2016 SUSTAINABILITY REPORT CLICK FOR INSTRUCTIONS ON USING THIS REPORT 2 CONTENTS LETTER TO STAKEHOLDERS 3 EMPLOYEES AND COMMUNITY 65 PRODUCTION AND SUPPLY CHAIN 147 Employees ........................................................66 Production ......................................................148 Community .......................................................80 Supplier Management ...................................155 Logistics ........................................................166 BUSINESS MODEL 6 CUSTOMERS AND DEALERS 85 SUPPLEMENTAL INFORMATION 171 The Business Model Explained ...........................7 Customers ........................................................86 Facts & Figures ...............................................172 Business Model Inputs .....................................16 Dealer and Service Network .............................92 Definitions, Methodology and Scope .............211 Business Model Outcomes ...............................22 About this Report ...........................................213 Forward-Looking Statements .........................214 Independent Auditor’s Report .........................215 GRI G4 Content Index ....................................216 RESPONSIBILITIES AND TARGETS 28 INNOVATION AND MOBILITY 96 Responsible Corporate Citizenship ...................29 Research and Development .............................97 Engagement with Stakeholders ........................31 Emissions and Fuel Economy ..........................99 Sustainability Targets ........................................36 Efficient Powertrains and Technologies ..........103 Corporate Governance Pillars ..........................51 Engaging Customers .....................................121 Corporate Governance Structure .....................52 Design for the Circular Economy ....................129 Code of Conduct .............................................55 Vehicle Safety ................................................143 Risk Management ............................................58 Vehicle Quality ...............................................146 3 LETTER FROM THE CHAIRMAN AND THE CHIEF EXECUTIVE OFFICER FCA closed 2016 with another record financial performance while continuing to be recognized for its sustainable operating model. We exceeded our full-year guidance in all key metrics, made all the more significant by the fact that our targets were revised upward twice during the year. In addition, all of our segments were profitable and showed improvement over the prior year. Adjusted EBIT for the year climbed 26 percent to €6.1 billion. We posted a net profit of €1.8 billion, significantly improving from €93 million the prior year, and our adjusted net profit was up 47 percent to €2.5 billion. We also reduced net industrial debt further to €4.6 billion, which represents almost a half billion euro improvement from year-end 2015. With these results, we have achieved or exceeded all the key targets in the first three years of our 5-year business plan. Worldwide combined shipments in 2016 were in line with the prior year at 4.7 million units, with Jeep brand combined shipments up 9 percent to more than 1.4 million units, representing the fifth straight annual record. Net revenues came in at €111 billion, in line with 2015. Looking at our mass-market operations by region, NAFTA posted a strong performance with a 15 percent increase in adjusted EBIT and margins improving from 6.4 percent to 7.4 percent. The 5 percent decrease in shipments was primarily due to the planned phase-out of the Chrysler 200 and Dodge Dart models as part of our NAFTA capacity realignment. Our manufacturing footprint in NAFTA is being retooled to increase production of Jeep and Ram vehicles and capitalize on the strength of those brands as demand continues to shift towards their core product segments. In LATAM, we posted an adjusted EBIT of €5 million, reversing the prior year’s loss of €87 million. This improvement was despite the continued poor market conditions in Brazil, where we have held the position of market leader for 15 years. The launch of the all-new Jeep Compass in September marked the final piece of our industrialization plan at our new plant in Pernambuco which is also producing the Jeep Renegade and Fiat Toro pickup truck. Letter from the Chairman and the Chief Executive Officer GRI: G4-1 4 In APAC, adjusted EBIT doubled to €105 million and margin rose to 2.9 percent from 1.1 To begin 2017, at the CES in Las Vegas, we revealed the Chrysler Portal concept, a percent on the strength of favorable product mix and improved results from our Chinese semi-autonomous electric vehicle that is engineered to be upgradeable as advances in joint venture. That joint venture is now fully operational with the production of three Jeep technology enable higher levels of autonomy and designed to grow with millennials through brand SUVs. their life stages. During the year, there was a significant improvement in the contribution from EMEA, which We have made significant progress since unveiling our five-year strategic plan in 2014, and grew sales, market share, revenues and margin. Adjusted EBIT rose 154 percent to €540 for 2017 we have issued guidance that confirms our conviction in achieving the key targets million with the margin more than double the previous year at 2.5 percent. we have set for 2018. For full-year 2017, we expect net revenues of between €115 billion and Maserati posted a record adjusted EBIT of €339 million, more than three times the prior year’s €120 billion, adjusted EBIT in excess of €7 billion, adjusted net profit of more than €3 billion and level, reflecting significantly higher revenues following the successful launch of the all-new net industrial debt to be further reduced to below €2.5 billion by year-end. Levante SUV. Full year adjusted EBIT margin more than doubled to 9.7 percent, while reaching Our approach to achieving profitable growth includes expanding our business globally while 12 percent in the second half of the year. always remaining mindful of how our actions affect the world in which we operate. This Our Components segment came in with a 13 percent increase in adjusted EBIT for the year, to commitment to playing a positive role is fundamental to the character of our Group. It reflects €445 million, with margin rising to 4.6 percent from 4.0 percent largely as a result of a strong our core belief that achieving sustainable economic results requires a balanced approach that performance by Magneti Marelli, which continues to improve both volumes and margins. also contributes to the environment and society as a whole. On the product side, we launched nine all-new products worldwide, six of which were white- We are convinced that the objectives we have set for the future, together with the significant space additions to our portfolio. They include the Maserati Levante, Alfa Romeo Giulia and steps we have already taken, are clear evidence that our approach to sustainability is not only the Fiat Tipo, Toro, Fullback and 124 Spider. At the Los Angeles Auto Show in November, we pragmatic, but it is deeply rooted in our culture and central to our mission. unveiled the Stelvio, Alfa Romeo’s first-ever SUV, and the all-new Jeep Compass made its In fact, our efforts have been recognized by the world’s leading sustainability rating agencies. North American debut, following up on its successful launch in Latin America. In addition, our targets are aligned with the inspirational principles that drive the United Nations FCA also made several key moves to stay at the forefront of the rapid technological changes Sustainable Development Goals (SDGs) initiative, which addresses the global challenge of that are transforming the industry. sustainable development. And, our global sustainable best practices are aligned with the The Windsor Assembly Plant in Canada began producing the all-new Chrysler Pacifica Hybrid, European Union Commission’s efforts to stimulate the transition towards a circular economy the industry’s first electrified minivan and the most fuel-efficient ever with a U.S. EPA rating of that maximizes the value and use of materials, products and waste. 84 miles-per-gallon equivalent. To cite just a few examples, during 2016 we implemented more than 4,400 new environmental In 2016, we also announced a collaboration with Waymo (formerly the Google Self-Driving Car projects at our plants worldwide, leading to a reduction of the carbon footprint and about €70 Project) and the completion of 100 Pacifica Hybrid vehicles purpose built for fully self-driving million in savings. Projects targeted at reducing water consumption at our facilities resulted in operations. This marked the first time that Google has worked directly with an automaker to 2.2 billion m3 of water being saved and €4.5 million in cost savings, with the recycling index integrate its self-driving system, including sensors and software, into a passenger vehicle. reaching 98.9 percent. Letter from the Chairman and the Chief Executive Officer GRI: G4-1 5 Our plants also achieved a 5.5 percent reduction in waste generated and a 2.4 percent Our unique strength as a company resides in our work ethic as well as our diversity, our reduction in CO2 emissions in 2016. As a result of continuous improvements over the years, openness, the accountability to deliver on our promises, and the way we respect each other. the percentage of electric energy used in our manufacturing activities that is derived from These values are what