whether demand is matching our expectations in China. The answer is fundamentally, yes. We need to be very, very careful that this distribution exercise, that we don't end up creating either perceived or actual oversupply in the market that will depress pricing.

That is something that we cannot afford to do. And so the tweaking of the machine that we're now carrying out is to prevent the clogging of distribution. We've done this before, I mentioned this, I think we've done this in 2000. I'm going by memory, but I think it was 2014 when it happened and it took us over a year to blow that out of the system.

We can't let that happen. So you will continue to see these adjustments being made until we match – we match demand with capacity of the system. And the thing that's not going to suffer out of all this is price..

Okay. One of your German competitors had talked previously about increasing their number of dealerships over in China and as they did one of the things that we saw in addition to the volume growth in the region was that it was also a delayed effect, where more volume would come on 18 to 24 months after these dealerships had been opened.

So there was a bit of a lag effect.

Have you been opening more dealerships already? Can you give us any kind of...?.

I don't have the exact number, Richard, but the answer is that the you will see the delayed effect, it will take time. It's not a instantaneous turn on. It hasn't happened in the U.S. and it won't happen in China..

Okay. Thank you very much..

The next question comes from Philippe Houchois of Jefferies. Please go ahead..

Yes, good afternoon. Three quick ones I hope. The first one is I can't remember the last time I saw, well, ever, sequentially net debt go down in third quarter, which is nice.

Having said that, there was the same or worse working capital that (54:13) was looking for, which is good news, because it means potentially more contribution (54:17) from earnings.

But I'm trying to understand, is there any currency benefit in your net debt in Q3 that helps the deleveraging is my first question?.

No..

No. Thank you..

In Q3, no. Actually, there's a little bit of a negative, because with the weakening of the dollar, we have a net cash position in dollar..

Okay. Good. So you – that's a good number then, great..

Yes..

Second one is GM has showed us some interesting numbers today. Revenue in the U.S. down 20%, earnings holding up quite nicely.

I don't want to put you on the spot, but do you think structurally FCA or the old Chrysler could do that kind of declining revenue on short notice and still post some nice numbers at a profit level?.

I'm not sure that I like – I like the part of the question of such short notice. I sincerely hope that I don't have to repeat the short notice that GM just went through..

GM had a lot of warning on this. Fair enough. I agree..

But anyway, we try to avoid this by realizing the footprint, but the answer is absolutely yes..

The market doesn't help you, yeah. Okay..

Absolutely, absolutely, yes..

So you stand by what he heard from you, from (55:26) previously that the industry is fundamentally better, that your cost structure has improved and therefore you are more resilient than you ever were in the past?.

True..

Yeah, okay..

And I think – by the way, I think if we are right, the proof of the pudding will be Q2 of 2018 for FCA, and I think you'll have a decent read of margin potential..

Right. Okay. And last question is, as you know, I've been a big fan of reducing cost of carry, reducing growth of debt, et cetera. You're doing it very nice. What I find interesting is, right now, no, for years now, after the recession, we've seen carmakers keep massive growth cash position in their balance sheet.

All of a sudden, Daimler seems to be reducing gross liquidity, GM is returning cash at amazing rates right now, and you were talking about reducing gross debt.

Is the industry getting a bit too comfortable that the cycle is gone and therefore we don't have to have gross cash on the balance sheet or do you stand by (56:28) view that you should have probably gross liquidity about 20% of revenue?.

That view ain't changing. I'm going to tell you something, Philippe. The scar that the last crisis caused, I still have, and remember what people from your profession, all of a sudden forgot who we were. I mean, the financial sector went absolutely dry overnight.

So I think it's going to be a long time coming before people relax the assumption on gross cash..

Right.

So we should still expect you to have a fair amount of gross cash on your balance sheet even though your cost of carry will come down and therefore hopefully interest expense will continue to come down as well?.

Yes. It just means that we're going to make more money selling cars, Philippe, that's all..

That'd be nice. Okay. Great. Thank you very much..

The next question comes from Lello della Ragione of Intermonte. Please go ahead..

Hi. Thank you for taking my question. Actually just one left on Maserati. I was checking in past conference call you once mentioned volume target for Maserati, it was something, I think, it was 70,000 cars.

I was wondering if that – when you were thinking to that figure, you were actually thinking to another model as you suggested before and the fact that you are looking for a smaller than the actual Levante, this can lead to a cooperation (58:00) or I mean, in terms of mostly of a platform – with and also an engine with Alfa. Thank you..

I can tell you right now that the underpinnings of the Maserati to come is shared with Alfa, it doesn't say anything about a powertrain, but the underpinnings are fair. So that's the – and by the way the number that I brought up was between 70,000 and 80,000 cars in the past and that I connected to about €1 billion EBIT.

So, that's roughly the connection, and we should be able to get there with the second car – with the fourth car, I guess.

Okay?.

Okay.

So that relates to the – to your €1 billion EBITDA generation that you mentioned for 2020?.

Yes..

Correct? Okay. Brilliant..

Lello, thanks..

We will now take our final question from José Asumendi of JPMorgan. Please go ahead..

Thank you very much. CapEx please guidance for the fourth quarter, are you speaking to be down and how much please? And also for 2018, we should be thinking about CapEx down year-on-year as well, is that correct? Thank you..

CapEx for the year, we're looking at a number of around €8.5 billion, so....

Very nice, and then 2018?.

And 2018, we'll give you an update in January, frankly, José..

It will not be materially off that number..

Thank you very much..

Okay..

Thank you very much..

Thank you..

With that, I think we are going to end today's call. I want to thank everyone again for joining us and please have a pleasant day..

Thank you. That will conclude today's conference call. Thank you for your participation, ladies and gentlemen. You may now disconnect..