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Fiat Chrysler (FCAU) and Ferrari (RACE) Shares Slide As CEO Marchionne Resigns

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On Saturday, Fiat Chrysler Automobiles announced that legendary CEO Sergio Marchionne will be resigning from his position due to illness. Additionally, Marchionne will not be returning to Ferrari (RACE - Free Report) , where he was also the CEO and chairman of the famous luxury sports car brand.

Marchionne was expected to stay at Ferrari for another 5 years, while plans were already set for him to leave Fiat Chrysler in the spring.

In reaction to the sudden news and future uncertainty stemming from Marchionne leaving, shares of both companies fell drastically on Monday. Fiat Chrysler stock fell 1.73%, while Ferrari dropped by 2.52%.

The market’s reaction to the news is understandable, as Marchionne is regarded as one of the most successful leaders in the automotive industry.

That high reputation has been earned through his achievements, such as saving Chrysler in 2009 by bringing the company out of bankruptcy. Under his guidance, Chrysler was completely rebuilt and turned into a profitable automaker.

Another one of Marchionne’s accomplishments has been the remarkable success of Ferrari, which he decided to spin off from Fiat Chrysler in 2015. Since the split, Ferrari stock has risen over 142%.  The bold move by Marchionne made it possible for Ferrari to focus on being a luxury brand without being associated alongside all the other car brands in FCA.

FCA and Ferrari will both miss that strong leadership, and it now creates immense pressure for the new CEOs of the automakers. The strategic direction of both companies is unclear and all new moves will be compared to what the previous CEO was able to do.

Taking on that burden for Fiat Chrysler is Mike Manley, the former head of the Jeep brand. Jeep, which is one of the key brands in FCA, has seen recent success under Manley and is one of the bright spots for Fiat Chrysler. Last year Jeep sold almost 1.4 million cars, a major improvement from the 338,000 cars it sold in 2009 when Manley first took over.

Jeep will need to build on that momentum in order for FCA to succeed and compete in the U.S auto market.

In terms of market share, the biggest player in the domestic auto industry currently is Ford (F - Free Report) , which is set to release its earnings on July 25. Fiat Chrysler is ranked third domestically and is in position to overtake Ford if the current market leader doesn’t perform well.

For Ferrari, Marchionne was supposed to remain for another five years, thus making his departure an even bigger hit for the company. The new Ferrari CEO is Louis Camilleri, who was a board member at the company.

Camilleri will be tasked with defining the future for Ferrari, as the new CEO is inheriting a “product plan that’s far from settled internally,” according to Bernstein analyst Max Warburton. The lack of confidence regarding Ferrari’s future will continue to hurt the company’s stock until the new CEO can provide some direction.

Nevertheless, Fiat Chrysler does have some potential, particularly with the Jeep brand. If Manley can build on his success at Jeep and reassure the market, then it could make a positive long-term future viable for the company’s shares.

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