FCA 2018 Sustainability Report

2018 SUSTAINABILITY REPORT CONTENTS 01 04 MESSAGE TO PRODUCTS STAKEHOLDERS 3 AND CUSTOMERS 62 Message from the Chairman and the CEO 3 Research and Development 63 Efficient Powertrainsand Technologies 67 Applications of the Circular Economy 77 Customer Focus 81 02 05 BUSINESS MODEL PRODUCTION AND GOVERNANCE 6 AND SUPPLY CHAIN 88 Business Model and Value Chain 7 Production 89 Materiality and Stakeholder Engagement 11 Supplier Management 94 Sustainability Targets 17 Logistics Operations 102 Corporate Governance 31 Risk Management 38 03 06 EMPLOYEES SUPPLEMENTAL AND COMMUNITY 44 INFORMATION 106 Employees 45 Facts & Figures 107 Community 57 Definitions, Methodology and Scope 135 About this Report 137 Forward-Looking Statements 138 Independent Auditor’s Report 139 GRI Standards Content Index 141 01_MESSAGE TO STAKEHOLDERS_MESSAGE FROM THE CHAIRMAN AND THE CEO MESSAGE FROM THE CHAIRMAN AND THE CEO We want to thank everyone in the FCA organization for their Keeping in mind where we came from and the journey that has professional and personal contributions, during what was an brought us thus far, we will carry this organization forward with a extraordinary year. very clear vision of what it takes to achieve our ambitions. Thanks to them, we finished 2018 in the strongest financial position We firmly believe that we have the depth and breadth of talent and skills since FCA was created. We achieved record results and a number of we need to shape the future of this organization exactly as we envision significant milestones, which have paved the way for our next phase it: a company with a global horizon and unlimited possibilities, working of growth and profits. to become one of the most profitable automakers in the world. The year was also marked by a sudden and unexpected change This vision draws its strength from the collective spirit of our people in leadership following the untimely passing of Sergio Marchionne. - united by the same strong commitment to the values that drive our business and our lives: integrity and discipline, openness to That was a tough moment for all of us, including on a personal level, feedback and constructive debate, and full acceptance that we are but our organization was well prepared to manage this unexpected each accountable. transition because, from the very beginning, Sergio had the humility and wisdom to see that the ultimate fulfillment of his role as a leader In 2018, we reached a net cash position for the very first time. was to teach those around him also to be leaders. Industrial free cash flows more than doubled to €4.3 billion(1), leading to a net industrial cash position of €1.9 billion(1) at year-end. Notwithstanding the difficult circumstances, we were able to move rapidly, ensuring stability in leadership and steadiness of vision. On that basis, the Board of Directors is recommending, for the first time in nearly ten years, to reward our shareholders with the reinstatement of ordinary dividends. (1) Including Magneti Marelli, which is classified as a discontinued operation for the year ended December 31, 2018. 3 01_MESSAGE TO STAKEHOLDERS_MESSAGE FROM THE CHAIRMAN AND THE CEO The agreement to sell Magneti Marelli, a transaction which is expected On the product side, we increased our offering with several key to close in the second quarter of 2019, will create one of the world’s vehicle launches. leading independent automotive component suppliers, recognizing Jeep launched: the all-new Grand Commander in China, a premium the full strategic value of our components business. Not only will seven-passenger SUV exclusive to the Chinese market; the all-new it provide a secure and exciting future for Magneti Marelli and its Wrangler in Europe and Japan; the new Cherokee in Europe, China employees but it will also allow us to further strengthen our balance and Japan; the new Renegade in LATAM. The all-new Gladiator, the sheet and reward our shareholders with an extraordinary dividend. most capable mid-size pickup truck, made its worldwide debut at Our consistently strong performance has resulted in ratings the Los Angeles Auto Show. upgrades from each of the three major credit rating agencies. Alfa Romeo revealed the new Stelvio and Giulia Quadrifoglio Adjusted EBIT for the year came in at a record €7.3 billion(1). Nürburgring limited editions, with 108 models of each produced to commemorate the 108th anniversary of the brand. Adjusted net profit climbed 34 percent to a record level of €5.0 billion(1) and net profit was up 3 percent to €3.6 billion(1). At the New York International Auto Show, Maserati debuted the Levante Trofeo V8 which will be sold in markets around the world. Worldwide combined shipments totaled 4.8 million units and net revenues were up 4 percent to €115.4 billion(1). Ram launched the all-new 1500, which has already won two of the most prestigious awards in North America: 2018 North American Looking at our mass-market operations by region, NAFTA posted a Truck of the Year (NACTOY) and Motor Trend Truck of the Year. strong performance, attaining a record high in Adjusted EBIT, up 19 percent at €6.2 billion, with a margin of 8.6 percent. In the United And we began 2019 with the reveal of the all-new Ram Heavy Duty States, we reported the highest retail sales in 17 years, with both at the North American International Auto Show in Detroit. Jeep and Ram brands hitting new records. We also completed As part of our commitment to stay at the forefront of the rapid the most complex and intensive phase of the realignment of our technological changes that are transforming our industry, we are manufacturing footprint in the Region, in response to a continued pursuing a multi-partner strategy for the development of advanced shift in demand towards trucks and SUVs. driver assistance and autonomous driving technologies, working LATAM posted robust growth with Adjusted EBIT more than doubling with companies who are leaders in their respective sectors. from the previous year to €359 million and margin increasing by 250 With Waymo, Google’s self-driving car project, we further basis points to 4.4 percent. In Brazil, we finished the year in a leading strengthened our partnership in 2018, announcing an agreement to position in three of the most important segments - pickups, light deliver up to an additional 62,000 Chrysler Pacifica Hybrid minivans commercial vehicles and SUVs - while in Argentina we improved our to support the launch of the first autonomous-car taxi service. We market share despite the severe economic crisis in the second half also dedicated a new facility at our Chelsea Proving Grounds in the of the year. United States for further development and testing of autonomous Results in APAC were disappointing, Adjusted EBIT showed a loss vehicles and advanced safety technologies. of €296 million, impacted by trade and regulatory challenges due to In addition, we are partnering with BMW for Level 3 autonomy and market weakness and increased competition and reflecting lower APTIV for advanced driver assistance retail solutions, as these shipments from our Chinese joint venture. initiatives provide the opportunity to fully leverage the capabilities of In EMEA, performance was adversely affected by several factors, each partner. including the transition to new emissions regulations. Lower volumes We believe that choosing the right technology at the right moment and pricing actions in response to this transition, as well as higher is key to our ability to lead the way in the future of transportation, advertising costs to support the growth of Jeep brand, led to a especially now as emerging technologies are revolutionizing the decrease in Adjusted EBIT to €406 million. Net revenues came in at concept of personal mobility. €22.8 billion, in line with prior year. We are ready to tailor both the technologies and the platforms not There was also a positive contribution from Maserati, although the only to meet but also to shape that new vision. results were below the 2017 level, primarily due to market challenges in China, as well as inventory management actions and lower volumes in North America and Europe. (1) Including Magneti Marelli, which is classified as a discontinued operation for the year ended December 31, 2018. 4 01_MESSAGE TO STAKEHOLDERS_MESSAGE FROM THE CHAIRMAN AND THE CEO The other significant technological shift that we are likely to see in We also aim to offer our employees an inclusive work environment, the near future is related to electrification, which we also addressed where everyone feels respected and valued, and we are proud to in our business plan. Our expectation is to continue reducing CO2 have our efforts recognized by organizations such as the Thomson emissions through a combination of technologies aligned to the Reuters D&I Index, which included FCA among the top 100 most vehicle mix, consumer needs and regulatory framework in each diverse and inclusive organizations in the world. market. By 2022, we intend to offer 12 electrified propulsion systems We decided to name our FCA Student Achievement Awards in on global architectures spanning the full range of vehicle segments honor of Sergio Marchionne, which is a way to reaffirm his principles and over 30 vehicle nameplates with electrified solutions. and beliefs by supporting the most talented and deserving children The objectives we have set for the future, together with the significant of our employees. steps already taken, are clear evidence of our business principles The results we achieved, in terms of both growth and value, were and determination to ensure that the achievement of financial targets possible because of what FCA is today. goes hand-in-hand with respect for all stakeholders.

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