Fiat Chrysler Automobiles NV (FCAU) Sergio Marchionne on Q1 2016 Results - Earnings Call Transcript

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Fiat Chrysler Automobiles NV (NYSE:FCAU)

Q1 2016 Earnings Call

April 26, 2016 8:00 am ET

Executives

Joseph Veltri - Vice President - Global Investor Relations

Richard Keith Palmer - Chief Financial Officer, COO-Systems & Casting

Sergio Marchionne - Chief Executive Officer & Executive Director

Analysts

Neel N. Mehta - Morgan Stanley & Co. LLC

John J. Murphy - Bank of America Merrill Lynch

Martino De Ambroggi - Equita SIM SpA

Thomas Besson - Kepler Cheuvreux SA

Massimo Vecchio - Mediobanca Banca di Credito Finanziario SpA (Broker)

Monica Bosio - Banca IMI Intesa Sanpaolo

Alberto Villa - Intermonte Sim SpA

Patrick Hummel - UBS AG (Broker)

Charles A. Winston - Redburn Partners LLP

José Asumendi - JPMorgan Securities Plc

Operator

Good afternoon or good morning, ladies and gentlemen, and welcome to today's Fiat Chrysler Automobiles 2016 First Quarter Results Conference Call. For your information, today's conference is being recorded.

At this time, I would like to turn the call over to Joe Veltri, Head of Fiat Chrysler Automobiles, Global Investor Relations. Mr. Veltri, please go ahead, sir.

Joseph Veltri - Vice President - Global Investor Relations

Thank you, Hannah, and good day to everyone on today's call and webcast. The earnings release that we issued earlier today, along with the presentation material for this call and webcast are now available on FCA's Investor Relations website.

As customary, today's call will be hosted by the group's Chief Executive, Sergio Marchionne, and Richard Palmer, the group's Chief Financial Officer. After introductory remarks, they will be available to answer your questions.

Before we begin, let me remind you that any forward-looking statements we might make during today's call are subject to the risks and uncertainties mentioned in the Safe Harbor statement included on page 2 of today's presentation. As always, the call will be governed by this language.

With that, I'd like to turn the call over to Richard Palmer.

Richard Keith Palmer - Chief Financial Officer, COO-Systems & Casting

Thank you, Joe. Good morning, good afternoon to everybody. I'd like to start on page four of the deck with the highlights of the quarter. I would characterize it as a strong quarter for FCA. We had an adjusted EBIT margin for the quarter of 5.2%, nearly double our quarterly margin from a year ago.

All our segments were profitable. Our NAFTA margins were up at 7.2%. Our EMEA margins were up four folds to nearly 2% and we had good indications from LATAM of margin improvement, following the continued ramp up of production from our Pernambuco facility. We're making good progress in this transition of Asia-Pacific to the localized production of Jeeps; so I think overall, from a margin point of view and a performance point of view, it was a good quarter.

We did, during the quarter, a move the final parts of the FCA U.S. ring-fencing from a debt point of view, so by completing the term-loan B amendment and repaying a part of that term-loan B, we've removed all restrictions between the ex-Chrysler entities and the ex-Fiat entities regarding dividend distributions, short-term intercompany borrowing, et cetera.

Following that, we saw a good indication from the rating agencies with Standard & Poor's giving us a one-notch upgrade to BB stable. And so, I think, on the balance sheet, we're seeing further progress in our simplification of the capital structure.

During this year, we're looking at the 75th anniversary of the Jeep brand, which was founded in 1941 and which continues as FCA, to be a significant driver of our performance, and we're looking at an expansion to include the India market becoming, I think, the sixth country to be producing locally Jeep product. And finally on this page, given the solid financial performance in Q1, we are confirming the full-year guidance that we gave you last quarter.

Moving to page five, some comments on some key products in the various regions; the Chrysler Pacifica production started at the end of February in NAFTA. The vehicle is a really innovative new vehicle for what used to be called the minivan segment. We're looking at the Pacifica as a very new reincarnation of that segment offering. It has unsurpassed fuel economy in the petrol engine and it will have a PHEV minivan version in the second half of the year. It's had a strong reception in the marketplace so far with the press and industry commentators and we're looking forward to seeing production ramp up in the second quarter.

In China, we started production in the Guangzhou plant of our joint venture with GAC of the Jeep Renegade, it is the second locally produced Jeep in China for us through the JV. The commercial launch is scheduled for the second quarter. This Jeep will add to the Jeep Cherokee that we already launched locally. Jeep Cherokee sales reached 9,000 a month and they continue to grow. So, we're seeing a good reception for the first vehicle produced out of the JV with GAC for the Jeep brand. This is the third installation of the Renegade worldwide, the first one being in Italy, in Melfi, and the second one being in the Pernambuco plant in Brazil. So further globalization of the Jeep brand continuing.

And then on the right hand side of the page, we started production in late February of the Maserati Levante; this is a very important product for the Maserati brand, going into the biggest luxury segment worldwide and will be available commercially in the second quarter.

And finally, the Fiat Mobi in Brazil, out of our Betim plant in Brazil is an entrance into a part of the market where we haven't had an offering, a city car offering in the A/B segment, so to completing our coverage of that segment and a key vehicle going into the second quarter of the year as well.

Moving on to page six, the financial summary. So, you can see shipments were in line with Q1 of last year at a group level with increases in EMEA, up 12%, and NAFTA up 3%, offsetting decreases in LATAM due to the continued depressed market conditions and a decrease in Asia-Pacific in terms of consolidated shipments due to the transition to the joint venture of the Jeep production.

The revenues as a result were up 4%, so slightly better than shipments really driven by mix in NAFTA, lower passenger car mix, more Jeep, more Ram mix; and Latin America with the ramp up of Pernambuco.

Adjusted EBIT as a result improved to nearly €1.4 billion, double the last year's level and with margins of 5.2%. This drove our adjusted net profit up to €528 million with the strong operating performance offsetting a slight increase of the net charges between taxes and financial charges due to the higher NAFTA earnings.

Net industrial debt was up to € 6.6 billion from €5 billion at year-end. There were two important drivers of that, one being FX translation, the details of which you'll see later and also working capital seasonality, which was exacerbated by the shutdown of our Toluca plant, downtime in our Toluca plant in NAFTA for retooling for the new Jeep, which will be produced in the second half of the year out of there.

Available liquidity, we're still very strong at over €24 billion, in line with year-end. With the second tranche of our €5 billion revolver becoming available following the removal of the ring-fencing and also the €1.25 billion bond issuance we had in the quarter, offsetting the operational seasonality and the $2 billion term-loan B partial prepayment that we made as we amended the term-loan B.

Moving to page seven, those are segment contribution to the year-over-year improvement in adjusted EBIT. You can see NAFTA, the doubling of NAFTA margins was the key driver of the improvement in our performance, but also positive performance from Latin America with the Pernambuco vehicle volumes ramping up.

Asia-Pacific showed a negative variance in the quarter, although positive in absolute terms due to the transition of Jeep to the localized productions I mentioned earlier; and our EMEA margins' up to nearly 2% for the quarter from 0.5% last year.

Moving to page eight, look at the variances in our net industrial debt, the €1.5 billion increase in the quarter was driven for €400 million by FX translation, the strengthening of the Brazilian real on our net debt position in Brazil and the weakening of the U.S. dollar with our net cash position in the U.S. driving that translation change. And the second big negative impact was working capital, which is a seasonal effect which was exacerbated by planned downtime in NAFTA for the Toluca plant, which is preparing for the launch of the new Jeep in the second half of the year. It was also impacted by lower volumes of Chrysler 200 as we balance supply and demand for that vehicle coming out of our shut plant.

On the positive side, we saw €2.8 billion of EBITDA, up nearly $800 million and showing good growth in the operating cash performance. Also with working capital slightly down year-over-year, driven by reduced investments in Brazil as we complete the Pernambuco installation.

Moving to page nine, the NAFTA segment. Group sales in the region were up 8% on the back of improved market share from 12.4% to 12.9%. We continue to be the market leader in Canada. Our U.S. share was up 70 basis points, driven by Jeep being up 17%. Our shipments overall were up 3%, driven by Ram and Jeep offsetting lower shipments of Chrysler 200 and Dart and Journey and Fiat 500 because of the Toluca downtime.

So, if you look at our adjusted EBIT walk at the bottom of the page, you can see all of the levers contributing positively to the improved margin. Mix was an important part of the improved margin, because of the increased Jeep and Ram volumes. And also, we had some good industrial efficiencies on the purchasing area and non-repeat of some campaign costs we did have in Q1 of 2015, driving €117 million net positive on the industrial costs. So, overall 7.2% margin for the quarter showing a significant improvement from the 3.7% last time.

Moving to the LATAM performance on the subsequent page; the industry in LATAM was down 18% with Brazil down 28%. Our group sales were down more than that as we continue to protect our margin performance in Brazil, in particular. We continue to be market leader in Brazil, 180 basis points ahead of our nearest competitor with a share of 18.1%. And the Jeep Renegade and the new Fiat Toro pick up out of the Pernambuco installation showed strong performance in their respective segments at 27% and 59% share.

Shipments overall were 102,000 vehicles, and about 25% of that came out of Pernambuco, which is an important part of the improvement in our profitability. As you can see below, we have positive mix of settings the negative volume and we have some strong performance in the cost area from purchasing and manufacturing efficiencies.

Our SG&A was down last year in Q1, we were launching the Renegade, there was some timing on sales and marketing expenses helping also in the quarter. But overall, I think, given the market backdrop, positive results in Latin America with the ramp up of Pernambuco underway was a good performance.

Asia-Pacific on the next page; it's a little complicated to read year-over-year because of the continued transition from the import model to the local production in China of the Jeep, as we mentioned earlier. So, if you look at our sales performance, we were down 10% year-over-year, principally driven by Australia which was down 50% as we take price actions to offset the weakening of the Australian dollar.

However, sales performance in China was basically flat year-over-year, showing good performance out of the new Cherokee local production, which was running at about 9,000 units of sales per month in March and a 17% year-over-year improvement in Jeep sales overall in the Chinese market.

If we look at shipments, they're down from 47,000 to 25,000, if we include shipments coming out of the JVs in the two periods; in reality, those shipments would be down from 56,000 to 53,000, so the actual drop is nothing like as significant; as I said, this is the switch to the local production being reflected in the financial statement.

So, if you look at the adjusted EBIT work below, you can see volume and mix was negative and SG&A was positive, in large part those numbers are influenced by the switch to the local production, as I mentioned earlier in the JV. And you can see the JV performance improving in the other column where we're starting to see an improvement in profitability locally.

So, overall, I think, we'll continue to see some continued transition in Q2, as we get into the second half of the year with a more stable model based on local production in China. One other impact on the mix was we continued to sell off some of the vehicles damaged in the Tianjin port explosion in Q4, so that also impacted the mix negatively in this quarter. We will have a similar impact in Q2, but then we will have completed the sell-out of those vehicles.

Moving to EMEA; strong performance by EMEA; in terms of sales, up 10%; with the industry, up 8% for passenger car; and our sales up 16% for passenger car. Market share was up 50 basis points with growth in all major markets except for Germany. LCV volumes were up 9% and our share was slightly down, but shipments continue to be strong also in LCV.

So if we look at profitability, we went from a 0.5% margin to 1.9% margin, driven by volumes in Renegade, Fiat 500X and the new Fiat Tipo. We also saw strong performance in terms of purchasing efficiencies and manufacturing in the industrial costs, then driving margins' up to nearly €100 million of EBIT for the quarter.

Moving to page 13, we have Maserati performance. Maserati showed shipments were down 14%. We continue to complete the rebalancing of stock, particularly in North America and Europe. This will be completed through Q2 to be ready for model year launches in early Q3, and also the higher volume of Levante coming out of the Italian plant, so I think we continue to be positive about Maserati in the second half of the year as we launch the new vehicle commercially.

Moving on to components on page 14. Overall revenues were down, driven by Comau and Teksid whereas Marelli's volumes were up. The EBIT was up 26% with margins up to 3.7% and Marelli was showing positive commercial performance with orders up 17% year-over-year for the quarter.

Moving to page 15; our industry outlook. We aren't changing our industry outlook at this stage for the full-year. Obviously, a little bit of color on each region.

NAFTA, I think we saw a relatively strong Q1 better than last year, for the U.S., 17.5 million SAAR compared to 17.1 million SAAR last time and we're not changing our forecast overall for NAFTA. Asia-Pacific, the industry is in line with our expectations. Latin America, we're not changing our forecast, although the first quarter would indicate the low end of the range here at 3.6 million SAAR driven by Brazil, which was running at about a two million SAAR for the first quarter. Clearly, we need to continue to watch Brazil with the political changes that are underway there and keep an eye on the market for the rest of the year; but for the minute, we're not changing our forecast. EMEA, on the contrary, we saw a SAAR which is at the high end of its range for the first quarter. Again, we're not changing the forecast, but I think European market is showing some good signs for the rest of the year.

Then moving to the last page in terms of guidance. Our guidance is confirmed with net revenues above €110 billion; adjusted EBIT above €5 billion; net profit above €1.9 billion; and our net industrial debt below €5 billion. As per our initial guidance, NAFTA and EMEA profitability improvement continues to be key to the numbers we're guiding to.

Latin America, APAC and Maserati, for various reasons we've already touched upon, will show more profitability in the second-half than in the first. Our net industrial debt we are confirming. Despite the negative translation impact on FX in Q1, I think the working capital seasonality will reverse in the second quarter, and we'll see strong generation through the rest of the year to get to our net industrial debt target.

I think it's important, over the next couple of years we will have some volatility in working capital beyond normal because of the production realignment that we discussed in the NAFTA facilities, but we only expect that to impact our guidance for the full-year 2016.

Sergio Marchionne - Chief Executive Officer & Executive Director

Thanks, Richard. I just want to make a couple of comments before we open it up to Q&A. You may have seen from a flurry of announcements that we've made in terms of the start of productions of various cars around the world that the rollout of Jeep on a global basis continues at a pretty rapid pace.

We were down in China last week opening the second Jeep plant in China in Guangzhou; we'll start production of the Renegade there sometime during the month of May on a full-blast basis. We are now running the plant in Changsha, which makes Fiat, but also makes the Cherokee, and we're running at about well above initial rates. And we expect to sell probably in excess of 100,000 cars there this year.

Just with that vehicle. The Pernambuco plant in Latin America is gearing up to produce the C-segment Jeep, and we're also tuning up and running first pilots out of our plant in Mexico now to launch the successor for the Compass and the Patriot, which will be in market in the U.S. in the early part of 2017.

The Maserati plans are beginning to come together. We have seen the start of production of the Maserati Levante, which will make its debut here in the U.S., which is expected to be its largest market probably within Q3 of this year. Equally important has been, finally the launch of the Giulia into production for Alfa, so we're beginning now to get all the powertrain combinations in order throughout the second quarter and the third quarter as we prepare to launch the SUV on the Alfa platform which hopefully will go into production at the end of 2016.

We have been incredibly busy as we've announced earlier to put in place the realignment of the footprint in NAFTA. We have had, obviously, intense dialogs with our counterparts at UAW about the implications on head count, I confirm now as I have done to them that the realignment of the footprint in NAFTA is actually going to yield an increase in manpower subject to temporary layoffs as we disengage from the local production of the Chrysler 200 and the Dodge Dart.

We have, as Richard mentioned, other concerns that we have about the continuing political situation in Brazil, which hopefully will get resolved sometime by the summer of this year. We see nothing negative on the horizon, we have – most of our plans are being actioned as we had forecast, the outlook for the year continues to be strong.

I think we remain committed as we announced at the beginning of this year to – the reduction on a yearly basis at the end of 2016, 2017; and hopefully we'll be sitting on cash by 2018. So, we have absolutely no indication of the fact that the 2018 targets are unachievable, I think we continue to execute with a very clear view of making those numbers.

We find the results of the NAFTA encouraging, we'll see a progressive improvement in margin generation of NAFTA as we de-emphasize the passenger car side and start rebuilding our position and with the American plants in both SUVs and Ram.

So on that note, I think we'll give it to Joe to take the questions. Thanks.

Joseph Veltri - Vice President - Global Investor Relations

Thank you, Sergio and Richard. Hannah, I think we are now ready to start the Q&A session please.

Question-and-Answer Session

Operator

Certainly, sir. Thank you. We will take our first question from Adam Jonas, please go ahead. Your line is open.

Neel N. Mehta - Morgan Stanley & Co. LLC

Thanks. And good afternoon everyone, this is Neel Mehta standing in for Adam Jonas today. Two questions; first we continue to see strong results in your component businesses, particularly Magneti Marelli where the order intake is up 17% year-over-year it looks like, are we at a point yet where these businesses could be sustainable on a standalone basis?

Sergio Marchionne - Chief Executive Officer & Executive Director

One, they've always been sustainable on a standalone basis. Secondly, I think that the question as to the relevance of Magneti Marelli in the context of our strategic development is something that we have on the table on a continuous basis, we are and we continue to rely on Marelli now to provide a lot of technical support in terms of the development of our portfolio.

As I indicated in previous occasions, I think there is a point in time at which, I think Marelli will be sufficiently strong; and I think FCA will be at a point where it no longer needs to rely on – or an internal supplier or the quality of Marelli, I don't think we're there yet.

And so we continue to nurture that business. I think it's in good shape, I think Pietro has done a tremendous job of realigning that business in the last six months. I think we expect a significant improvement in margin generation at that point in time, I think we'll be in a position to take a hard look at this to find out whether it makes sense to continue Marelli in the portfolio. But we're far removed from that today.

Neel N. Mehta - Morgan Stanley & Co. LLC

Got it. And secondly, Sergio, you made some clear efforts to engage leadership of some of your OEM peers to address the structural challenges the industry faces and how some of these challenges could be better surmounted through consolidation or collaboration efforts.

From the outside, at least, it seems like these efforts are not really gathering momentum; but from your perspective, are your invitations into this conversation being dismissed outright, bluntly and without consideration, or and without identifying specific names, have at least some of your efforts helped establish an open dialog or have created on some level an increased awareness or thoughtful and continuing conversation with your peers in any way?

Sergio Marchionne - Chief Executive Officer & Executive Director

Without telling you anything which I consider to be confidential, notwithstanding the lack of visible progress on that topic, I think it would be unfair to characterize the reactions to the pitch of capital junk as being unproductive. I think there has been some dialog with people who share the view and who are not as concerned about the sort of the downside risk of the exercise. I think we need to give it more time.

I've been clear on the issue that in the absence of somebody immediately embracing the concept that it would take time to sort of develop our relationship and make people feel comfortable with the notion, I'm not in a position to say whether this thing is going to yield anything of value going forward or not.

The only thing I can tell you is that, it has been worth the effort. I would do it again. But, I think equally important, in addition to sort of looking and identifying for people who share your view. I think it was important for us to go through that exercise as a means of identifying the issues, which I think are endemic to this industry. I think the catharsis has been a very good exercise for all of us.

Certainly on the inside of the house, it's made our views relatively clear about what we can and cannot do. I think that this realignment of the NAFTA portfolio, to be perfectly honest, was a direct consequence of the fact that we started focusing on the relevant portion of our activities and sort of abandoned the notion of being able to withstand mediocre performance of some segments, simply because of the fact that it was due to a higher calling of being an auto maker.

And I think we have all learned, I think, inside the house at senior leadership level and working our way down the structure, as to the importance of capital usage and I think that discipline is going to benefit all of us going forward.

Having said this, I've remained hopeful that over a relatively reasonable period of time that, this industry will come to risk with this issue and tackle them intelligently. I think we laid out a roadmap for that to happen. I remain hopeful that somebody will pick it up with us and get it done.

Neel N. Mehta - Morgan Stanley & Co. LLC

Great. Thank you.

Operator

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

John J. Murphy - Bank of America Merrill Lynch

Good morning. Maybe just kind of a follow-up to that question in the context of the changeover in your capacity in North America, more trucks than crossovers. Just wondering, if you can comment where you are in that process? Have you identified all the opportunities? It sounds like the Dart and Chrysler 200 are out of your facilities. What could go in to replace those and if there's more to come down the line?

Sergio Marchionne - Chief Executive Officer & Executive Director

Look, the realignment of the NAFTA manufacturing footprint was driven by two conditions and so we ran the optimization exercise with a very clear view of not losing one unit of sales in Ram and not losing one unit of sales in Jeep.

I think it would have been inconceivable and when we ran the numbers to accept a solution that would have accepted a downtime in any of the lines that are involved in the production of other Jeep or a Ram product.

And so, what is going around now in all the facilities is effectively a tooling up, and I'll give you a perfect example. The Warren Truck Plant, which is probably – historically one of the oldest plants that we have within the fold of the old Chrysler now FCA, is a plant that would have had to go through incredible surgery in order for it to be able to accept a new Ram truck, which is coming out at the beginning of 2018.

And we could not have lost any of the production that was associated with Ram out of the plant until the new truck came on, because it would have had disastrous consequences. So, the realignment of the Sterling Heights plant to accept the new Ram and effectively starting looking at Warren as an alternative site to expand production of Jeep products, especially in view of our commitment to the development of Wagoneer and Grand Wagoneer going forward has allowed to effectively relay out the whole manufacturing footprint, but not losing one unit and align for the concurrent production of some of the products that are coming in and some of the ones that are coming out.

So, I feel pretty good about what we've done. It's painful and there's a lot of intense activity going on in the U.S. now, but we will see the whole U.S. manufacturing footprint fully-loaded by the early part of 2018. So, I think the next 18 months are crucial, but I think all the work is underway now.

John J. Murphy - Bank of America Merrill Lynch

Just to follow-up on that. Would that include a net increase in capacity for you or a change in net increase in sort of the bricks-and-mortar capacity? Just trying to understand...

Sergio Marchionne - Chief Executive Officer & Executive Director

I think if you count a truck on an equivalent basis to a Chrysler 200 then I think there's been no increase in capacity.

John J. Murphy - Bank of America Merrill Lynch

(35:02).

Sergio Marchionne - Chief Executive Officer & Executive Director

As a matter of fact, there's a net reduction, if you look at the potential unexpressed volumes of both the Dodge Dart and the Chrysler 200.

John J. Murphy - Bank of America Merrill Lynch

Okay. Very helpful. Just on CapEx, I mean the run rate in the first quarter seemed a little bit light; you're talking about flat year-over-year, which seems a little bit more restrained than maybe some of your comments in the past. I mean is there a capital efficiency that is coming in here that might be continued as we go out into 2017 and 2018, which might help cash flow a lot more?

Sergio Marchionne - Chief Executive Officer & Executive Director

I think the comments that I made earlier about the capital efficiency and our desire to keep CapEx under control is going to be visible throughout 2016, 2017 and 2018. I think we have sort of re-dimensioned our expectations. We're beginning to see the benefit of this and I don't think we're in a position to change guidance for 2016 now.

I think we'll give you a better view of 2017 next year, but we'll have to wait until the end of the year. I do think that because of what we have done, we have re-dimensioned capital. I think we'll have to see what happens going forward, but we do have lower ambitions than we've had when we started the plant back in 2014.

John J. Murphy - Bank of America Merrill Lynch

Okay. And then just lastly, on ad spending, I mean, that was cited as a positive in the quarter. I mean, how much is that per vehicle? Is that – could be as much as a couple of hundred bucks easily per vehicle if you get more constraint there? And then also, is this pull back just a recognition that the brands are becoming better recognized and you don't need to push them quite as hard or kind of what's going on there?

Sergio Marchionne - Chief Executive Officer & Executive Director

I think we're being incredibly selective about where we're pumping our money on the advertising side. I think we went through an inordinate effort in the first seven years of our lives to try and get credibility back into the marketplace. And I think advertising was a tool that was used extensively and effectively I think between 2009 and now. I don't think we need to over-commit as we have done in the past, but I think you'll see more discipline coming through.

I also think it's a question of effectiveness and product launches. We haven't put a lot of money behind the Pacific, although it's gone into production. It will receive a lot of attention in May and June as the minivan season starts. And I think we'll see it, sort of, the advertising spend will match product introduction which is pretty intense over the next 2.5 years, but we are going to become more parsimonious when it comes to their saying – we don't need to be spraying the world with advertising. I think we've made enough noise out there. People know who we are.

John J. Murphy - Bank of America Merrill Lynch

And really, just the last question here. I mean, retail sales in NAFTA, up 8% in the quarter, very impressive and there's a lot of concern out there amongst dealers and a lot of industry partners that retail sales are slowing and fleet is being pumped. I mean, what's your take on your ability to keep this retail sales number up and what do you think is going on in general competitive environment on retail sales?

Sergio Marchionne - Chief Executive Officer & Executive Director

Yeah. Just to be clear, I think the people pumping fleet sales, I think one of the opportunities that we have in managing our production cycle is to effectively choose when we deliver fleet vehicles to our customers. And I think we choose it based on what we make, what we expect the retail market to yield in a particular month and everybody knows that January and February are historically not exceptional months in the U.S. market, so I don't look at sort of the relevance of fleet as being an anomalous condition. In the early part of this year, it's been normal.

The question about whether we think that the market is getting sticky, there's no doubt in my mind that the market has gotten tougher 2015 to 2016. I mean it is getting much more competitive than it's been. But as Richard mentioned in his comments about the forecast for the year, we don't expect the market to collapse or to go a substantial shrink, but it is competitive. It is relatively healthy in the areas in which we function well.

So Jeep and Ram, I think, have done relatively well, it's gotten a lot stickier. On the passenger car side, I think, the call that we made to exit those business as a producer in the United States in hindsight was probably one of the best calls we've made.

Unfortunately, that evidence was not available to us back in 2009 and 2010. Had we known this, I think, we would have refrained from the investment cycle that we went through, but I also think that that has been now has become a permanent change in the landscape in the United States. I think you'll see a lot more UVs of a variety of calibers occupying what has historically been a passenger car market. And so in that part of the market it's gotten stickier. As we exit, I think, we'll notice that less, but it is a price-sensitive market, and we need to watch it.

John J. Murphy - Bank of America Merrill Lynch

Great. Thank you very much.

Operator

Our next question is from Martino De Ambroggi from Equita. Please go ahead. Your line is open.

Martino De Ambroggi - Equita SIM SpA

Thank you. Good morning. Good afternoon, everybody. One more question on the NAFTA region. Actually, a, if the 8% and 9% rate of margins(40:31) for the current year is approachable by year-end just based on the positive results in Q1? And b, since the U.S. market trend remains one of the major concern, what's the sensitivity, just a rule of thumb in case of volume decline maybe not this year, but next year when you will be maybe not 100% the production realignment will be finalized. But just to have an idea what could be the sensitivity to volumes, taking into account all the possible actions you may take?

Richard Keith Palmer - Chief Financial Officer, COO-Systems & Casting

In terms of margin for NAFTA for the year, I think the first quarter, there's been a very positive performance. I don't want to give you a target for the full-year. I think last year, we came out at 7% as we had forecast. I think we're going to continue to push very hard, and I think a 7.2% margin in Q1 is a good start to the year, we'll keep you updated as to where we think we'll finish the year I think in the next couple of quarters.

Sergio Marchionne - Chief Executive Officer & Executive Director

Yeah. Just to help Richard on the analysis is, as the relevance of passenger car decreases in the U.S., so does profitability. I mean they're totally connected.

Richard Keith Palmer - Chief Financial Officer, COO-Systems & Casting

And to that point in 2017, I think as Mr. Marchionne said, the whole purpose of the realignment is to not lose any production of Jeeps and Rams. So, in 2017, I don't think we're going to have a significant impact in terms of profitability as a result of the realignment of the production footprint.

Sergio Marchionne - Chief Executive Officer & Executive Director

The thing that you've got to keep in mind, I'm acting as an assistant here to Richard, but one of the things that we've always faced in the United States in the production of Jeeps is to make this unfortunate Sophie's Choice about whether we sell in the U.S. or whether we sell overseas.

And I think when you look at Wrangler, you look at Grand Cherokee production, even in the case of the Compass and the Patriot, we have always been faced, and certainly in the last probably three or four years, especially we've been forced to make choices about which markets get allocated product. Even if there were to be a contraction of the U.S. market is, in our view that there's unexplored potential in terms of outside U.S. markets, especially where we have not established local production.

So, anything which relates to either a Cherokee or a Grand Cherokee and eventually a Wagoneer or a Wrangler will have additional means of expression in international market, and all the work that we're doing now in terms of establishing networks both in Europe and in Latin America, now with the introduction of the Renegade following the launch of the Cherokee in China.

All of these will become relevant markets for U.S. based production. So, I am relatively confident, even if there were to be a contraction of volumes in NAFTA, that we'll be able to compensate for that loss by continuing to fuel the international expansion of Jeep at the upper end of the spectrum.

Martino De Ambroggi - Equita SIM SpA

Okay. Thank you. So, maybe one more question on EMEA. After many quarters in a row of positive price effect in Q1, it was slightly negative, is this compromising the achievement of what I believe is up 3%, the rate of line sales (44:22) or is it just business as usual?

Richard Keith Palmer - Chief Financial Officer, COO-Systems & Casting

It's business as usual, I think, we're not compromising our targets from there. I think the 2% margin – 1.9% margin is testament to the fact that business is being managed with those margin targets in mind.

Martino De Ambroggi - Equita SIM SpA

Okay. Thank you.

Richard Keith Palmer - Chief Financial Officer, COO-Systems & Casting

Thanks.

Operator

Our next question is from Thomas Besson from Kepler Cheuvreux. Please go ahead, sir.

Thomas Besson - Kepler Cheuvreux SA

Thank you very much. It's Thomas from Kepler Cheuvreux. I have a few questions please. Firstly, can we come back on the U.S. passenger car off-take strategy and on the potential partnership you have been eluding to. And can you as well mention whether potential compensation to your suppliers of your passenger car range have been addressed in your Q4 production provisions, or whether these are still negotiated? That is the first question.

Richard Keith Palmer - Chief Financial Officer, COO-Systems & Casting

Yeah. So, we've basically booked most of the impact of any issues we see going forward. Obviously, we have a significant amount of product change in NAFTA. So, I think, we envisage being able to mitigate most of any potential claims we may be getting from the supply base. In terms of – sorry the other part of your question...

Thomas Besson - Kepler Cheuvreux SA

Was on the off-take strategy.

Richard Keith Palmer - Chief Financial Officer, COO-Systems & Casting

Sorry, the what?

Thomas Besson - Kepler Cheuvreux SA

Off-take strategy. Having other automakers build from the passenger cars you're no longer making?

Richard Keith Palmer - Chief Financial Officer, COO-Systems & Casting

Yeah. As we said before, I think we're open to looking at that with other OEMs. I'm not in a position to comment on anything specific at this stage, but clearly that is an area where we would see benefits that could accrue to any parties who were interested in having some collaboration in that segment of the market.

Thomas Besson - Kepler Cheuvreux SA

Okay. Coming back to the net debt walk. You've mentioned in your comments that a large portion of the working capital would reverse in the second quarter, would this indicate that you believe we should be closer to €5 billion net debt at the interim stage or are you looking too match for the second quarter?

Sergio Marchionne - Chief Executive Officer & Executive Director

I think we're going to be below €5 billion by the end of the year.

Thomas Besson - Kepler Cheuvreux SA

Okay. But again – at the interim stage you're not willing to indicate anything about the working capital development?

Sergio Marchionne - Chief Executive Officer & Executive Director

No, other than the fact that it should be lower than it is now.

Thomas Besson - Kepler Cheuvreux SA

Okay. Great. Last question for me, please. The year-on-year margins at this year have clearly increased, you seem to be happy with 3% potential upside, if you want (47:31) to get higher months for you when we look at some of your competitors, namely some of the French it seems that margins have improved a lot more than that, given your vehicle mix improvement. Could you overshoot in the region or is that not something we could look for?

Sergio Marchionne - Chief Executive Officer & Executive Director

Listen, I'm willing to learn with humility and I've been watching the results of our French competitors with attention and admiration and I will try to do my best to emulate them and beat them.

Thomas Besson - Kepler Cheuvreux SA

That's wonderful. Thank you very much.

Operator

Our next question comes from Massimo Vecchio from Mediobanca. Please go ahead. Your line is open.

Massimo Vecchio - Mediobanca Banca di Credito Finanziario SpA (Broker)

Good afternoon. I would like to have an update on the regulatory risk in view of the increasing provision that you took last year in the third quarter. We heard about the (48:28) the Daimler issue, and the German transformation. Can you give an update on what you think is the current scenario in the context of your provisions? That's my first question.

Sergio Marchionne - Chief Executive Officer & Executive Director

Well, I was looking over at Richard just to make sure that you and I could sleep nights, but I think we're adequately provisioned notwithstanding what you see.

A couple of general comments about the regulatory environment and then we're not getting into details. I think we have been incredibly clear over the last number of quarters about the fact that the regulatory environment has become a lot more stringent and I think that the requirements in positions that are being made and I think reasonably so on auto makers are going to increase the cost of doing business for all of us.

And it's something that we need to understand. I think we need to understand even in terms of the accrual rates with which we are provisioning for eventual remediation cost, whether it be warranty or recalls or otherwise on any unit that we sell.

I think it is clear that we understand the U.S. environment relatively well, now having lived through for a number of quarters, through the type of expectations and having achieved, I think, a meeting of the minds with the administrator and then staff and it's about what is expected going forward. And I think we're beginning to tool ourselves and tool the organization to deal with that environment and adequately answer any safety concerns that a regulator of the marketplace might have.

On the European side, I had a chance to go through the report that was issued last Friday by the Commission that was presented by the Ministry of Transport in Germany. It is available now in English for anybody who's interested in it.

I think it makes for a very interesting reading. I cannot disagree with the Minister, because I think he has pointed out, there is a result of the work that was carried out by the Commission, by the KBA and the Ministry itself. Given the way, in which European rules are set up and the way in which homologation authority is subject to devolution under the European arrangement that it is – there needs to be much better coordination across the national bodies about what it is that has effectively allowed as relevant technology in order to meet an emission standard.

There's a phenomenal level of confusion out there about the degrees of freedom that are associated in the interpretation of that rule, what constitutes effectively a sound technical reason for the application or the suspension of emission controls in a particular vehicle, because of the fact that there are very strong technical arguments that would suggest for the protection of the engine a number of – a variety of responses are capable of being introduced as part of the software solution that runs these vehicles. I understand all this.

But in the absence of very clear rules about what those requirements are and how exceptions to those rules as we have in the United States, where there's a continuous dialog with both EPA and CARB about what is allowed as an exception to the general, zero exception application of the rules.

Until those European rules are crafted and agreed amongst the homologation bodies, I think it's going to be very, very difficult. And I think a lot of people are looking for sensational answers coming out of this environment, and unfortunately that is not the case. I think that we set up a set of rules that required compliance given a particular cycle. People, I think, have done their best; that we have done our best to meet those standards over time, fully understanding that there were technical limitations associated with our powertrains that we use, and that because of those technical limitations that the rule itself allowed for relief.

By the way, as changes the philosophy or changes in terms of expectations, it's something that needs to be tabled, and I think the industry, I, for one, would be more than willing to work with the KBA, the Ministry of Transport or any other homologator to try and get this issue off the table, and get a proper response we find socially satisfactory to everybody.

And so, we have started – now it's been a while – we continue to – we have started having a dialog with the homologating body in Italy, which is fundamentally the one with which we interface. There's meetings even going on today between us and the Ministry in Rome that are dealing with this issue.

All these matters are matters that need to be tabled around, which Europe needs to find consensus because the rules are poorly structured. They may have been directionally correct, I think, from an implementation standpoint they were weak..

And so, we're willing to work with the KBA; we're willing to work with the Ministry, not only Italian Ministry, but the German Ministry, to try and find a solution to all this going forward. But it is an area which is influx, it's in transition and I think we need to play our role in providing clarity, I'm more than willing to offer FCA as a willing partner to get that done, but there's no doubt that a solution is required.

Massimo Vecchio - Mediobanca Banca di Credito Finanziario SpA (Broker)

Generally speaking, out of 100 recalls in how many cases you can charge back your suppliers? And how many cases, it's a matter that you deal by yourself. Is it a reasonable way to look at this issue or it's only on the carmaker?

Sergio Marchionne - Chief Executive Officer & Executive Director

No, it is a mixed bag and I don't have a percentage, because it depends on two things; one, whether there's been sort of fault or a quality issue in providing the part and it did not meet standard that we expect, whether it was their design and effectively they provided a solution which proved out to be unsatisfactory; whether it was our design, they complied and then we found that our own design was effective.

So, the answer is on a case-by-case basis, we continue to work with our suppliers, I think there's a good understanding in a majority of cases – the great majority of cases, as to whose responsibility it is, but I don't have a hard and fast rule to help you with.

Massimo Vecchio - Mediobanca Banca di Credito Finanziario SpA (Broker)

Okay. Last question if I may on the ring-fencing, you have €18 billion of cash and cash equivalent on the balance sheet, which speed can we expect this to decline over the course of 2016?

Sergio Marchionne - Chief Executive Officer & Executive Director

Richard will give you a rate. Richard and I debate this topic at length, he's going too slow, I want him to drop the cash number as fast as he can, it's the most unproductive use of cash I've seen in my life.

Unless you were the ECB but – for FCA, I think it's a staggering amount of cash that's lying around I think we need to take advantage at the speed of light, but I think he's already given indications as to what that number will be by the end of the year, you know.

Richard Keith Palmer - Chief Financial Officer, COO-Systems & Casting

Yeah. I think we have some bond maturities, and I think we're more than likely to reimburse those with cash from the balance sheet. On the other side, obviously we're going to generate cash through the rest of the year, but I think a number from the €18.4 billion we have on the balance sheet at the end of March, a number of around €17 billion would be a reasonable number at the end of the year.

As we've talked about before going forward, our target is to get down to around €15 billion of cash, €5 billion rollover towards the end of our planned period, so that's where we're headed. But at the moment, I think around €17 million of cash on the balance sheet – €17 billion sorry of cash on the balance sheet here makes sense.

Massimo Vecchio - Mediobanca Banca di Credito Finanziario SpA (Broker)

Thank you very much.

Richard Keith Palmer - Chief Financial Officer, COO-Systems & Casting

Thanks.

Operator

We will take our next question from Monica Bosio from Intesa Sanpaolo-Banca IMI. Please go ahead.

Monica Bosio - Banca IMI Intesa Sanpaolo

Good afternoon, everyone and good morning. I will just ask three questions. The first is on LATAM. I remember, but maybe I'm wrong, I remember that during the previous conference call, LATAM was expected to come back to be profitable by the end of the year. Now it seems that in the first quarter, it's already a little bit profitable, so are you more optimistic, can you give us a guidance on what you're expecting for the next quarter for LATAM?

Sergio Marchionne - Chief Executive Officer & Executive Director

Ms. Bosio, let me give you an answer for the Latin American issue, I think all of us would love to have a better answer on Brazil; a lot of it depends on the political resolution of the impasse that Brazil is experiencing right now. I think until the question of leadership gets resolved, I think it would be very improper for us to try and make prognostications about the Brazilian market. I think we will know, hopefully by the end of the third quarter.

Monica Bosio - Banca IMI Intesa Sanpaolo

Okay. Thank you very much. And the second question is, you have partially answered to this question, is about the competitive environment in NAFTA for Jeep and Ram, how are you feeling on the pricing discipline?

Sergio Marchionne - Chief Executive Officer & Executive Director

As competitive as the market is I think we have noticed a relatively decent amount of price discipline on both the pickups and the UV side. I think they're the ones that are the least prone to competitive pricing, or excessive competitive pricing.

I think we have seen a lot of competitive pricing on the passenger car side. I mean that's the one that to me is – I hate to say that we were right in predicting the shrinkage, but there's no doubt that there's an oversupply of nameplates and of willing players into that marketplace, which is driving pricing to levels that we would have found unacceptable in the medium-term to long-term.

Monica Bosio - Banca IMI Intesa Sanpaolo

Okay. And the very last question. First comeback on the issue of recalling cars, yesterday there was the news of 1.1 million recalled cars to modify the parking brake system. I know it's very difficult, but is there a way to quantify a potential impact only for this?

Sergio Marchionne - Chief Executive Officer & Executive Director

I think that I'm going to give you the answer but – hopefully, Mr. Palmer will give you, these things have been provisioned as part of a broader view as to where these costs will be.

Just to clear up the issue on this 1.1 million recall, we're talking about a software re-flash of vehicles, we're not doing any physical changes to the vehicle, we're doing a software re-flash to allow for particular conditions. If you open the door of the vehicle for the car to go automatically in park.

I grew up in North America and I get perfectly honest, I tell you I don't ever remember a planetary transmission that automatically switch into park if you open the door. And as a matter of fact when I was much, much younger – one of the things that I used to have to do is to open the door to back up the car, because I couldn't see anything from a very cheap car that I used to drive when I was a young man. So, I find it almost unbelievable that we're now forcing this transmission to go into park when the door is opened. I mean it's...

Monica Bosio - Banca IMI Intesa Sanpaolo

Okay.

Sergio Marchionne - Chief Executive Officer & Executive Director

...the rules of engagement, we will comply and life will go on.

Monica Bosio - Banca IMI Intesa Sanpaolo

Okay. Thank you very much. Very clear.

Operator

We will take our next question from Alberto Villa from Intermonte. Please go ahead.

Alberto Villa - Intermonte Sim SpA

Hi. Good afternoon and good morning. The first one is on Alfa Romeo, given the different view you have gotten on the NAFTA market demand skew towards SUV and so on...

Sergio Marchionne - Chief Executive Officer & Executive Director

No, but it doesn't impact on premium vehicles, and Alfa has always intended...

Alberto Villa - Intermonte Sim SpA

Right.

Sergio Marchionne - Chief Executive Officer & Executive Director

...to go into the U.S. as a premium vehicle. And by the way just to give you some encouragement, my having spent a few days in China in the last couple of weeks has made me a lot more confident about the introduction of Alfa into that market, I think we will do well, I think it will happen certainly within the planned period that we're talking about.

And I think a lot of the concerns that existed about the depth of the Chinese market have been overplayed. I think that Alfa does have a place in that market; I think we will be building cars for that market at the beginning of 2017 and I think it will do well. I am not concerned about the competitiveness of the U.S. market as it applies to Alfa, that's a different animal altogether.

Alberto Villa - Intermonte Sim SpA

Okay. Thank you. That's very clear. Second one on Jeep; is it possible to have an order of magnitude of the impact of Jeep to your revenues and operating profit in the first quarter?

Sergio Marchionne - Chief Executive Officer & Executive Director

No.

Alberto Villa - Intermonte Sim SpA

And you will never give indications specifically for a brand in the future, right?

Sergio Marchionne - Chief Executive Officer & Executive Director

You've answered your own question. You're very good at it.

Alberto Villa - Intermonte Sim SpA

Okay. The third one is back on consolidation. Apart from the traditional mass market and carmakers, there is a lot of discussion about tech players entering the market and potential discussions with you and other players, can you give us a view on that from your side and what is your potential visibility on that?

Sergio Marchionne - Chief Executive Officer & Executive Director

Look, our view has historically been, that we need to keep a very open mind. We cannot be selective in terms of or exclusive in terms of the arrangements that we make with some of these potential partners. And I think dialog continues with people who are interested in exploring their relevance in the automotive world and we will continue to help them try and find the way out and time will tell. I think that we need time to find out whether some of these arrangements are commercially relevant to FCA; but hopefully, we'll have something to say within 2016 on that matter publicly. I can't say anything up to now. I mean, it's just whatever is going on is confidential in nature.

Alberto Villa - Intermonte Sim SpA

Right. But not even, in terms of understanding what's the sense of an agreement?

Sergio Marchionne - Chief Executive Officer & Executive Director

I think we'll have to wait.

Alberto Villa - Intermonte Sim SpA

All right. Okay. Thank you.

Operator

We will take our next question from Patrick Hummel from UBS. Please go ahead.

Patrick Hummel - UBS AG (Broker)

Yeah. Thanks, good afternoon, everyone, good morning. Two questions left for me please. First one is regarding your EBIT guidance for the full-year, you've left it unchanged at least €5 billion. Looking at the Q1 run rate, it seems you are more than just well on track to achieve that target. And I would assume that in Europe and in Asia, we should see some positive momentum throughout the year, so is it just conservatism that you haven't adjusted the full-year guidance for EBIT or is there anything...?

Sergio Marchionne - Chief Executive Officer & Executive Director

We have historically never adjusted guidance until the third quarter.

Patrick Hummel - UBS AG (Broker)

Okay. Right there. And the second question is related to Maserati. Can you talk a bit about the order book for the Levante? You introduced it in Geneva a month and a half ago. How is the order book looking like?

Sergio Marchionne - Chief Executive Officer & Executive Director

Quite strong. That's all I'll tell you right now. I mean, the vehicle is a wonderful – maybe I am trying to sell your car on the phone, I don't know, but it's a phenomenal vehicle. I think it's something that was desperately needed in the range. I think the expectations especially in the United States are quite high for how well that vehicle will do.

So right now, our objective is to make sure that we get production right and we get it at the right quality levels before we start shipping cars oversees. We'll see some U.S. model at the end – some of the models in the U.S. at the end of the third quarter, beginning of the fourth quarter. Hopefully, we'll be there for the fall and winter season. And I think the car will do well. There's no doubt in my mind that there's zero unused capacity out of the Levante today in our plant.

Patrick Hummel - UBS AG (Broker)

And does it mean that by the end of this year we should see Maserati already at target profitability?

Sergio Marchionne - Chief Executive Officer & Executive Director

I have no idea what target you have in mind, but the answer is that we're not going to comment until we get to the third quarter of this year and see what the brand looks like after we get it rolled out.

Patrick Hummel - UBS AG (Broker)

Okay. Thank you very much.

Operator

We will now take our next question from Charles Winston from Redburn Partners. Please go ahead.

Charles A. Winston - Redburn Partners LLP

Yeah. Hi. Charles from Redburn. Two question for me, if possible. Firstly, just your current truck, SUV penetration in the States, I think it's about 83%, 84% according to your data.

As you get your new production footprint sorted out, I mean is it possible that FCA U.S. becomes a 90% plus truck SUV company? In other words, to all intents and purposes the proportion of passenger cars really will have withered to something pretty minimal? Or is there a figure in your...

Sergio Marchionne - Chief Executive Officer & Executive Director

No, no, no, no. And I think...

Charles A. Winston - Redburn Partners LLP

Okay.

Sergio Marchionne - Chief Executive Officer & Executive Director

...you're totally underestimating the relevance of minivans. I don't know where you got your number at 83%. I can't reconcile it with anything I know, especially to you – unless you...

Charles A. Winston - Redburn Partners LLP

Something from your monthly data.

Sergio Marchionne - Chief Executive Officer & Executive Director

Yeah. Unless you consider the minivan a truck.

Charles A. Winston - Redburn Partners LLP

I'm just quoting back to you the numbers you guys publish on your website every month, and you split it between passenger cars and trucks.

Sergio Marchionne - Chief Executive Officer & Executive Director

Right. And trucks includes minivans. And that's a completely different application on the concept. So, we may be abusing the concept on our website, and for that I apologize, but a minivan is a passenger vehicle. It is not a UV in the traditional sense of the word. But anyway, it's possible when we finish all this that the true passenger car side will represent the lesser portion of our portfolio than it does today.

Charles A. Winston - Redburn Partners LLP

Okay.

Sergio Marchionne - Chief Executive Officer & Executive Director

It's possible.

Charles A. Winston - Redburn Partners LLP

But I mean in terms of significant further shifts from here possible? Or have we seen a lot of that shift happen in terms of that mix change?

Sergio Marchionne - Chief Executive Officer & Executive Director

I think you've seen a lot of the shift – of the implications of a shift away from traditional passenger cars happen already. I would not be underestimating the impact of the continuance of Dodge as a rear-wheel drive architecture environment in the fact that we will continue to grow our position in that segment. But when you look at overall volume is coming out of NAFTA, it will not represent a large portion of our mix, and certainly not in terms of local production, it won't.

Charles A. Winston - Redburn Partners LLP

Okay. Clear. Second question is just in terms of, if I was to look at your regional bridges and aggregate them and just sort of look at the headings across the piece, what I found interesting is that costs, in other words the reduction in SG&A and the industrial savings, €275 million, is the aggregate gain across that block. That's actually the single biggest block of the €679 million, it's slightly bigger than price mix across the group. Is that a pace of cost gain that we can expect to see across the year? I mean, I recognize it's coming from a number of geographies, I recognize there's an SG&A element in there, but is that rough figure of sort of €200 million, €250 million per quarter a meaningful figure to continue going forward or were there some perhaps slightly one-time elements are in there? Thank you.

Richard Keith Palmer - Chief Financial Officer, COO-Systems & Casting

I think it's safe to say that we are seeing more traction from the stability in the industrial footprint worldwide and the consolidation of platforms and vehicles that is helping us to perform better in terms of vehicle purchasing – direct material purchasing costs and efficiencies. So, I think, in the past, we've seen the industrial cost number being heavily negative, particularly in NAFTA. I think we're starting to see an inversion in that trend, Charles. I wouldn't want to say that it's going to be €250 million times 4. I think it's early in the year to talk about those sort of...

Sergio Marchionne - Chief Executive Officer & Executive Director

If it's €250 million times 4, we're increasing guidance on this call right now, Richard. Over to you, buddy.

Richard Keith Palmer - Chief Financial Officer, COO-Systems & Casting

Like I said, it's early to make any such prediction. I think what is safe to say is that we're seeing the cost equation becoming a more significant contributor to overall profitability, especially industrial. And then on the SG&A side, as we mentioned, there's some timing differences on launches, which obviously drives timing of the sales and marketing investment.

Charles A. Winston - Redburn Partners LLP

Clear. Thank you.

Operator

Our next question is from José Asumendi from JPMorgan. Please go ahead.

José Asumendi - JPMorgan Securities Plc

Thanks very much. Two items. The first one on pricing. If you can comment please, the drivers for gross positive pricing in North America. And in EMEA, you mentioned also higher incentives on your business. Is this related to the product cycle, your specific product cycle or is it more related to the market? And then the second one on CapEx. I'll take it after your answer, please.

Richard Keith Palmer - Chief Financial Officer, COO-Systems & Casting

Well, I think in NAFTA, we saw a positive overall impact on pricing. So, I think we did have the benefit of discounts year-over-year, because last year we changed that structure in second quarter, so it's still like carryover of that.

We've been continuing to price where possible in the marketplace and despite some negative headwinds on exchange, in particular on Canadian dollar, the number was positive for the quarter. So, I think as we mentioned earlier, there is some more price pressure in the market, as a whole; but on truck and on SUV we're seeing a fair amount of discipline still, so we're looking at that type of behavior going forward, we're not predicting anything more aggressive in the rest of the year.

In terms of EMEA, it's really just a market, José. I mean we're acting to be competitive where necessary, I think there is some impact there year-over-year of some extra price pressure, particularly in the UK due to some competitive moves and exchange impact, but we moved on in the second half of last year, so we're seeing that carry forward, but nothing significant to consider as a trend moving into the rest of the year.

José Asumendi - JPMorgan Securities Plc

Okay. And then on net cash, just want to come back to the comments from Mr. Marchionne on hitting net cash of €18 billion, I mean there are two drivers, you make more money or you spend less. And I mean for me, it's basically spending less and I just don't understand which special projects are you running right now in the books that you're not going to have in 2017, 2018 that's basically going to allow you to unleash the cash machine over the next 18 months. Can you give us any color on that? I mean we've seen starting in this first quarter CapEx is declining, but what kind of rate can we expect now over 18 months?

Sergio Marchionne - Chief Executive Officer & Executive Director

As I said at the beginning, our CapEx guidance for the year is unchanged from Q4 and basically substantially in line with last year. And then we'll guide 2017 when we get there, but I think as we mentioned earlier, compared to our initial plan we have rationalized the overall spending, but capital obviously is something we're very focused on, José, we want to get to the net cash position that's our target.

José Asumendi - JPMorgan Securities Plc

Fair enough. Thank you.

Sergio Marchionne - Chief Executive Officer & Executive Director

All right. Thank you.

Operator

That will now conclude the question-and-answer session. I would now like to turn the call back to Joe Veltri for any additional or closing remarks.

Joseph Veltri - Vice President - Global Investor Relations

Thank you, Hannah. And we'd like to thank everyone for joining today's call and webcast. As always my team and I are available to follow up with you with any questions you might have afterwards. Thank you and have a pleasant day.

Operator

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

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