Some have questioned Fiat Chrysler’s recent announcement that it is selling off Ferrari. The long lines of armchair CEOs have brought up the extreme value of Ferrari and sagely advised that Fiat Chrysler executives don’t understand just what kinds of huge profit margins a Ferrari car produces. Now that more details about the spinning off of the Italian prancing horse are coming out, the reasons for the surprising move are become clear. The most compelling among them is that dumping Ferrari will also allow Fiat Chrysler to shed a big amount of debt somewhere in the neighborhood of $900 million. Reuters broke the story about the benefit to kicking Ferrari to the curb, citing the automaker’s goal of dramatically expanding its product lineup as the main reason for wanting to dump debt.
With that kind of financial freedom, it will be able to pursue those plans with greater vigor. The deal involves Ferrari giving Fiat Chrysler 2.25 billion euros before the spinoff. Add to that the fact that Ferrari is carrying a debt of 133 million euros, and losing out on the 1.67 billion euros brought in by the brand won’t hurt nearly as much. Fiat Chrysler had a debt of 11.37 billion euros at the end of September of this year. As it stands right now, Fiat Chrysler is the seventh-largest automaker in the world, but that’s obviously not enough. Other plans from management include using a $2.5 billion mandatory convertible bond issue as well as a share sale to help the company shed even more of its debt. According to Sergio Marchionne, the CEO, all of these moves will bring in about 4 billion euros to help fund the expansionist plans. So, it turns out that dumping Ferrari might not have been such a dumb move after all. The real question is just what kinds of new models will Fiat Chrysler make once it is flush with all that cash?