Audi’s war chest could buy Fiat Chrysler

Ferdinand Piëch - Audi's war chest could buy Fiat Chrysler

If there is one thing that Audi’s first-half results prove, it’s that Volkswagen Group’s premium brand earns so much cash it could easily swallow Fiat-Chrysler whole.

VW’s 77-year old chairman, Ferdinand Piech, is known to be a fan of Alfa Romeo and Ferrari, and he wants to lead the company to industry leadership via an ever growing stable of brands sold across the globe.

Recent media reports have suggested Piech has been eying a deal with Fiat-Chrysler and U.S. truck maker Paccar to bolster VW’s weakness in the U.S. market.

Finance chief Hans Dieter Poetsch denied Volkswagen had any takeover plans for the foreseeable future, but speculation will continue as long as Piech and VW have billions to spend on acquisitions – and here’s where Audi plays a key role.

Audi’s first half accounts published on Friday show net liquidity, effectively its war chest, jumped to €15.3 billion at the end of June, versus €14.7 billion at the end of last year, thanks to nearly €2.3 billion in free cash generated over that six month period.

Theoretically this would be more than enough to pay the €9 billion for Fiat shares plus a 50 percent control premium.

Even more telling is the fact that this cash is generated without any material help from Audi’s Chinese joint venture with local partner FAW, impressive given that Audi sells nearly half a million cars in China alone – more than a quarter of the brand’s volume.

By comparison, Daimler’s industrial business, in which it groups its Mercedes-Benz luxury cars, commercial trucks, vans and buses operations together, suffered a €1.1 billion decrease in net liquidity to €12.7 billion during the same period.

On Tuesday, BMW reported second quarter results that showed surplus cash at its automotive segment dropped by €600 million over the first six months of this year. Its car business has a free cash flow not even half that of Audi’s.

Audi’s financial accounts are also revealing in another aspect. Volkswagen Group’s consolidated cash statement, which includes Audi’s contribution, shows net automotive liquidity of only €14 billion. This implies that the rest of the group would otherwise have posted a net debt of more than a billion and highlights just how dependent VW is on Audi for the group’s fortress balance sheet.

Audi CEO Rupert Stadler has always had the reputation for being a numbers guy in a car company, not chief executive material for Volkswagen, where engineers are favored. Maybe this shows just why he’s there.

So if Piech ever makes an offer for control over Fiat, Paccar or any other company, he can thank Stadler and his group of hard working Audi employees for earning the cash to fund a deal. Were it not for Audi, VW would not be in the enviable situation they are right now.