2018 ANNUAL REPORT | Stellantis.com

2018 ANNUAL REPORT

AND FORM 20-F

2018

ANNUAL REPORT

2018

ANNUAL REPORT

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934

during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements

for the past 90 days. Yes No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of

Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such

files). Yes No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or an emerging growth company.

See definition of “large accelerated filer,” “accelerated filer,” and emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

Accelerated filer Non-accelerated filer

Emerging growth company

If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected

not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the

Exchange Act.

Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:

U.S. GAAP

International Financial Reporting Standards as issued by the International Accounting Standards Board Other

If “Other” has been checked in response to the previous question indicate by check mark which financial statement item the registrant has elected to follow:

Item 17

or Item 18 .

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes

(APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE YEARS)

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange

Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes No

2018

ANNUAL REPORT

Consolidated Financial Statements

at December 31, 2018 .................................. 165

Consolidated Income Statement .......................... 167

Consolidated Statement

of Comprehensive Income ................................... 168

Consolidated Statement of Financial Position ....... 169

Consolidated Statement of Cash Flows ............... 170

Consolidated Statement of Changes in Equity ..... 171

Notes to the Consolidated Financial Statements .. 172

Company Financial Statements

at December 31, 2018 .................................. 273

Income Statement ............................................... 274

Statement of Financial Position ............................ 275

Notes to the Company Financial Statements ....... 276

Other Information ........................................ 289

Additional information for Netherlands

Corporate Governance ........................................ 290

Additional Information for U.S. Listing Purposes ... 293

Independent Auditor’s Report ..................... 307

Form 20-F Cross Reference ........................ 319

Signatures .................................................... 323

Board of Directors and Auditor ....................... 7

Message from the Chairman and the CEO ..... 9

Board Report ................................................. 13

Introduction ........................................................... 13

Management Report ............................................. 16

Selected Financial Data ...................................... 16

Group Overview ................................................. 18

Our Business Plan .............................................. 20

Overview of Our Business .................................. 21

Sales Overview .................................................. 29

Environmental and Other Regulatory Matters ...... 36

Financial Overview ............................................. 43

Results of Operations ......................................... 50

Liquidity and Capital Resources ......................... 67

Risk Management .............................................. 77

Risk Factors ....................................................... 81

Corporate Governance .......................................... 96

Remuneration Report ....................................... 132

Non-Financial Information .................................... 144

Controls and Procedures ..................................... 159

2019 Guidance ................................................... 163

Table of contents

2018

ANNUAL REPORT

Board of Directors and Auditor

Board of Directors

and Auditor

BOARD OF DIRECTORS

Chairman

John Elkann

(3)

Chief Executive Ofﬁcer

Michael Manley

Directors

John Abbott

Andrea Agnelli

Tiberto Brandolini d’Adda

Glenn Earle

(1)

Valerie A. Mars

(1),(2)

Ruth J. Simmons

(3)

Ronald L. Thompson

(1)

Michelangelo A. Volpi

(2)

Patience Wheatcroft

(1),(3)

Ermenegildo Zegna

(2)

INDEPENDENT AUDITOR

Ernst & Young Accountants LLP (EU Annual Report ﬁling)

Ernst & Young S.p.A (SEC 20-F ﬁling)

(1)

Member of the Audit Committee

(2)

Member of the Compensation Committee

(3)

Member of the Governance and Sustainability Committee

2018

ANNUAL REPORT

2018

ANNUAL REPORT

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 professional and personal contributions, during what was

an extraordinary year.

Thanks to them, we ﬁnished 2018 in the strongest ﬁnancial position since FCA was created. We achieved record

results and a number of signiﬁcant milestones, which have paved the way for our next phase of growth and proﬁts.

The year was also marked by a sudden and unexpected change in leadership following the untimely passing of

Sergio Marchionne.

That was a tough moment for all of us, including on a personal level, but our organization was well prepared to

manage this unexpected transition because, from the very beginning, Sergio had the humility and wisdom to see that

the ultimate fulﬁllment of his role as a leader was to teach those around him also to be leaders.

Notwithstanding the difﬁcult circumstances, we were able to move rapidly, ensuring stability in leadership and

steadiness of vision.

Keeping in mind where we came from and the journey that has brought us thus far, we will carry this organization

forward with a very clear vision of what it takes to achieve our ambitions.

We ﬁrmly believe that we have the depth and breadth of talent and skills we need to shape the future of this

organization exactly as we envision it: a company with a global horizon and unlimited possibilities, working to become

one of the most proﬁtable automakers in the world.

This vision draws its strength from the collective spirit of our people - united by the same strong commitment to the

values that drive our business and our lives: integrity and discipline, openness to feedback and constructive debate,

and full acceptance that we are each accountable.

In 2018, we reached a net cash position for the very ﬁrst time. 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.

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.

The agreement to sell Magneti Marelli, a transaction which is expected to close in the second quarter of 2019, will create

one of the world’s leading independent automotive component suppliers, recognizing the full strategic value of our

components business. Not only will it provide a secure and exciting future for Magneti Marelli and its employees but it will

also allow us to further strengthen our balance sheet and reward our shareholders with an extraordinary dividend.

Our consistently strong performance has resulted in ratings upgrades from each of the three major credit rating agencies.

Adjusted EBIT for the year came in at a record €7.3 billion

(1)

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)

Worldwide combined shipments totaled 4.8 million units and net revenues were up 4 percent to €115.4 billion

(1)

Looking at our mass-market operations by region, NAFTA posted a 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 States, we reported the

highestretail sales in 17years, with both Jeep and Ram brands hitting new records. We also completed the most

complex and intensive phase of the realignment of our manufacturing footprint in the Region, in response to a

continued shift in demand towards trucks and SUVs.

(1)

Including Magneti Marelli, which is classified as a discontinued operation for the year ended December 31, 2018.

2018

ANNUAL REPORT

Message from the Chairman

and the CEO

LATAM posted robust growth with Adjusted EBIT more than doubling from the previous year to €359 million and

margin increasing by 250 basis points to 4.4 percent. In Brazil, we ﬁnished the year in a leading position in three of the

most important segments - pickups, light commercial vehicles and SUVs - while in Argentina we improved our market

share despite the severe economic crisis in the second half of the year.

Results in APAC were disappointing, Adjusted EBIT showed a loss of €296 million, impacted by trade and regulatory

challenges due to market weakness and increased competition and reﬂecting lower shipments from our Chinese joint

venture.

In EMEA, performance was adversely affected by several factors, including the transition to new emissions regulations.

Lower volumes and pricing actions in response to this transition, as well as higher advertising costs to support the

growth of Jeep brand, led to a decrease in Adjusted EBIT to €406 million. Net revenues came in at €22.8 billion, in line

with prior year.

There was also a positive contribution from Maserati, although the 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.

On the product side, we increased our offering with several key vehicle launches.

Jeep launched: the all-new Grand Commander in China, a premium seven-passenger SUV exclusive to the Chinese

market; the all-new Wrangler in Europe and Japan; the new Cherokee in Europe, China and Japan; the new Renegade

in LATAM. The all-new Gladiator, the most capable mid-size pickup truck, made its worldwide debut at the Los

Angeles Auto Show.

Alfa Romeo revealed the new Stelvio and Giulia Quadrifoglio Nürburgring limited editions, with 108 models of each

produced to commemorate the 108th anniversary of the brand.

At the New York International Auto Show, Maserati debuted the Levante Trofeo V8 which will be sold in markets

around the world.

Ram launched the all-new 1500, which has already won two of the most prestigious awards in North America: 2018

North American Truck of the Year (NACTOY) and Motor Trend Truck of the Year.

And we began 2019 with the reveal of the all-new Ram Heavy Duty at the North American International Auto Show

in Detroit.

As part of our commitment to stay at the forefront of the rapid technological changes that are transforming our

industry, we are pursuing a multi-partner strategy for the development of advanced driver assistance and autonomous

driving technologies, working with companies who are leaders in their respective sectors.

With Waymo, Google’s self-driving car project, we further strengthened our partnership in 2018, announcing an

agreement to deliver up to an additional 62,000 Chrysler Paciﬁca Hybrid minivans to support the launch of the ﬁrst

autonomous-car taxi service. We also dedicated a new facility at our Chelsea Proving Grounds in the United States for

further development and testing of autonomous vehicles and advanced safety technologies.

In addition, we are partnering with BMW for Level 3 autonomy and APTIV for advanced driver assistance retail

solutions, as these initiatives provide the opportunity to fully leverage the capabilities of each partner.

We believe that choosing the right technology at the right moment is key to our ability to lead the way in the future of

transportation, especially now as emerging technologies are revolutionizing the concept of personal mobility.

We are ready to tailor both the technologies and the platforms not only to meet but also to shape that new vision.

The other signiﬁcant technological shift that we are likely to see in the near future is related to electriﬁcation, which we

also addressed in our business plan. Our expectation is to continue reducing CO

emissions through a combination

of technologies aligned to the vehicle mix, consumer needs and regulatory framework in each market. By 2022, we

intend to offer 12 electriﬁed propulsion systems on global architectures spanning the full range of vehicle segments

and over 30 vehicle nameplates with electriﬁed solutions.

2018

ANNUAL REPORT

The objectives we have set for the future, together with the signiﬁcant steps already taken, are clear evidence of our

business principles and determination to ensure that the achievement of ﬁnancial targets goes hand-in-hand with

respect for all stakeholders.

Among our sustainable initiatives in 2018, we implemented around 5,000 environmental projects at our plants around

the world, reducing our carbon footprint per vehicle produced by 27 percent compared with 2010 and reducing waste

generated per vehicle produced by 62 percent compared with 2010.

Our corporate citizenship efforts are rooted in the FCA Code of Conduct and are aligned with the United Nations

Sustainable Development Goals.

We strive to enrich the vitality of the communities where we live and work by creating jobs, giving back through

employee volunteering and providing ﬁnancial support through our charitable initiatives.

During 2018, Group employees around the world volunteered thousands of hours in support of a wide range of social

projects.

We also aim to offer our employees an inclusive work environment, where everyone feels respected and valued, and

we are proud to have our efforts recognized by organizations such as the Thomson Reuters D&I Index, which included

FCA among the top 100 most diverse and inclusive organizations in the world.

We decided to name our FCA Student Achievement Awards in honor of Sergio Marchionne, which is a way to reafﬁrm

his principles and beliefs by supporting the most talented and deserving children of our employees.

The results we achieved, in terms of both growth and value, were possible because of what FCA is today.

We are a strong, competitive group that possesses some of the most innovative technologies and one of the most

extensive product ranges and strongest brands in the world.

We are a ﬂexible yet cohesive group, with a global footprint, and solid enough to cope with any unexpected changes

in market conditions.

We wish to thank all of our shareholders and stakeholders for your support, whether you have been with us for many

years or just a few months. Your trust is fundamental for FCA as we embark on the next phase of our development.

February 22, 2019

/s/ John Elkann /s/ Mike Manley

John Elkann Mike Manley

CHAIRMAN CHIEF EXECUTIVE OFFICER

2018

ANNUAL REPORT

2018

ANNUAL REPORT

Board Report

Introduction

About this Report

This document constitutes both the Statutory annual report in accordance with Dutch legal requirements and the

Annual Report on Form 20-F in accordance with the United States Securities and Exchange Act of 1934 applicable

to Foreign Private Issuers (“FPI”) for Fiat Chrysler Automobiles N.V. for the year ended December31, 2018. A table

that cross-references the content of this report to the Form 20-F requirements is set out in the FORM 20-F CROSS

REFERENCE section included elsewhere in this report. The Annual Report and Form 20-F is ﬁled with the Netherlands

Authority for Financial Markets (Autoriteit Financiële Markten, the “AFM”). The Annual Report and Form 20-F and other

related documents are ﬁled with the United States Securities and Exchange Commission (“SEC”).

The following sections have been removed for our Form 20-F ﬁling with the SEC:

MESSAGE FROM THE CHAIRMAN AND THE CEO

CORPORATE GOVERNANCE - Responsibilities in Respect to the Annual Report

NON-FINANCIAL INFORMATION

CONTROLS AND PROCEDURES - Statement by the Board of Directors

2019 GUIDANCE

FCA N.V. COMPANY FINANCIAL STATEMENTS

Independent auditor’s report (Ernst & Young Accountants LLP in respect of the AFM filing)

Without the sections referred to above, the Form 20-F ﬁling with the SEC does not constitute a Statutory annual report

in accordance with Dutch legal requirements.

Documents on Display

You may read and copy any document we ﬁle with or furnish to the SEC at the SEC’s public reference room at 100 F

Street, N.E., Room 1580, Washington, D.C. 20549. You may also obtain documents we ﬁle with or furnish to the SEC

on the SEC’s website at www.sec.gov. The address of the SEC’s website is provided solely for information purposes

and is not intended to be an active link. You may visit the website or call the SEC at 1-800-732-0330 for further

information about its public reference room. Reports and other information concerning the business of FCA may also

be inspected at the ofﬁces of the New York Stock Exchange, 11 Wall Street, New York, New York 10005.

We also make our periodic reports, as well as other information ﬁled with or furnished to the SEC, available free of

charge through our website, at www.fcagroup.com, as soon as reasonably practicable after those reports and other

information are electronically ﬁled with or furnished to the SEC. The information on our website is not incorporated by

reference in this report.

Certain Deﬁned Terms

In this report, unless otherwise speciﬁed, the terms “we”, “our”, “us”, the “Group”, the “Company” and “FCA” refer to

Fiat Chrysler Automobiles N.V., together with its subsidiaries and its predecessor prior to the completion of the merger

of Fiat S.p.A. with and into Fiat Investments N.V. on October 12, 2014 (at which time Fiat Investments N.V. was

renamed Fiat Chrysler Automobiles N.V., or “FCA NV”), the “Merger” or any one or more of them, as the context may

require. References to “Fiat” refer solely to Fiat S.p.A., the predecessor of FCA NV prior to the Merger. References to

“FCA US” refer to FCA US LLC, together with its direct and indirect subsidiaries.

Board Report

Introduction

2018

ANNUAL REPORT

Presentation of Financial and Other Data

This report includes the consolidated ﬁnancial statements of the Group as of December31, 2018 and 2017 and for the

years ended December31, 2018, 2017 and 2016 prepared in accordance with International Financial Reporting Standards

(“IFRS”) as issued by the International Accounting Standards Board (“IASB”), as well as IFRS as adopted by the European

Union. There is no effect on these consolidated ﬁnancial statements resulting from differences between IFRS as issued by

the IASB and IFRS as adopted by the European Union. We refer to the consolidated ﬁnancial statements and the notes to

the consolidated ﬁnancial statements collectively as the “Consolidated Financial Statements”.

All references in this report to “Euro” and “€” refer to the currency issued by the European Central Bank. The Group’s

ﬁnancial information is presented in Euro. All references to “U.S. Dollars”, “U.S. Dollar”, “U.S.$” and “$” refer to the

currency of the United States of America (or “U.S.”).

The language of this report is English. Certain legislative references and technical terms have been cited in their original

language in order that the correct technical meaning may be ascribed to them under applicable law.

Certain totals in the tables included in this report may not add due to rounding.

Except as otherwise disclosed within this report, no signiﬁcant changes have occurred since the date of the audited

Consolidated Financial Statements included elsewhere in this report.

Market and Industry Information

In this report, we include and refer to industry and market data, including market share, ranking and other data,

derived from or based upon a variety of ofﬁcial, non-ofﬁcial and internal sources, such as internal surveys and

management estimates, market research, publicly available information and industry publications. Market share,

ranking and other data contained in this report may also be based on our good faith estimates, our own knowledge

and experience and such other sources as may be available. Market share data may change and cannot always

be veriﬁed with complete certainty due to limits on the availability and reliability of raw data, the voluntary nature of

the data-gathering process, different methods used by different sources to collect, assemble, analyze or compute

market data, including different deﬁnitions of vehicle segments and descriptions and other limitations and uncertainties

inherent in any statistical survey of market shares or size. Industry publications and surveys and forecasts generally

state that the information contained therein has been obtained from sources believed to be reliable, but there can be

no assurance as to the accuracy or completeness of included information. Although we believe that this information

is reliable, we have not independently veriﬁed the data from third-party sources. In addition, we typically estimate our

market share for automobiles and commercial vehicles based on registration data.

In markets where registration data are not available, we calculate our market share based on estimates relating to

sales to ﬁnal customers. Such data may differ from data relating to shipments to our dealers and distributors. While we

believe our internal estimates with respect to our industry are reliable, our internal company surveys and management

estimates have not been veriﬁed by an independent expert, and we cannot guarantee that a third party using different

methods to assemble, analyze or compute market data would obtain or generate the same result. The market share

data presented in this report represents the best estimates available from the sources indicated as of the date hereof

but, in particular as they relate to market share and our future expectations, involve risks and uncertainties and are

subject to change based on various factors, including those discussed in the section Risk Factors in this report.

Forward-Looking Statements

Statements contained in this report, particularly those regarding possible or assumed future performance, competitive

strengths, costs, dividends, reserves and growth of FCA, industry growth and other trends and projections and

estimated company earnings are “forward-looking statements” that contain risks and uncertainties. In some cases,

words such as “may”, “will”, “expect”, “could”, “should”, “intend”, “estimate”, “anticipate”, “believe”, “remain”, “on

track”, “design”, “target”, “objective”, “goal”, “forecast”, “projection”, “outlook”, “prospects”, “plan”, or similar terms

are used to identify forward-looking statements. These forward-looking statements reﬂect the respective current views

of the Group with respect to future events and involve signiﬁcant risks and uncertainties that could cause actual results

to differ materially.

Board Report

Introduction

2018

ANNUAL REPORT

These factors include, without limitation:

our ability to launch products successfully and to maintain vehicle shipment volumes;

changes in the global ﬁnancial markets, general economic environment and changes in demand for automotive

products, which is subject to cyclicality;

changes in local economic and political conditions, changes in trade policy and the imposition of global and regional

tariffs or tariffs targeted to the automotive industry, the enactment of tax reforms or other changes in tax laws and

regulations;

our ability to expand certain of our brands globally;

our ability to offer innovative, attractive products;

our ability to develop, manufacture and sell vehicles with advanced features, including enhanced electriﬁcation,

connectivity and autonomous-driving characteristics;

various types of claims, lawsuits, governmental investigations and other contingencies affecting us, including

product liability and warranty claims and environmental claims, investigations and lawsuits;

material operating expenditures in relation to compliance with environmental, health and safety regulations;

the intense level of competition in the automotive industry, which may increase due to consolidation;

exposure to shortfalls in the funding of our deﬁned beneﬁt pension plans;

our ability to provide or arrange for access to adequate ﬁnancing for our dealers and retail customers, and

associated risks related to the establishment and operations of ﬁnancial services companies, including capital

required to be deployed to ﬁnancial services;

our ability to access funding to execute our business plan and improve our business, ﬁnancial condition and results

of operations;

a signiﬁcant malfunction, disruption or security breach compromising our information technology systems or the

electronic control systems contained in our vehicles;

our ability to realize anticipated beneﬁts from joint venture arrangements;

our ability to successfully implement and execute strategic initiatives and transactions, including our plans to

separate certain businesses;

disruptions arising from political, social and economic instability;

risks associated with our relationships with employees, dealers and suppliers;

increases in costs, disruptions of supply or shortages of raw materials;

developments in labor and industrial relations and developments in applicable labor laws;

exchange rate ﬂuctuations, interest rate changes, credit risk and other market risks;

political and civil unrest;

earthquakes or other disasters; and

other factors discussed elsewhere in this report.

Furthermore, in light of the inherent difﬁculty in forecasting future results, any estimates or forecasts of particular periods

that are provided in this report are uncertain. We expressly disclaim and do not assume any liability in connection with

any inaccuracies in any of the forward-looking statements in this report or in connection with any use by any third party

of such forward-looking statements. Actual results could differ materially from those anticipated in such forward-looking

statements. We do not undertake an obligation to update or revise publicly any forward-looking statements.

Additional factors which could cause actual results and developments to differ from those expressed or implied by the

forward-looking statements are included in the section Risk Factors in this report.

Board Report

Introduction

2018

ANNUAL REPORT

Management Report

Selected Financial Data

The following tables set forth selected historical consolidated ﬁnancial and other data of FCA and have been derived,

in part, from:

the Consolidated Financial Statements of FCA as of December31, 2018 and 2017 and for the years ended

December31, 2018, 2017 and 2016, included elsewhere in this report; and

the Consolidated Financial Statements of FCA as of December31, 2016, 2015 and 2014, for the years ended

December31, 2015 and 2014, which are not included in this report.

This data should be read in conjunction with Presentation of Financial and Other Data, Risk Factors, the FINANCIAL

OVERVIEW section and the Consolidated Financial Statements and related notes included elsewhere in this report.

CONSOLIDATED INCOME STATEMENT DATA

Years ended December 31,

2018

(1)

2017

(1)

2016

(1)

2015

(1,2)

2014

(1,2)

(€ million, except per share amounts)

Net revenues € 110,412 € 105,730 € 105,798 € 105,859 € 89,350

Proﬁt before taxes € 4,108 € 5,879 € 2,950 € 99 € 719

Net proﬁt/(loss) from continuing operations € 3,330 € 3,291 € 1,713 € (15) € 269

Proﬁt from discontinued operations, net of tax € 302 € 219 € 101 € 392 € 363

Net proﬁt € 3,632 € 3,510 € 1,814 € 377 € 632

Net proﬁt attributable to:

Owners of the parent € 3,608 € 3,491 € 1,803 € 334 € 568

Non-controlling interests € 24 € 19 € 11 € 43 € 64

Earnings/(Loss) per share from continuing operations

Basic earnings/(loss) per share € 2.15 € 2.14 € 1.13 € (0.01) € 0.20

Diluted earnings/(loss) per share € 2.12 € 2.11 € 1.12 € (0.01) € 0.20

Earnings per share from discontinued operations

Basic earnings per share € 0.18 € 0.14 € 0.06 € 0.23 € 0.27

Diluted earnings per share € 0.18 € 0.13 € 0.06 € 0.23 € 0.26

Earnings per share from continuing and discontinued operations

Basic earnings per share € 2.33 € 2.27 € 1.19 € 0.22 € 0.46

Diluted earnings per share € 2.30 € 2.24 € 1.18 € 0.22 € 0.46

Other Statistical Information (unaudited):

Combined shipments (in thousands of units)

(3)

4,842 4,740 4,720 4,738 4.743

Consolidated shipments (in thousands of units)

(4)

4,655 4,423 4,482 4,602 4.601

(1)

The operating results of FCA for the years ended December 31, 2018, 2017, 2016, 2015 and 2014 exclude Magneti Marelli following the

classification of Magneti Marelli as a discontinued operation for the year ended December 31, 2018; Magneti Marelli operating results were

excluded from the Group’s continuing operations and are presented as a single line within the Consolidated Income Statement data for the

years ended December 31, 2018, 2017, 2016, 2015 and 2014 presented above.

(2)

The operating results of FCA for the years ended December 31, 2015 and 2014 exclude Ferrari following the classification of Ferrari as a

discontinued operation for the year ended December 31, 2015; Ferrari operating results were excluded from the Group’s continuing operations

and are presented as a single line item within the Consolidated Income Statements for each of the years ended December 31, 2015 and 2014.

(3)

Combined shipments include shipments by the Group’s consolidated subsidiaries and unconsolidated joint ventures.

(4)

Consolidated shipments only include shipments by the Group’s consolidated subsidiaries.

Board Report

Management Report

2018

ANNUAL REPORT

CONSOLIDATED STATEMENT OF FINANCIAL POSITION DATA

At December 31,

2018

(1)

2017

(1)

2016

(1)

2015

(1,2)

2014

(1,2)

(€ million, except shares issued data)

Cash and cash equivalents € 12,450 € 12,638 € 17,318 € 20,662 € 22,840

Total assets € 96,873 € 96,299 € 104,343 € 105,753 € 101,149

Debt € 14,528 € 17,971 € 24,048 € 27,786 € 33,724

Total equity € 24,903 € 20,987 € 19,353 € 16,968 € 14,377

Equity attributable to owners of the parent € 24,702 € 20,819 € 19,168 € 16,805 € 14,064

Non-controlling interests € 201 € 168 € 185 € 163 € 313

Share capital € 19 € 19 € 19 € 17 € 17

Shares issued (in thousands):

Common

(3)(4)

1,550,618 1,540,090 1,527,966 1,288,956 1,284,919

Special Voting

(4)

408,942 408,942 408,942 408,942 408,942

(1)

The assets and liabilities of Magneti Marelli were classified as Assets held for sale and Liabilities held for sale within the Consolidated Statement

of Financial Position at December 31, 2018, while the assets and liabilities of Magneti Marelli have not been classified as such within the

comparative Consolidated Statements of Financial Position at December 31, 2017, 2016, 2015 and 2014.

(2)

The assets and liabilities of Ferrari were classified as Assets held for distribution and Liabilities held for distribution within the Consolidated

Statement of Financial Position at December 31, 2015, while the assets and liabilities of Ferrari have not been classified as such within the

comparative Consolidated Statement of Financial Position at December 31, 2014.

(3)

Book value per common share at December31, 2018 was €15.93.

(4)

Refer to Note 26, Equity, within our Consolidated Financial Statements included elsewhere in this report.

2018

ANNUAL REPORT

Group Overview

We are a global automotive group engaged in designing, engineering, manufacturing, distributing and selling vehicles,

components and production systems worldwide through 102 manufacturing facilities and 46 research and development

centers.

(1)

We have operations in more than 40 countries and sell our vehicles directly or through distributors and dealers

in more than 135 countries. We design, engineer, manufacture, distribute and sell vehicles for the mass-market under the

Abarth, Alfa Romeo, Chrysler, Dodge, Fiat, Fiat Professional, Jeep, Lancia and Ram brands and the SRT performance

vehicle designation. For our mass-market vehicle brands, we have centralized design, engineering, development and

manufacturing operations, which allow us to efﬁciently operate on a global scale. We support our vehicle shipments with

the sale of related service parts and accessories, as well as service contracts, worldwide under the Mopar brand name

for mass-market vehicles. In addition, we design, engineer, manufacture, distribute and sell luxury vehicles under the

Maserati brand. We make available retail and dealer ﬁnancing, leasing and rental services through our subsidiaries, joint

ventures and commercial arrangements with third party ﬁnancial institutions. In addition, we operate in the components

and production systems sectors under the Teksid and Comau brands.

In 2018, we shipped 4.8 million vehicles (including the group’s unconsolidated joint ventures), resulting in Net revenues

of €110.4 billion and Net proﬁt of €3.6 billion, of which €3.3 billion was attributable to continuing operations. At

December31, 2018, including Magneti Marelli, our available liquidity was €21.1 billion (including €7.7 billion available

under undrawn committed credit lines) and our Net industrial cash was €1.9 billion (See Non-GAAP Financial Measures).

History of FCA

Fiat Chrysler Automobiles N.V. was incorporated as a public limited liability company (naamloze vennootschap) under

the laws of the Netherlands on April 1, 2014 and became the parent company of the Group on October 12, 2014.

Its principal ofﬁce is located at 25 St. James’s Street, London SW1A 1HA, United Kingdom (telephone number: +44

(0) 20 7766 0311). Its agent for U.S. federal securities law purposes is Christopher J. Pardi, c/o FCA US LLC, 1000

Chrysler Drive, Auburn Hills, Michigan 48326.

Fiat, the predecessor to FCA, was founded as Fabbrica Italiana Automobili Torino on July11, 1899 in Turin, Italy as

an automobile manufacturer. In 1902, Giovanni Agnelli, Fiat’s founder, became the Managing Director of the company.

In April 2009, Fiat and Old Carco LLC, formerly known as Chrysler LLC (“Old Carco”) entered into an agreement,

pursuant to which FCA US LLC, then known as Chrysler Group LLC, (“FCA US”) agreed to purchase the principal

operating assets of Old Carco and to assume certain Old Carco liabilities. Following the closing of that transaction, Fiat

held an initial 20 percent ownership interest in FCA US. Old Carco traced its roots to the company originally founded

by Walter P. Chrysler in 1925.

Over the following years, Fiat acquired additional ownership interests in FCA US and in January 2014, Fiat purchased all

of the equity interests in FCA US that it did not then hold, resulting in FCA US becoming a 100 percent owned subsidiary.

In January 2011, the separation of Fiat’s non-automotive capital goods businesses was completed with the creation of

Fiat Industrial, now known as CNH Industrial N.V. (“CNHI”).

Corporate Reorganization

On October 12, 2014, Fiat completed a corporate reorganization resulting in the establishment in the Netherlands of

FCA NV as the parent company of the Group, with its principal executive ofﬁces in the United Kingdom.

On October 13, 2014, FCA common shares commenced trading on the Milan Mercato Telematico Azionario (“MTA”)

and the New York Stock Exchange (“NYSE”). As a result, FCA NV, as successor of Fiat S.p.A., is the parent company

of the Group.

(1)

Excluding facilities relating to Magneti Marelli.

Board Report

Group Overview

2018

ANNUAL REPORT

Ferrari Spin-off

The spin-off of Ferrari N.V. was approved on December 3, 2015 at the extraordinary general meeting of FCA

shareholders. The Group classiﬁed the Ferrari segment as a discontinued operation for the year ended December 31,

2015 and, consequently, the results of Ferrari were excluded from the Group’s continuing operations, with the after-

tax result of Ferrari’s operations shown as a single line item within the Consolidated Income Statement for the year

ended December 31, 2015.

The spin-off of Ferrari N.V. from the Group was completed on January 3, 2016. The assets and liabilities of the Ferrari

segment were distributed to holders of FCA shares and mandatory convertible securities. Since Exor N.V., which

controls and consolidates FCA, continued to control and consolidate Ferrari N.V., the spin-off of Ferrari N.V. was

accounted for at book value without any gain or loss on the distribution.

Magneti Marelli Sale

On April 5, 2018, the FCA Board of Directors announced that it had authorized FCA management to develop and

implement a plan to separate the Magneti Marelli business from the Group.

At September 30, 2018, the separation within the next twelve months became highly probable and Magneti Marelli

operations met the criteria to be classiﬁed as a disposal group held for sale. It also met the criteria to be classiﬁed as a

discontinued operation pursuant to IFRS 5 - Non-current Assets Held for Sale and Discontinued Operations.

On October, 22, 2018, FCA announced that it has entered into a deﬁnitive agreement to sell its Magneti Marelli

business to CK Holdings, Ltd. The agreement represents a transaction value of €6.2 billion, subject to certain

adjustments. The transaction is expected to close in the second quarter of 2019, subject to regulatory approvals and

other customary closing conditions.

Major Shareholders

Exor N.V. is the largest shareholder of FCA through its 28.98 percent shareholding interest in our issued common shares

(as of February 20, 2019). As a result of the loyalty voting mechanism, Exor N.V.’s voting power is 42.11 percent.

Consequently, Exor N.V. could strongly inﬂuence all matters submitted to a vote of FCA shareholders, including

approval of annual dividends, election and removal of directors and approval of extraordinary business combinations.

Exor N.V.is controlled by Giovanni Agnelli B.V. (“GA”), which holds 52.99 percent of its share capital. GA is a private

limited liability company under Dutch law with its capital divided in shares and currently held by members of the

Agnelli and Nasi families, descendants of Giovanni Agnelli, founder of Fiat. Its present principal business activity is

to purchase, administer and dispose of equity interests in public and private entities and, in particular, to ensure the

cohesion and continuity of the administration of its controlling equity interests. The directors of GA are John Elkann,

Tiberto Brandolini d’Adda, Alessandro Nasi, Andrea Agnelli, Eduardo Teodorani-Fabbri, Luca Ferrero de’ Gubernatis

Ventimiglia, Jeroen Preller and Florence Hinnen.

Based on the information in FCA’s shareholder register, regulatory ﬁlings with the AFM and the SEC and other sources

available to FCA, the following persons owned, directly or indirectly, in excess of three percent of FCA’s capital and/or

voting interest as of February 20, 2019:

FCA Shareholders

NumberofIssued

CommonShares PercentageOwned

Exor N.V.

(1)

449,410,092 28.98

Tiger Global Management LLC

(2)

81,375,000 5.25

Harris Associates L.P.

(3)

59,119,458 3.81

(1)

In addition, Exor N.V. holds 375,803,870 special voting shares; Exor N.V.’s beneficial ownership in FCA is 42.11 percent, calculated as the ratio

of (i) the aggregate number of common and special voting shares owned by Exor N.V. and (ii) the aggregate number of outstanding common

shares and issued special voting shares.

(2)

Tiger Global Management LLC,Charles P. Coleman III and Scott Shleifer beneficially own the aggregate amount of 81,375,000 common shares

(4.15 percent of the issued shares).

(3)

Harris Associates L.P. beneficially owns 59,119,458 common shares (3.02 percent of the issued shares).

2018

ANNUAL REPORT

Based on the information in FCA’s shareholder register and other sources available to us, as of January 31, 2019,

approximately 443.6 million FCA common shares, or 29 percent of the FCA common shares, were held in the United

States. As of the same date, approximately 1,100 record holders had registered addresses in the United States.

OUR BUSINESS PLAN

On June 1, 2018, FCA’s former Chief Executive Ofﬁcer Sergio Marchionne, together with members of the Group’s

executive management, presented the Group’s 2018-2022 business plan (the “business plan”). On February 7, 2019,

CEO Mike Manley highlighted additional measures to improve operating results in EMEA, APAC with speciﬁc focus on

China, and in Maserati.

The business plan and the measures mentioned above build upon the strategic actions taken in the prior plan to

generate volume growth and margin expansion through the following:

Continued emphasis on building strong brands by leveraging renewals of key products and portfolio expansion;

Through new white space products with particular focus on the Jeep, Ram, Maserati and Alfa Romeo brands;

Improve positioning of Maserati as a luxury brand, bridging product gap with specialty models and redirection of

marketing to focus on Levante;

Refocus marketing in China to recently launched products, offer more efﬁcient powertrain combinations and

product quality improvements;

Continue to focus on industrial rationalization to deliver cost savings through manufacturing and purchasing

efﬁciencies and implement actions to increase capacity utilization in EMEA;

Implementation of various electriﬁed powertrain applications throughout the portfolio as part of our regulatory

compliance strategy;

Continue to explore opportunities to develop partnerships to share technologies and platforms, enhance skill set

related to autonomous driving technologies, preserve full optionality and ensure speed to market; and

Maintain a disciplined approach to the deployment of capital and re-establish consistent shareholder remuneration

actions.

We continue to assess the potential impacts of operationalizing and implementing the strategic targets set out in the

business plan, including re-allocation of our resources. The recoverability of certain of our assets or Cash-Generating

Units (“CGUs”) may be impacted in future periods. For example, our product development strategies may be affected

by regulatory changes as well as changes in the expected costs of implementing electriﬁcation, including the cost of

batteries.As relevant circumstances change, we expect to adjust our product plans which may result in changes to

the expected use of certain of the Group’s vehicle platforms.In addition, recoverability of certain vehicle platforms,

particularly in EMEA, depends on the development and launch of additional vehicles with forecasted volumes and

margins largely in line with our business plan. These uncertainties could result in either impairments of, or reductions to

the expected useful lives of, these platforms, or both.

Refer to Note 26, Equity within the Consolidated Financial Statements included elsewhere in this report for additional

detail on the proposed annual ordinary dividend distribution to holders of FCA common shares.

Board Report

Group Overview

2018

ANNUAL REPORT

OVERVIEW OF OUR BUSINESS

Our activities are carried out through the following ﬁve reportable segments:

(i) NAFTA: our operations to support distribution and sale of mass-market vehicles in the United States, Canada,

Mexico and Caribbean islands, primarily under the Jeep, Ram, Dodge, Chrysler, Fiat, Alfa Romeo and Abarth brands.

(ii) LATAM: our operations to support the distribution and sale of mass-market vehicles in South and Central America,

primarily under the Fiat, Jeep, Dodge and Ram brands, with the largest focus of our business in Brazil and Argentina.

(iii) APAC: our operations to support the distribution and sale of mass-market vehicles in the Asia Paciﬁc region

(mostly in China, Japan, India, Australia and South Korea) carried out in the region through both subsidiaries and

joint ventures, primarily under the Jeep, Fiat, Alfa Romeo, Abarth, Fiat Professional, Ram and Chrysler brands.

(iv) EMEA: our operations to support the distribution and sale of mass-market vehicles in Europe (which includes the

28 members of the European Union and the members of the European Free Trade Association), the Middle East

and Africa, primarily under the Fiat, Fiat Professional, Jeep, Alfa Romeo, Lancia, Abarth, Ram and Dodge brands.

(v) Maserati: the design, engineering, development, manufacturing, worldwide distribution and sale of luxury vehicles

under the Maserati brand.

The results of our Magneti Marelli business were previously reported within the Components segment along with our

industrial automation systems design and production business and our cast iron and aluminum components business.

Following the classiﬁcation of Magneti Marelli as a discontinued operation for the years ended December 31, 2018,

2017 and 2016, (refer to Note 3, Scope of consolidation), the remaining activities within the Components segment are

no longer considered a separate reportable segment as deﬁned by IFRS 8 - Operating Segments and are reported

within “Other activities” described below.

We also own or hold interests in companies operating in other activities and businesses. These activities are grouped

under “Other Activities”, which primarily consists of our industrial automation systems design and production business,

under the Comau brand name, and our cast iron and aluminum business, which produces cast iron components for

engines, gearboxes, transmissions and suspension systems, and aluminum cylinder heads and engine blocks, under the

Teksid brand name, as well as companies that provide services, including accounting, payroll, tax, insurance, purchasing,

information technology, facility management and security for the Group, and manage central treasury activities.

Definitions and abbreviations

Utility vehicles (“UVs”) include sport utility vehicles (“SUVs”), which are available with four-wheel drive systems that

provide true off-road capabilities, and crossover utility vehicles, (“CUVs”), which are not designed for heavy off-road

use. UVs can be divided among six main groups, ranging from “micro” or “A segment”, deﬁned as UVs that are less

than 3.9 meters in length, to “large” or “F segment”, deﬁned as UVs that are greater than 5.2 meters in length. Light

trucks may be divided between vans (also known as light commercial vehicles, or “LCVs”), which typically are used for

the transportation of goods or groups of people, and pickup trucks, which are light motor vehicles with an open-top

rear cargo area.

Minivans, also known as multi-purpose vehicles (“MPVs”) typically have seating for up to eight passengers. Passenger cars

include sedans, station wagons and three- and ﬁve-door hatchbacks, that may range in size from “micro” or “A segment”

vehicles of less than 3.7 meters in length to “large” or “F segment” cars that are greater than 5.1 meters in length.

A vehicle is characterized as “all-new” if its vehicle platform is signiﬁcantly different from the platform used in the prior

model year and/or it has had a full exterior renewal.

A vehicle is characterized as “signiﬁcantly refreshed” if it continues its previous vehicle platform but has extensive

changes or upgrades from the prior model year.

2018

ANNUAL REPORT

Design and Manufacturing

We sell mass-market vehicles in the SUV, passenger car, truck and light commercial vehicle markets. Our SUV and

CUV portfolio includes the Jeep Grand Cherokee, Jeep Cherokee, Jeep Wrangler, Jeep Renegade, Jeep Compass,

all-new Jeep Grand Commander, Dodge Durango, Dodge Journey and Alfa Romeo Stelvio. Our passenger car

product portfolio includes vehicles such as the Fiat 500, Alfa Romeo Giulia, Dodge Challenger and Charger and

minivans such as the Chrysler Paciﬁca. We sell light and heavy-duty pickup trucks such as the Ram 1500 and

2500/3500, the Fiat Toro and Fiat Fullback, chassis cabs such as the Ram 3500/4500/5500 and our light commercial

vehicles include vans such as the Fiat Professional Doblò, Fiat Professional Ducato and Ram ProMaster.

Our efforts to respond to customer demand have led to a number of important initiatives, including localized

production of Jeep vehicles in Italy, China, India and Brazil.

We have deployed World Class Manufacturing (“WCM”) principles throughout our manufacturing operations. WCM

principles were developed by the WCM Association, a non-proﬁt organization dedicated to developing superior

manufacturing standards. We are the only Original Equipment Manufacturer (“OEM”) that is a member of the WCM

Association. WCM fosters a manufacturing culture that targets improved safety, quality and efﬁciency, as well as the

elimination of all types of waste. Unlike some other advanced manufacturing programs, WCM is designed to prioritize

issues, focus on those initiatives believed likely to yield the most signiﬁcant savings and improvements, and direct

resources to those initiatives. We also offer several types of WCM programs to our suppliers whereby they can learn

and incorporate WCM principles into their own operations.

Research and Development

We engage in research and development activities aimed at improving the design, performance, safety, fuel efﬁciency,

reliability, consumer perception and sustainability of our products and services. As of December31, 2018, we

operated 46 research and development centers worldwide with a combined headcount of approximately 18 thousand

employees supporting our research and development efforts.

(1)

Historically, we have concentrated the majority of our efﬁciency research efforts in two areas: reducing vehicle energy

demand and reducing fuel consumption and emissions. Fuel consumption and emissions reduction activities have

been primarily focused on powertrain technologies including: engines, transmissions and drivelines, hybrid and electric

propulsion and alternative fuels. In recent years, we have increased our research efforts on autonomous driving and

connectivity technologies.

Vehicle Energy Demand

Our research focuses on reducing weight, aerodynamic drag, tire rolling resistance, brake drag torque, driveline

parasitic losses, heating and air conditioning, and electrical loads. We also continue to develop both conventional and

hybrid vehicle technologies aimed at improving kinetic energy recovery and re-use of thermal energy to reduce total

energy consumption and CO

emissions.

We have introduced active aerodynamic devices, which activate automatically under certain operating conditions.

These active aerodynamic devices include active grille shutters, active front air dams and adjustable height

suspension. Further, we have introduced smart actuators, such as variable speed fuel pumps, variable displacement

air conditioning compressors and high efﬁciency brushless electric motors for cooling fans, to reduce fuel

consumption. Such smart actuators only require the energy needed for each speciﬁc working condition, avoiding

electric energy waste.

Board Report

Group Overview

(1)

Excluding facilities relating to Magneti Marelli.

2018

ANNUAL REPORT

Powertrain Technologies

Engines

We have developed global small and global medium displacement gasoline engine families to improve fuel economy

and emissions. These engine families include three and four cylinder turbocharged versions (the global small engine

family also has three and four cylinder naturally aspirated variants). Each engine family features a modular approach

using a shared cylinder design (allowing for different engine conﬁguration, displacements, efﬁciency and power

outputs). Each is based on a speciﬁc cylinder conﬁguration which provides important synergies for the engine

development (common combustion development and common design layout) and for manufacturing (common

machining, assembly features and components and subsystems). When fully deployed these engine families will cover

a large range of vehicle applications and introduce features and technologies such as direct fuel injection, downsizing,

integrated exhaust manifold, Multiair variable valve lift, turbocharging, and cooled exhaust gas recirculation. All of these

features enable the engine families to be competitive among small and medium displacement engines with respect to

fuel consumption, performance, weight and noise, vibration and harshness (“NVH”) behavior.

Both a 1.0L three cylinder and a 1.3L four cylinder naturally aspirated Fireﬂy global small engine were launched in the

LATAM region in the third quarter of 2016 and in the second quarter of 2018 turbocharged variants of the global small

engine launched in the EMEA region (in the Jeep Renegade and Fiat 500X). Additionally, the ﬁrst global medium engine

application (a 2.0L turbo four cylinder engine) launched in the Alfa Romeo Giulia in the fourth quarter of 2016 and in

2018 a dual overhead camshaft version of the global medium engine (with cooled exhaust gas recirculation) became

available in the Jeep Cherokee and Jeep Wrangler. To meet increasingly more stringent air quality standards, we have

employed the use of gasoline particulate ﬁlters with both global engine families in some EMEA and APAC markets.

Looking to the future, FCA is participating in the development of new and improved aluminum alloys for engine use.

This work has demonstrated an aluminum alloy capable of a 50 percent increase in strength at 300° Celsius when

compared to other currently used aluminum alloys. While still in very early development, this type of alloy strength

behavior has the potential to provide increased design ﬂexibility for cylinder heads and cylinder blocks and help to

enable increased engine efﬁciency.

Transmissions and Driveline

Our transmission portfolio includes manual transmissions, dual dry clutch transmissions and automatic transmissions.

Our automatic transmission portfolio includes 8- and 9-speed units developed in an effort to provide our customers

with improved efﬁciency, performance and drive comfort. Long travel damper and pendulum damper technologies

are used to allow the engine to operate at a lower speed and higher torque - where the engine is more efﬁcient at

converting the fuel energy to mechanical energy.

Other improvements are used to reduce the power consumption of the transmission. The second generation

TorqueFlite 8-speed improves transmission efﬁciency via improved line pressure control and reduced clutch drag. The

addition of transmission oil heaters allows the transmission to quickly warm up to operating temperatures and improve

transmission efﬁciency. We are investigating many other technologies to increase transmission system efﬁciency such

as selectable one-way clutches and reduced oil viscosity.

In support of global fuel consumption and CO

requirements, we have developed our ﬁrst dedicated hybrid

transmission (the eFlite), used in the Chrysler Paciﬁca Hybrid. The new eFlite hybrid transmission architecture is an

electrically variable front wheel drive transaxle with a split input conﬁguration and incorporates two electric motors,

both capable of driving in full electric mode. The lubrication and cooling system makes use of two pumps, one

electrically operated and one mechanically driven. We expect future hybrid vehicle portfolio growth with the eFlite

transmission and similar electriﬁed propulsion systems.

2018

ANNUAL REPORT

Electric and Hybrid Technologies

FCA has developed a suite of electriﬁcation technologies, including: 12 volt engine stop/start, 48 volt mild hybrid,

plug-in hybrid, and full battery electric vehicles. These developments have occurred at FCA technical centers primarily

in Auburn Hills (Michigan, USA), Modena and Turin (Italy). However, substantial work has also been performed with

suppliers and universities located around the globe.

The 12 volt stop/start system turns off the engine and fuel ﬂow automatically when the vehicle comes to a halt and re-

starts the engine upon the driver disengaging the brake. Phase-in of this technology began in 2013 model year and in

2018 was used in approximately 42 percent of FCA’s global production volume.

In 2018 FCA launched three applications of mild hybrids using belt starter generator (“BSG”) technology. BSG

technology offers improvements in fuel economy and a reduction in CO

emissions. This new 48 volt mild hybrid

technology is marketed as “eTorque” in the all-new 2018 Jeep Wrangler equipped with the 2.0L turbo engine and the

all-new 2019 Ram 1500 5.7L and 3.6L applications. The system offers faster and smoother stop/start functionality,

a real-time powertrain efﬁciency optimization manager which balances motor and engine torque, enhanced and

extended fuel shut-off during certain maneuvers, and regenerative braking to recharge the 48 volt battery. The

system also delivers signiﬁcant gains in fuel economy. For example, the 2019 Ram 1500 5.7L HEMI V8 equipped with

eTorque has a 13 percent improvement in city fuel economy and 10 percent reduction in combined CO

over the base

HEMI in a 4x2 Crew Cab model.

The Chrysler Paciﬁca Hybrid achieves an efﬁciency rating of 82 miles per gallon equivalent (“MPGe”), based on U.S.

Environmental Protection Agency testing standards and has an approximately 72% reduction in CO

compared to the

non-hybrid Chrysler Paciﬁca. Power to the wheels is supplied via a 16 kWh battery through the hybrid electric drive

system which is comprised of a specially adapted new version of the award winning Pentastar 3.6-liter V-6 engine and

the new eFlite hybrid transmission.

The Fiat 500e is FCA’s full electric vehicle offering and is available only in the NAFTA market. It has an all-electric range

of 84 miles and achieves 121 MPGe City, 103 MPGe Highway and 112 MPGe Combined. Since its introduction in the

2013 model year approximately 25,000 units have been sold.

We also supplement our internal research and development activities via collaboration with academic partners. One

such example is a project in partnership with McMaster University (Canada), which focuses on developing next-

generation, energy efﬁcient, high performance, cost effective electriﬁed powertrain components and control systems

suitable for a range of vehicle applications.

Alternative Fuels

FCA is among the EU-market leaders in compressed natural gas (“CNG”) propulsion. From 1997 to 2018, the Company’s

output of CNG-powered vehicles in Europe exceeded 750,000 vehicles. In an experimental project, Company researchers

in Europe built a Fiat Panda that runs on biomethane derived from sewage sludge and waste water.

Autonomous Driving Technology

In 2016, we announced a collaboration with Waymo (formerly the Google self-driving car project) to integrate its self-

driving technology into the Chrysler Paciﬁca Hybrid. Production of the ﬁrst 100 Chrysler Paciﬁca Hybrid minivans built

to enable fully self-driving operations was completed in late 2016. In 2018, we announced that we would expand our

partnership with an agreement to add up to 62,000 Chrysler Paciﬁca Hybrid minivans to Waymo’s self-driving ﬂeet.

We have launched Highway Assist autonomous vehicle technology on several Maserati models. This system includes

Mobileye vision technology to enable autonomous driving on designated highways. We are also partnering with BMW

in the development of a Level 3 autonomous driving platform.

In 2017, we also revealed the Chrysler Portal concept, a semi-autonomous electric-powered vehicle that is designed

with a suite of sensing technologies that enable Level 3 autonomous driving, with the potential to be upgraded as

advances in technology enable higher levels of autonomy.

Board Report

Group Overview

2018

ANNUAL REPORT

Connectivity

FCA is working with its suppliers to develop a cloud-based global connectivity solution that will connect to the Internet

and an FCA-speciﬁc service delivery platform and allow the driver and passengers to interact with the car and the

outside world. The solution is intended to be scalable, increase safety and security and provide real time availability of

services and information.

Compliance-focused Initiatives by Region

The regulatory environment outlook across our four major regions shows continued consistent CO

reductions,

ranging from 25-30 percent between 2018 and 2024. This anticipated regulatory stringency balanced with customer

preferences guides research and development for future products and will be highlighted below by region and key

product segment.

NAFTA

The U.S. policy is complex with three separate CO

regulations, but it also contains a ﬂexible array of new technology

incentives to encourage industry movement toward an electriﬁed future. For instance, U.S. regulation includes a

tax credit to consumers of up to $7,500 to jump start demand, which is required given relatively low fuel prices and

increasing consumer preference for SUV and trucks in the market.

American consumers tend to have long commutes and ready access to charging capability at home. FCA plans,

by 2022, for 20 percent of its overall ﬂeet (including commercial vehicles) to be high voltage, with a focus on plug-in

systems. 15 percent of the ﬂeet to be equipped with mild hybrid systems and 65 percent to retain conventional internal

combustion engines.

LATAM

With its ability to grow sugar cane in high volume, Brazil is able to address CO

reduction with a different approach.

Today about 30 percent of vehicle fuel usage in Brazil consists of sugar cane produced ethanol. Sugar cane ethanol

is 80 percent renewable from “well” (or ﬁeld) to wheels and provides approximately 12.5 percent CO

reduction on

an equivalent 30/70 fuel mix E100/E22 basis. The Brazilian government recently launched a plan (RenovaBio) to

improve quality and productiveness of ethanol, targeting an increase of share on Ethanol E100 in the fuel matrix from

the current 30 percent to 40 percent in 2022 and to 55 percent in 2030. In addition, the Brazilian government and

FCA are working very closely on research and development opportunities to further reduce CO

emissions through

improvements to ethanol-fueled engines.

Brazilian consumers already widely use ethanol fuel, readily available in the current retail fuel market. FCA believes that

Brazilian CO

ﬂeet reduction targets will be met through 2025 with increased usage and efﬁciency of its ethanol based

engines and without any high voltage electriﬁcation.

APAC

China is leading the rapid change in this region. The Chinese government has stated intentions to become the global

leader in electriﬁcation in the next decade. The regulatory policies include credit multipliers and incentives for new

energy vehicles which are deﬁned as battery electric, plug-in hybrid, or fuel cell vehicles.

Some large cities provide consumers with license plate incentives for new energy vehicles. Given these incentives can

be as high as €11,000 per vehicle, we believe they will be successful in driving the market toward electriﬁcation.

From a consumer perspective, China has the highest number of ﬁrst time car buyers in the world. Since much of the

vehicle consumer demographic resides in urban areas, access to public charging is expected to be a critical element

to achieving China’s electriﬁed objectives.

FCA’s plan is, by 2022, for 15 percent of the overall ﬂeet (including commercial vehicles) to use high voltage

electriﬁcation, with the highest penetration of full battery electric of any region, 20 percent of the ﬂeet to be equipped

with a hybrid system and 65 percent of the ﬂeet to retain conventional internal combustion engines.

2018

ANNUAL REPORT

In contrast to China, India continues to be a very cost sensitive market with a developing infrastructure. As a result,

increased regulatory requirements are expected to be met through application of shared conventional technologies

with limited dependence on electriﬁcation.

EMEA

Europe represents the most challenging combination of regulatory stringency and consumer price sensitivity. The

EU is driving a step function reduction in CO

in 2020, and metropolitan areas are implementing low emission zones

in an attempt to improve air quality in city centers. Conventional internal combustion engine applications will likely be

restricted, especially with aging vehicles. The CO

ﬁnancial penalty structure is very signiﬁcant.

Many consumers in Europe need reduced cost of vehicle ownership given high fuel prices and pressure on disposable

income. As the demand for diesels continues to decrease, FCA intends to use mild hybrids as a replacement. The

region will need to address the development of charging infrastructure so that zero emission vehicles are more

convenient for consumers.

FCA’s plan is, by 2022, for 20 percent of the overall ﬂeet (including commercial vehicles) to use high voltage

electriﬁcation, 40 percent of the ﬂeet to be equipped with a mild hybrid system and 40 percent to retain conventional

internal combustion engines.

Intellectual Property

We own a signiﬁcant number of patents, trade secrets, licenses, trademarks and service marks, including, in

particular, the marks of our vehicle and component and production systems brands, which relate to our products

and services. We expect the number to grow as we continue to pursue technological innovations. We ﬁle patent

applications in Europe, the U.S. and around the world to protect technology and improvements considered important

to our business. No single patent is material to our business as a whole.

Property, Plant and Equipment

As of December31, 2018, we operated 102 manufacturing facilities (including vehicle and light commercial vehicle

assembly, powertrain and components plants, excluding joint ventures and Magneti Marelli facilities), of which 27

were located in Italy, 13 in the rest of Europe, 26 in the U.S., 12 in Brazil, 9 in Mexico, 6 in Canada, 3 in Argentina and

the remaining plants in other countries. We also own other signiﬁcant properties including parts distribution centers,

research laboratories, test tracks, warehouses and ofﬁce buildings. The total carrying value of our property, plant and

equipment as of December31, 2018 was €26.3 billion.

A number of our manufacturing facilities and equipment, including land and industrial buildings, plant and machinery

and other assets, are subject to mortgages and other security interests granted to secure indebtedness to certain

ﬁnancial institutions. As of December31, 2018, our property, plant and equipment reported as pledged as collateral

for loans amounted to approximately €2.2 billion (refer to Note 11, Property, plant and equipment).

We believe that planned production capacity is adequate to satisfy anticipated retail demand and our operations are

designed to be ﬂexible enough to accommodate the planned product design changes required to meet global market

conditions and new product programs (such as through leveraging existing production capacity in each region for

export needs).

We are not aware of any environmental issues that would materially affect the utilization of our ﬁxed assets. See

Industrial Environmental Control.

Board Report

Group Overview

2018

ANNUAL REPORT

Supply of Raw Materials, Parts and Components

We purchase a variety of components (including mechanical, steel, electrical and electronic, plastic components as

well as castings and tires), raw materials, supplies, utilities, logistics and other services from numerous suppliers.

Historically the purchase of raw materials, parts and components have accounted for 70-80 percent of total Cost of

revenues. Of these purchases, 10-15 percent relate to the cost of raw materials, including steel, rubber, aluminum,

resin, copper, lead, and precious metals (including platinum, palladium and rhodium).

Our focus on quality improvement, cost reduction, product innovation and production ﬂexibility requires us to rely

upon suppliers with a focus on quality and the ability to provide cost reductions. We value our relationships with

suppliers, and in recent years, we have worked to establish closer ties with a signiﬁcantly reduced number of suppliers

by selecting those that enjoy a leading position in the relevant markets. In addition, we source some of the parts

and components for our vehicles internally from Teksid. We have also agreed to a multi-year supply agreement with

Magneti Marelli in connection with our expected sale of that business. Although we have not experienced any major

loss of production as a result of material or parts shortages in recent years, because we, like most of our competitors,

regularly source some of our systems, components, parts, equipment and tooling from a single provider or limited

number of providers, we are at risk of production delays and lost production should any supplier fail to deliver goods

and services on time.

Supply of raw materials, parts and components may also be disrupted or interrupted by natural disasters. In such

circumstances, we work proactively with our suppliers to identify material and part shortages and take steps to

mitigate their impact by deploying additional personnel, accessing alternative sources of supply and managing our

production schedules. We also continue to reﬁne our processes to identify emerging capacity constraints in the

supplier tiers given the ramp up in manufacturing volumes to meet our volume targets. Furthermore, we continuously

monitor supplier performance according to key metrics such as part quality, delivery, performance, ﬁnancial solvency

and sustainability.

Employees

At December31, 2018, we had a total of 198,545 employees (excluding employees of certain joint ventures and of the

Magneti Marelli discontinued operation), a 1.0 percent increase from December31, 2017 and a 2.9 percent increase

over December31, 2016. The following table provides a breakdown of these employees as of December31, 2018,

2017 and 2016, indicated by type of contract and region.

Hourly Salaried Total

2018 2017

(1)

2016

(1)

2018 2017

(1)

2016

(1)

2018 2017

(1)

2016

(1)

Europe 40,446 40,910 42,257 24,170 24,920 25,306 64,616 65,830 67,563

North America 74,703 71,414 64,981 22,326 22,778 22,313 97,029 94,192 87,294

Latin America 26,004 25,634 26,171 7,062 6,917 8,138 33,066 32,551 34,309

Asia 253 271 266 3,313 3,486 3,394 3,566 3,757 3,660

Rest of the world 46 4 4 222 177 160 268 181 164

Total 141,452 138,233 133,679 57,093 58,278 59,311 198,545 196,511 192,990

(1)

Previously reported employee numbers for 2017 and 2016 have been re-presented to exclude the Magneti Marelli discontinued operation.

We maintain dialogue with trade unions and employee representatives to achieve consensus-based solutions for

responding to different market conditions in each geographic area. We have had no signiﬁcant instances of labor

unrest overall, and no signiﬁcant local labor actions in the past threeyears.

In Europe, we established a European Works Council (the “EWC”) in 1997 to ensure workers the right to information

and consultation as required by European Union regulations applicable to community-scale undertakings. The EWC

was established on the basis of an agreement initially signed in 1996 and subsequently revised and amended with a

further amendment executed in July 2016. The amendment increased the number of total seats from 20 to 24 so that

additional employees from new countries within the scope of the EWC are represented.

2018

ANNUAL REPORT

Trade Unions and Collective Bargaining

FCA employees are free to join any trade union provided they do so in accordance with local law and the rules of the

related trade union. The Group recognizes and respects the right of its employees to be represented by trade unions

or other representatives in accordance with local applicable legislation and practice.

A large portion of our workers in Italy, the U.S., Canada and Mexico are represented by trade unions. In addition to

the rights granted to all Italian trade unions and workers concerning freedom of association, we provide an additional

service to our Italian employees by paying the trade union dues on their behalf.

Collective bargaining at various levels resulted in major agreements being reached with trade unions on both wage

and employment conditions in several countries. Based on an average ﬁgure that includes the Sevel plant (Italy), 88.8

percent of our employees worldwide are covered by collective bargaining agreements.

In Italy, all of our employees are covered by collective bargaining agreements. In April 2015, a four-year compensation

agreement was signed by FCA companies within the automobiles business in Italy. The new compensation agreement

was subsequently included into the labor agreement and was extended to all FCA companies in Italy on July 7, 2015.

The compensation arrangement was effective retrospectively from January 1, 2015 through December 31, 2018 and

incentivized all employees towards achievement of the productivity, quality and proﬁtability targets established in the

2015-2018 period of the Group’s business plan by including a continuous shift cycle (with a total of 20 shifts per week)

and adding two variable additional elements to base pay:

an annual bonus, calculated on the basis of production efﬁciencies achieved and the plant’s WCM audit status; and

a component linked to achievement of the ﬁnancial targets established in the 2015-2018 period of the business

plan for the EMEA region, including the activities of the premium brands Alfa Romeo and Maserati.

Negotiations for the renewal of this labor contract commenced on November 29, 2018. As of February 22, 2019,

negotiations are ongoing.

In October 2015, FCA US and the UAW agreed to a four-year national collective bargaining agreement, which

will expire in September 2019. The provisions of the agreement continue certain opportunities for success-based

compensation upon meeting certain quality and ﬁnancial performance metrics. The agreement closes the pay gap

between “Traditional” and “In-progression” employees over an eight-year period and will continue to provide UAW-

represented employees with a simpliﬁed adjusted proﬁt sharing plan. The adjusted proﬁt sharing plan was effective for

2016 and was directly aligned with NAFTA proﬁtability. The agreement included lump-sum payments in lieu of further

wage increases of primarily U.S.$4,000 for “Traditional” employees and U.S.$3,000 for “In-progression” employees

totaling approximately $141 million (€126 million) that was paid to UAW members on November 6, 2015.

In September 2016, the four-year collective bargaining agreement that was entered into in September 2012 with

Unifor in Canada expired. FCA entered into a four year labor agreement with Unifor in Canada that was ratiﬁed on

October 16, 2016. The terms of this agreement provide a two percent wage increase in the ﬁrst and fourth years of

the agreement for employees hired prior to September 24, 2012 and will continue to close the pay gap for employees

hired on or after September 24, 2012 by revising a ten-year progressive pay scale plan. The agreement includes

a lump sum payment in lieu of further wage increases of $6,000 Canadian dollars (“CAD$”) per employee totaling

approximately CAD$55 million (approximately €38 million) that was paid to Unifor members on November 4, 2016.

The agreement expires September 2020.

Both the Unifor and UAW lump-sum payments are being amortized ratably over the respective four-year labor

agreement periods.

Board Report

Group Overview

2018

ANNUAL REPORT

SALES OVERVIEW

New vehicle sales represent sales of FCA vehicles primarily by dealers and distributors, or, directly by us in some

cases, to retail customers and ﬂeet customers. Sales include mass-market and luxury vehicles manufactured at our

plants, as well as vehicles manufactured by our joint ventures and third party contract manufacturers and distributed

under our brands. Sales ﬁgures exclude sales of vehicles that we contract manufacture for other OEMs. While vehicle

sales are illustrative of our competitive position and the demand for our vehicles, sales are not directly correlated to

our Net revenues, Cost of revenues or other measures of ﬁnancial performance in any given period, as such results

are primarily driven by our vehicle shipments to dealers and distributors. For a discussion of our shipments, see

FINANCIAL OVERVIEW—Shipment Information. The following table shows new vehicle sales by geographic market for

the periods presented.

Years ended December 31,

2018 2017 2016

(millions of units)

NAFTA 2.5 2.4 2.6

LATAM 0.6 0.5 0.5

APAC 0.2 0.3 0.2

EMEA 1.4 1.5 1.4

Total Mass-Market Vehicle Brands 4.7 4.7 4.7

Maserati 0.04 0.05 0.04

Total Worldwide 4.8 4.8 4.7

NAFTA

NAFTA Sales and Competition

The following table presents mass-market vehicle sales and estimated market share in the NAFTA segment for the

periods presented:

Years ended December 31,

2018

(1),(2)

2017

(1),(2)

2016

(1),(2)

NAFTA Sales MarketShare Sales MarketShare Sales MarketShare

Thousands of units (except percentages)

U.S. 2,235 12.6% 2,059 11.7% 2,244 12.6%

Canada 225 11.3% 267 13.0% 279 14.2%

Mexico and Other 74 5.1% 86 5.5% 88 5.3%

Total 2,534 12.0% 2,412 11.4% 2,611 12.2%

(1)

Certain fleet sales that are accounted for as operating leases are included in vehicle sales.

(2)

Estimated market share data presented are based on management’s estimates of industry sales data, which use certain data provided by

third-party sources, including IHS Markit and Ward’s Automotive.

The following table presents estimated new vehicle market share information for us and our principal competitors in

the U.S., our largest market in the NAFTA segment:

Years ended December 31

U.S. 2018 2017 2016

Automaker

Percentage of industry

GM 16.7% 17.1% 17.0%

Ford 14.1% 14.7% 14.6%

Toyota 13.7% 13.9% 13.7%

FCA 12.6% 11.7% 12.6%

Honda 9.1% 9.3% 9.2%

Nissan 8.4% 9.1% 8.8%

Hyundai/Kia 7.2% 7.3% 8.0%

Other 18.2% 16.9% 16.1%

Total 100.0% 100.0% 100.0%

2018

ANNUAL REPORT

U.S. industry sales, including medium and heavy-duty vehicles, increased from 10.6million units in 2009 to 17.7

million units in 2018. The strong recovery in the automotive sector, from 2009 through 2018, was supported by

robust macroeconomic and automotive speciﬁc factors, such as growth in per capita disposable income, improved

consumer conﬁdence, the increasing age of vehicles in operation, improved consumer access to affordably priced

ﬁnancing and higher prices of used vehicles.

Our vehicle line-up in the NAFTA segment leverages the brand recognition of the Jeep, Ram, Dodge and Chrysler

brands to offer utility vehicles, pickup trucks, cars and minivans under those brands, as well as vehicles in smaller

segments, such as the Fiat 500 in the micro/small-segment and the Fiat 500X and Jeep Renegade in the small SUV/

crossover segment. Our vehicle sales and proﬁtability in the NAFTA segment are generally weighted towards larger

vehicles such as utility vehicles, trucks and vans, consistent with overall industry sales trends in the NAFTA segment,

which have become increasingly weighted towards utility vehicles and trucks in recent years. In 2017 we began

to distribute the Alfa Romeo Giulia and Stelvio in the NAFTA region. Our improvement in 2018 sales was mainly

attributable to the strong performance of the Jeep and Ram brands, for which growth was underpinned by the launch

of new models.

NAFTA Distribution

In the NAFTA segment, our vehicles are sold primarily to dealers in our dealer network for sale to retail consumers and

ﬂeet customers. Fleet sales in the commercial channel are typically more proﬁtable than sales in the government and

daily rental channels since they more often involve customized vehicles with more optional features and accessories;

however, vehicle orders in the commercial channel are usually smaller in size than the orders made in the daily rental

channel. Fleet sales in the government channel are generally more proﬁtable than ﬂeet sales in the daily rental channel

primarily due to the mix of products included in each respective channel.

NAFTA Dealer and Customer Financing

In the NAFTA segment, we do not have a captive ﬁnance company or joint venture and instead rely upon independent

ﬁnancial service providers, including Santander Consumer USA Inc. (“SCUSA”) to provide ﬁnancing for dealers and

retail customers in the U.S. In February 2013, we entered into a private label ﬁnancing agreement with SCUSA (the

“SCUSA Agreement”), under which SCUSA provides a wide range of wholesale and retail ﬁnancial services to our

dealers and retail customers in the U.S., under the Chrysler Capital brand name and covering the Chrysler, Jeep,

Dodge, Ram and Fiat brands.

The SCUSA Agreement has a ten year term from February 2013, subject to early termination in certain circumstances,

including the failure by a party to comply with certain of its ongoing obligations under the agreement. Under the

SCUSA Agreement, SCUSA has certain rights, including limited exclusivity to participate in speciﬁed minimum

percentages of certain retail ﬁnancing rate subvention programs. SCUSA’s exclusivity rights are subject to SCUSA

maintaining certain performance standards and price competitiveness based on minimum approval rates and market

benchmark rates to be determined through a steering committee process as set out in the SCUSA Agreement.

SCUSA and FCA US have been in continual discussion regarding performance under the SCUSA Agreement. The

parties entered into a Tolling Agreement in July 2018 with respect to the SCUSA Agreement, pursuant to which,

among other things, the parties agreed each party shall fully preserve and retain its respective rights, claims and

defenses as they existed on April 30, 2018.

As of December31, 2018, SCUSA was providing wholesale lines of credit to approximately 10 percent of our dealers

in the U.S., while Ally Financial Inc. (“Ally”) was at 34 percent. For the year ended December 31, 2018, we estimate

that approximately 85 percent of the vehicles purchased by our U.S. retail customers were ﬁnanced or leased of

which approximately 52 percent ﬁnanced or leased through SCUSA (37 percent) and Ally (15 percent). Alfa Romeo

brand development within the U.S. is also supported by dealer and retail customer ﬁnancing with primary ﬁnancial

institutions. Additionally, we have arrangements with a number of ﬁnancial institutions to provide a variety of dealer and

retail customer ﬁnancing programs in Canada and a private label agreement with Inbursa Group in Mexico.

Board Report

Group Overview

2018

ANNUAL REPORT

LATAM

LATAM Sales and Competition

The following table presents mass-market vehicle sales and market share in the LATAM segment for the periods

presented:

Years ended December 31,

2018

(1)

2017

(1)

2016

(1)

LATAM Sales MarketShare Sales MarketShare Sales MarketShare

Thousands of units (except percentages)

Brazil 434 17.5% 380 17.5% 365 18.4%

Argentina 99 12.8% 105 12.2% 79 11.6%

Other LATAM 33 2.9% 28 2.5% 29 2.9%

Total 566 12.8% 513 12.4% 473 12.9%

(1)

Estimated market share data presented are based on management’s estimates of industry sales data, which use certain data provided by

third-party sources, including IHS Markit, National Organization of Automotive Vehicles Distribution and Association of Automotive Producers.

The following table presents our mass-market vehicle market share information and our principal competitors in Brazil,

our largest market in the LATAM segment:

Years ended December 31,

Brazil

2018

(1)

2017

(1)

2016

(1)

Automaker

Percentage of industry

GM 17.6% 18.1% 17.4%

FCA 17.5% 17.5% 18.4%

Volkswagen 14.8% 12.5% 12.1%

Ford 9.2% 9.5% 9.1%

Other 40.9% 42.4% 43.0%

Total 100.0% 100.0% 100.0%

(1)

Our estimated market share data presented are based on management’s estimates of industry sales data, which use certain data provided by

third-party sources, including IHS Markit, National Organization of Automotive Vehicles Distribution and Association of Automotive Producers.

The automotive industry within which the LATAM segment operates increased 7 percent from 2017 to 4.4million

vehicles (cars and light commercial vehicles) in 2018, which was primarily driven by a 14 percent increase in Brazil’s

industry vehicle sales reﬂecting improving market conditions partially offset by a 10 percent decline in Argentina’s

industry vehicle sales, reﬂecting the impact of the Argentina economic downturn.

Although Group revenues in LATAM increased 2 percent from 2017, the Group’s market share increased 40 basis

points from 12.4 percent to 12.8 percent, reﬂecting market share growth in Argentina and other LATAM markets. In

Brazil, overall market share remained ﬂat at 17.5 percent while, in Argentina, overall market share increased to 12.8

percent from 12.2 percent in 2017.

Our vehicle line-up in LATAM leverages the brand recognition of Fiat, as well as the relatively urban population of

countries like Brazil, to offer vehicles in smaller segments, such as the Fiat Mobi, Argo and Cronos. Fiat also leads the

pickup truck market, in Brazil, with the Fiat Strada (20.6 percent market share) and the Fiat Toro (17.9 percent market

share). Jeep is also continuing its momentum in the small and medium SUV segments with the Jeep Compass (11.9

percent market share) and the Jeep Renegade (9.2 percent market share).

LATAM Distribution

In the LATAM segment, we generally enter into multiple dealer agreements with a single dealer. Outside our major

markets of Brazil and Argentina, we mainly distribute our vehicles through general distributors.

2018

ANNUAL REPORT

LATAM Dealer and Customer Financing

In the LATAM segment, we provide access to dealer and retail customer ﬁnancing through both 100 percent owned

captive ﬁnance companies and through strategic relationships with ﬁnancial institutions.

We have two 100 percent owned captive ﬁnance companies in the LATAM segment: Banco Fidis S.A. (“Banco Fidis”) in

Brazil and FCA Compañia Financiera S.A. in Argentina. These captive ﬁnance companies offer dealer and retail customer

ﬁnancing. In addition, in Brazil we have two signiﬁcant commercial partnerships with Banco Itaù and Bradesco to provide

ﬁnancing to retail customers purchasing FCA branded vehicles. Banco Itaù is a leading vehicle retail ﬁnancing company

in Brazil. This partnership was renewed in August 2013 for a ten-year term ending in 2023. Under this agreement, Banco

Itaù has exclusivity on our promotional campaigns and preferential rights on non-promotional ﬁnancing. We receive

commissions in connection with each vehicle ﬁnancing above a certain threshold. This agreement applies only to our retail

customers purchasing Fiat branded vehicles. In July 2015, FCA Fiat Chrysler Automoveis Brasil (“FCA Brasil”) and Banco

Fidis signed a ten-year partnership contract with Bradesco, one of the leading Brazilian banks, through its afﬁliate Bradesco

Financiamentos, whereby Bradesco Financiamentos ﬁnances retail sales of Jeep, Chrysler, Dodge and Ram vehicles in

Brazil. Under this agreement, Bradesco has exclusivity on promotional campaigns and FCA Brasil promotes Bradesco

as its ofﬁcial ﬁnancial partner. Banco Fidis is in charge of the commercial management of this partnership and receives

commissions for this partnership agreement and for acting as banking agent, based on proﬁtability and penetration.

APAC

APAC Sales and Competition

The following table presents vehicle sales in the APAC segment for the periods presented:

Years ended December 31,

2018

(1),(4)

2017

(1),(4)

2016

(1),(4)

APAC Sales MarketShare Sales MarketShare Sales MarketShare

Thousands of units (except percentages)

China

(2)

163 0.8% 215 0.9% 176 0.8%

Japan 22 0.5% 21 0.5% 20 0.5%

India

(3)

19 0.6% 15 0.5% 7 0.2%

Australia 11 1.0% 13 1.1% 18 1.6%

South Korea 8 0.5% 8 0.5% 7 0.4%

APAC 5 major Markets 223 0.7% 272 0.8% 228 0.7%

Other APAC 5 — 5 — 5 —

Total 228 — 277 — 233 —

(1)

Estimated market share data presented are based on management’s estimates of industry sales data, which use certain data provided by

third-party sources, including IHS Markit and National Automobile Manufacturing Associations.

(2)

Sales data include vehicles shipped by our joint venture in China.

(3)

India market share is based on wholesale volumes.

(4)

Sales reflect retail deliveries. APAC industry reflects aggregate for major markets where the Group competes (China, Australia, Japan, South Korea,

and India).Market share is based on retail registrations except, as noted above, in India where market share is based on wholesale volumes.

The automotive industry in the APAC segment has shown a slight year-over-year decline, with industry sales in the

ﬁve key markets (China, India, Japan, Australia and South Korea) decreasing by 4 percent to 32.2 million. Overall for

the 10 year period in the ﬁve key markets in which we compete, industry sales have increased from 16.1million in

2009 to 32.2million in 2018, a compound annual growth rate (“CAGR”) of approximately 8 percent. Industry demand

decreased from 2017 to 2018 with decreases in China (-7 percent) and Australia (-3 percent), with Japan remaining

ﬂat, offsetting growth in India (+5 percent) and South Korea (+2 percent).

We sell a range of vehicles in the APAC segment, including small and compact cars and utility vehicles. Although our smallest

mass-market segment by vehicle sales, we believe the APAC segment represents a signiﬁcant growth opportunity and we

have invested in building relationships with key joint venture partners in China and India in order to increase our presence in the

region. In 2010, GAC Fiat Chrysler Automobiles Co. (“GAC FCA JV”), our joint venture with Guangzhou Automobiles Group

Co., Ltd., was formed. In 2015, we expanded local production through the GAC FCA JV with the production of the Jeep

Cherokee and in 2016 the Jeep Renegade and the Jeep Compass. In 2016, the Jeep brand also made its return to India, with

Board Report

Group Overview

2018

ANNUAL REPORT

the launches of the imported Jeep Wrangler and Jeep Grand Cherokee. In 2017, we launched the imported Alfa Romeo Giulia

and Alfa Romeo Stelvio in China and local production of the Jeep Compass was launched in the Ranjangaon, India plant for

sale in India and other right-hand drive countries. In 2018, we launched the Grand Commander in China, a premium seven-

seater SUV produced at the GAC FCA JV plant in Changsha, China. In other parts of the APAC segment, we distribute vehicles

that we manufacture in the U.S., Europe and India through our dealers and distributors.

APAC Distribution

In the key markets in the APAC segment (China, Australia, India, Japan and South Korea), we sell our vehicles through

100 percent owned subsidiaries or through our joint venture to local independent dealers. In other markets where we

do not have a substantial presence, we have agreements with general distributors.

APAC Dealer and Customer Financing

In the APAC segment, we operate a 100 percent owned captive ﬁnance company, FCA Automotive Finance Co., Ltd,

which supports, on a non-exclusive basis, our sales activities in China through dealer and retail customer ﬁnancing.

Cooperation agreements are also in place with third party ﬁnancial institutions to provide dealer network and retail

customer ﬁnancing in India, South Korea, Australia and Japan.

EMEA

EMEA Sales and Competition

The following table presents passenger car and light commercial vehicle sales in the EMEA segment for the periods

presented:

Years ended December 31

2018

(1),(2),(3)

2017

(1),(2),(3)

2016

(1),(2),(3)

EMEA

Passenger Cars

Sales MarketShare Sales MarketShare Sales MarketShare

Thousands of units (except percentages)

Italy 500 26.2% 558 28.3% 528 28.9%

Germany 105 3.1% 104 3.0% 97 2.9%

France 100 4.6% 88 4.2% 80 4.0%

Spain 81 6.1% 67 5.4% 60 5.2%

UK 52 2.2% 60 2.4% 84 3.1%

Other Europe 175 4.0% 158 3.6% 136 3.3%

Europe* 1,013 6.5% 1,035 6.6% 985 6.5%

Other EMEA** 102 — 116 — 113 —

Total 1,115 — 1,151 — 1,098 —

* 28 members of the European Union and members of the European Free Trade Association (other than Italy, Germany, UK, France, and Spain).

** Market share not included in Other EMEA because our presence is less than one percent.

(1)

Certain fleet sales accounted for as operating leases are included in vehicle sales.

(2)

Estimated market share data is presented based on the European Automobile Manufacturers Association (ACEA) Registration Databases and

national Registration Offices databases.

(3)

Sale data includes vehicle sales by our joint venture in Turkey.

Years ended December 31

2018

(1),(2),(3)

2017

(1),(2),(3)

2016

(1),(2),(3)

EMEA

LightCommercial Vehicles

GroupSales MarketShare GroupSales MarketShare GroupSales MarketShare

Thousands of units (except percentages)

Europe* 263 11.1% 260 11.4% 250 11.6%

Other EMEA** 50 — 75 — 69 —

Total 313 — 335 — 319 —

* 28 members of the European Union and members of the European Free Trade Association.

** Market share not included in Other EMEA because our presence is less than one percent.

(1)

Certain fleet sales accounted for as operating leases are included in vehicle sales.

(2)

Estimated market share data is presented based on the national Registration Offices databases on products categorized under light commercial

vehicles.

(3)

Sale data includes vehicle sales by our joint venture in Turkey.

2018

ANNUAL REPORT

The following table summarizes new vehicle market share information and our principal competitors in Europe, our

largest market in the EMEA segment:

Years ended December 31

Europe-Passenger Cars 2018

(*)

2017

(*)

2016

(*)

Automaker

Percentage of industry

Volkswagen 23.9% 23.8% 24.1%

PSA 16.0% 12.1% 9.7%

Renault 10.5% 10.4% 10.1%

BMW 6.6% 6.7% 6.8%

FCA

(1)

6.5% 6.7% 6.6%

Ford 6.4% 6.6% 6.9%

Daimler 6.2% 6.3% 6.2%

Toyota 4.9% 4.6% 4.3%

GM —% 3.8% 6.6%

Other 19.0% 19.0% 18.7%

Total 100.0% 100.0% 100.0%

* Including all 28 European Union (EU) Member States and the 4 European Free Trade Association member states, or EFTA member states.

(1)

Market share data is presented based on the European Automobile Manufacturers Association, or ACEA Registration Databases, which also

includes Maserati within our Group for all periods presented; includes Ferrari within our Group for 2015.

In 2018, the Fiat brand continued its leadership in the European A minicar segment in EU 28+EFTA, with Fiat 500 and

Fiat Panda accounting for 28.0 percent of market share in the segment and Fiat 500 remaining segment leader, with

sales up 1.3 percent. The Fiat brand increased its presence also in other segments, with the Fiat 500L and Fiat 500X

continuing to be among the leaders in their respective segments.

In EU 28+EFTA sales of the Jeep Brand approximately doubled from 2015, which were driven mainly by the Jeep Compass.

Sales of the Alfa Romeo Stelvio also increased 73.5 percent from 2017 and the model was the segment leader in Italy.

Volumes were higher in the light commercial vehicle segment, with industry sales up 3.6 percent over the prior year to

about 2.4 million units.

In Europe, FCA’s sales are largely weighted to passenger cars, with 35.5 percent of our total vehicle sales in the small

car segment for 2018, reﬂecting demand for smaller vehicles due to driving conditions prevalent in many European

cities and stringent environmental regulations.

EMEA Distribution

In Europe, our relationship with individual dealer entities can be represented by a number of contracts (typically, we enter into

one agreement per brand of vehicles to be sold), and the dealer can sell those vehicles through one or more points of sale.

In Europe, we sell our vehicles directly to independent and our own dealer entities located in most European markets,

as well as to ﬂeet customers (including government and rental). In other markets in the EMEA segment in which we do

not have a substantial presence, we have agreements with general distributors.

EMEA Dealer and Customer Financing

In the EMEA segment, dealer and retail customer ﬁnancing is primarily managed by FCA Bank, our joint venture with

Crédit Agricole Consumer Finance S.A. (“CACF”). FCA Bank operates in Europe, including the ﬁve major markets of

Italy, France, Germany, Spain and the UK. We began this joint venture in 2007 and have agreed with Credit Agricole to

extend its term through December 31, 2022, which may be automatically renewed up to December 31, 2024 unless

a termination notice is served in the period from January 1, 2019 to June 30, 2019. Under the agreement, FCA Bank

will continue to beneﬁt from the ﬁnancial support of Crédit Agricole while continuing to strengthen its position as an

active player in the securitization and debt markets. FCA Bank provides dealer and retail ﬁnancing and, within selected

countries, also rental, to support our mass-market vehicle brands. FCA Bank provides its services to Maserati and

Ferrari luxury brands, as well as certain other OEMs.

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Group Overview

2018

ANNUAL REPORT

We also operate a joint venture, Koç Fiat Kredi, providing ﬁnancial services mainly to retail customersin Turkey,

and operate vendor programs with bank partners in other markets to provide access to dealer and retail customer

ﬁnancing in those markets.

Maserati

Maserati, a luxury vehicle brand founded in 1914, became part of the Group in 1993. In 2013, the Maserati brand was

re-launched by the introduction of the next generation Quattroporte and the introduction of the Ghibli (luxury four door

sedans), the ﬁrst addressed the ﬂagship large sedan segment and the second was designed to address the luxury

full-size sedan vehicle segment. Maserati’s current vehicles also include the GranTurismo, the brand’s ﬁrst modern

two door, four seat coupe, also available in a convertible version and the Maserati Levante, the ﬁrst SUV in Maserati’s

history, which in 2018 accounted for more than 50% of Maserati volumes.

The following table shows the distribution of Maserati sales by geographic regions as a percentage of total sales for

each year ended December 31, 2018, 2017 and 2016:

As a percentage of

2018 sales

As a percentage of

2017 sales

As a percentage of

2016 sales

U.S. 32% 28% 31%

China 24% 30% 30%

Europe Top 4 countries

(1)

17% 16% 15%

Japan 4% 4% 3%

Other countries 23% 22% 21%

Total 100% 100% 100%

(1)

Europe Top 4 Countries by sales include Italy, UK, Germany and Switzerland.

In 2018, a total of 35thousand Maserati vehicles were sold to retail consumers, a decrease of 28 percent compared

to 2017 as a result of reduced sales in China and other key markets, partially due to lower industry volumes in Maserati

relevant segments.

FCA Bank provides access to dealer and retail customer ﬁnancing for Maserati brand vehicles in Europe and our

100 percent owned captive ﬁnance company, FCA Automotive Finance Co. Ltd, provides dealer and retail ﬁnancing

on a non-exclusive basis in China. In other regions, we rely on local agreements with ﬁnancial services providers for

ﬁnancing of Maserati brand vehicles to dealers and end customers.

Cyclical Nature of the Business

As is typical in the automotive industry, our vehicle sales are highly sensitive to general economic conditions,

availability of low interest rate vehicle ﬁnancing for dealers and retail customers and other external factors, including

fuel prices, and as a result may vary substantially from quarter to quarter and year to year. Retail consumers tend

to delay the purchase of a new vehicle when disposable income and consumer conﬁdence are low. In addition, our

vehicle production volumes and related revenues may vary from month to month, sometimes due to plant shutdowns,

which may occur for several reasons, including production changes from one model year to the next and actions to

balance vehicle supply and demand ﬂuctuations and also to adjust dealer stock levels appropriately. Plant shutdowns,

whether associated with model year changeovers or other factors, such as temporary supplier interruptions, can

have a negative impact on our revenues and working capital as we continue to pay suppliers under established terms

while we do not receive proceeds from vehicle sales. Refer to Liquidity and Capital Resources—Liquidity Overview for

additional information.

2018

ANNUAL REPORT

ENVIRONMENTAL AND OTHER REGULATORY MATTERS

We engineer, manufacture and sell our products and offer our services around the world, subject to requirements

applicable to our products that relate to vehicle emissions, fuel economy, emission control software calibration and

on-board diagnostics, as well as those applicable to our manufacturing facilities that relate to stack emissions, the

treatment of waste, water and hazardous materials, prohibitions on soil contamination, and worker health and safety.

Our vehicles and the engines that power them must also comply with extensive regional, national and local laws and

regulations and industry self-regulations (including those that regulate end-of-life vehicles and the chemical content of

our parts). In addition, vehicle safety regulations are becoming increasingly strict.

We believe we are substantially in compliance with the relevant global regulatory requirements affecting our facilities

and products taken as a whole, although we may from time to time fail to meet a particular regulatory requirement.

We consistently monitor the relevant global regulatory requirements affecting our facilities and products and adjust

our operations and processes as we seek to remain in compliance. Compliance with these requirements involves

signiﬁcant costs and risks. See “Risk Factors-Laws, regulations and governmental policies, including those regarding

increased fuel efficiency requirements and reduced greenhouse gas and tailpipe emissions, have a significant effect

on how we do business.” and Risk Factors-“We are subject to diesel emissions investigations by several governmental

agencies and to a number of related private lawsuits.”

Automotive Tailpipe Emissions

Numerous laws and regulations limit automotive emissions, including vehicle exhaust emission standards, vehicle

evaporative emission standards, emission control software calibration and onboard diagnostic system requirements.

Advanced onboard diagnostic systems are used to identify and diagnose problems with emission control systems.

These requirements become more challenging each year, especially in light of increased global scrutiny of diesel

emission control software calibration and we expect these emissions and certiﬁcation requirements will continue to

become even more rigorous worldwide.

NAFTA Region

Under the U.S. Clean Air Act, the U.S. Environmental Protection Agency (“EPA”) and the California Air Resource Board

(“CARB”) require emission compliance certiﬁcation before a vehicle can be sold in the U.S. or in California (and many

other states that have adopted the California emissions requirements). Both agencies impose limits on tailpipe and

evaporative emissions of certain non-greenhouse gas pollutants from new motor vehicles and engines, and in some

cases dictate the pollution control methods our engines must employ.

Our vehicles are subject to EPA’s Tier 3 Vehicle Emission and Fuel Standards Program, which regulates vehicle tailpipe

and evaporative emission standards and fuels. These Tier 3 standards are generally more stringent than the prior

standards and are also generally aligned with California’s Low Emission Vehicle (“LEV”) III tailpipe and evaporative

standards, discussed below. The Tier 3 standards also require automakers to conduct post-production vehicle testing

to demonstrate compliance with these emissions limits for the useful life of a vehicle, and require that FCA Italy-produced

and Maserati-branded vehicles sold in the U.S. be included in the Group’s U.S. ﬂeet as reported to EPA and CARB.

In addition, we have implemented hardware and software systems in all our vehicles in connection with onboard diagnostic

monitoring requirements. Conditions identiﬁed through these systems could lead to vehicle recalls (or other remedial actions

such as extended warranties) with signiﬁcant costs for related inspections, repairs or per-vehicle penalties.

In addition to its LEV III emissions standards, CARB regulations also require that a speciﬁed percentage of cars and

certain light-duty trucks sold in California be zero emission vehicles, such as electric vehicles, hybrid electric vehicles

or hydrogen fuel cell vehicles. Our strategy for compliance with the zero emission vehicle requirements involves the

sale of a variety of vehicles, including battery electric vehicles and hybrid electric vehicles. Our compliance strategy

is also supported by the purchase of credits from other OEMs. The Group’s compliance with zero emission vehicles

regulations includes Maserati vehicles sold in the U.S.

In addition to California, twelve states, as well as the Province of Quebec, Canada, currently use California’s LEV III

standards in lieu of the federal EPA standards, and 10 states have also adopted California’s zero emission vehicle

requirements.

Board Report

Group Overview

2018

ANNUAL REPORT

For a discussion of inquiries into our compliance with certain regulations in the U.S., see Note 25, Guarantees granted,

commitments and contingent liabilities within the Consolidated Financial Statements included elsewhere in this report.

See also “Risk Factors-Laws, regulations and governmental policies, including those regarding increased fuel efficiency

requirements and reduced greenhouse gas and tailpipe emissions, have a significant effect on how we do business.”

LATAM Region

Certain countries in South America follow U.S. procedures, standards and onboard diagnostic requirements, while

others follow the European procedures, standards and onboard diagnostic requirements described below under —

EMEA Region. In Brazil, vehicle emission standards are regulated by the Ministry of the Environment and have been in

place since 1988 for passenger cars and light commercial vehicles. The ﬁrst step in the next phase of regulations are

currently under discussion and are expected to be aligned with fuel efﬁciency and safety standards in January 2022

and a second step is also under discussion with implementation dates still to be deﬁned. Argentina has implemented

regulations that mirror the European Commission Euro 5 standards for all new vehicles.

APAC Region

China 5 standards, which mirror Euro 5 standards, are currently in place in China nationwide. China 6 standards were

released in 2016 and will be required nationwide beginning in July 2020 with China 6a thresholds and in July 2023 with

China 6b thresholds. China 6a and 6b have more stringent tailpipe emissions thresholds than Euro 6 and also add

European Union (“EU”) real driving emissions and U.S. onboard diagnostics, onboard refueling vapor recovery and

evaporative emission control system requirements. Some regions within China will implement China 6b prior to July 2023,

such as Beijing (beginning in early 2020) and Tianjin, Shanghai, Guangzhou and Shenzhen (beginning in July 2019) with

more regions expected to follow. FCA’s entire China ﬂeet has been developed with the intent to meet China 6 standards.

South Korea implemented regulations that are similar to California’s LEV III regulations beginning in 2016. and will be fully

required by the end of 2019 for all gasoline vehicles. Diesel vehicles are required to meet Euro 6 EU emissions requirements.

Japan adopted the Worldwide Harmonized Light Vehicle Testing Procedures (“WLTP”) in 2018 for new models and will be

required by September 2020 for all models. WLTP is a global harmonized standard for regulating greenhouse gas (“GHG”)

emissions, non-GHG pollutants, and fuel or energy consumption for light-duty vehicles and electric range for battery

electric vehicles or hybrids. India currently follows Bharat Stage IV (“BSIV”) emission norms, which are equivalent to Euro 4

standards. BSIV emission norms were enforced nationwide starting in 2017. The government will mandate the new Bharat

Stage VI emission norms beginning in April 2020, skipping Euro 5 equivalent norms.

EMEA Region

In Europe, emissions are regulated by the European Commission (“EC”) and the United Nations Economic Commission

for Europe (“UNECE”). The EC imposes standardized emission control requirements on vehicles sold in all 28 EU member

states, while non-EU countries apply regulations under the UNECE framework. EU Member States can provide tax incentives

for the purchase of vehicles that meet emission standards earlier than the compliance date. As a result, vehicles must meet

emission requirements and receive approval from an appropriate Member State authority before they can be sold in any EU

Member State. These regulatory requirements include random testing of newly assembled vehicles and a manufacturer in-use

surveillance program. EU and UNECE requirements are equivalent in terms of stringency and implementation.

Euro 6 emission levels are in effect for all passenger cars and light commercial vehicles and require additional

technologies and further increase the cost of diesel engines compared to prior Euro 5 standards. These new

technologies have put additional cost pressures on the already challenging European market for small and mid-size

diesel-powered vehicles. Further requirements of Euro 6 have been developed by the EC and became effective for

all new passenger cars registered after September 1, 2018. In addition, a new test procedure to directly assess

the regulated emissions of light duty vehicles under real driving conditions became effective for newly homologated

passenger cars in 2017 and will become effective for all new passenger cars registered in 2019 and for new light

commercial vehicles registered in 2020. For a discussion of inquiries into our compliance with certain regulations in the

European Union, see Note 25, Guarantees granted, commitments and contingent liabilities within the Consolidated

Financial Statements included elsewhere in this report. See also “Risk Factors-We are subject to diesel emissions

investigations by several governmental agencies and to a number of related private lawsuits.”

2018

ANNUAL REPORT

Automotive Fuel Economy and Greenhouse Gas Emissions

We pursue compliance with fuel economy and greenhouse gas regulations in the markets where we operate through

the most cost effective combination of developing, manufacturing and selling vehicles with better fuel economy

and lower emissions, purchasing compliance credits and paying regulatory penalties. The cost of each of these

components of our strategy has increased and is expected to continue to increase in the future. As the costs of each

of these components, particularly the relative costs of each component, changes, we intend to adjust our strategies in

an effort to maintain the most cost effective means of complying with the regulations.

NAFTA Region

Since the enactment of the 1975 Energy Policy and Conservation Act, the National Highway Trafﬁc Safety

Administration (“NHTSA”) has enforced minimum Corporate Average Fuel Economy (“CAFE”) for ﬂeets of new

passenger cars and light-duty trucks sold in the U.S. These CAFE standards apply to all domestic and imported

passenger car and light-duty truck ﬂeets and currently require year-over-year increases in fuel economy through 2025.

The requirement is scaled based on vehicle footprint size. The CAFE standards require that passenger cars imported

into the U.S. from outside of NAFTA are averaged separately from those manufactured within NAFTA, and domestic

cars and light duty trucks are also considered separately. A civil ﬁne can be paid under the CAFE standards which

can vary to the extent fuel economy targets are not met, and the policy also allows for the trading of CAFE credits as a

means to achieve compliance.

In addition, the EPA enforces a GHG standard that is also footprint based and increasing in stringency year over year

through 2025. This requirement corresponds to an equivalent fuel economy target of 54.5 miles per gallon in the 2025

model year. Various ﬂexibilities exist to reach this target, including utilizing more environmentally friendly refrigerants.

A civil ﬁne cannot be paid to achieve compliance with GHG standards. This standard is currently undergoing a “mid

term” review and may be modiﬁed for the 2021 through 2025 model years.

Finally, for light duty vehicles, ten states including California have enacted a zero emission vehicle mandate requiring

a certain percentage of each OEM’s ﬂeet in each state to be zero emission - either battery electric vehicles or fuel cell

vehicles. This standard also increases in stringency through 2025. The policy does allow for a limited number of sales

of partial zero emission vehicles and plug-in electric hybrids as a ﬂexibility for manufacturers.

For heavy duty vehicles (>8,500 pound gross vehicle weight rating), the GHG standard is utility based (payload

and towing) and is increasing in stringency through 2027. Similar to passenger cars, ﬂexibilities exist to meet GHG

regulation. A civil ﬁne cannot be paid to achieve compliance with heavy duty vehicle GHG standards.

The approach and technologies being developed to meet U.S. requirements are intended to also enable compliance in

the Canadian and Mexican markets.

LATAM Region

In 2012, the Brazilian government issued a CO

reduction decree which provided indirect tax incentives to

manufacturers who met certain requirements. Participating companies had to meet vehicle energy efﬁciency targets

on vehicles sold from October 1, 2016 to September 30, 2017 and must maintain the required level until September

30, 2020. The program has additional targets that result in additional tax incentives based on the magnitude and

timing of target accomplishment.

In July 2018, the ﬁrst regulations related to Rota 2030 were enacted. Rota 2030 is a long-term program (three cycles

of ﬁve years each) which includes key principles related to energy efﬁciency for all vehicles sold in Brazil. Key Rota

2030 regulations were approved by the Brazilian Congress and sanctioned by the Brazilian President in December

2018 as well as ordinary regulations to address certain minimum requirements and other metrics. The regulation

for the next phase of Energy Efﬁciency (CO

/fuel efﬁciency) beginning in 2022 incorporates three ﬂeets split into

passenger, large SUV and light commercial vehicle categories. Among other things, the rule rewards the improvement

of sugar cane ethanol combustion efﬁciency and also recognizes and provides credit ﬂexibilities for technologies that

provide beneﬁts in conditions that are not seen on the standardized government test cycles.

Board Report

Group Overview

2018

ANNUAL REPORT

APAC Region

In China, Phase IV of the Corporate Average Fuel Consumption (or “CAFC”) is currently in place and provides an industry

target of 5.0 liters per 100 kilometers by 2020. Each OEM must meet a speciﬁc ﬂeet average fuel consumption target

related to vehicle weight. The phase-in of this ﬂeet-average requirement began in 2016, with increasing stringency

each year through 2020. Additional provisions for Phase IV include meeting a quota for New Energy Vehicles (“NEVs”)

beginning in 2019. NEVs consist of plug-in electric hybrids, battery electric vehicles, and fuel cell vehicles. No off-cycle

credit ﬂexibilities exist in the China regulation, although credit multipliers are granted for NEVs.

A draft version of the Phase V rule has been distributed by the Chinese government with increasing stringency

reaching a target of 4.0 liters per 100 kilometers by 2025.

In September 2017, China’s Ministry of Industry and Information Technology released administrative rules regarding

CAFC and NEV credits that became effective in April 2018. Non-compliance with the CAFC target in these

administrative rules can be offset through carry-forward CAFC credits, transfer of CAFC credits within afﬁliates, the

OEMs use of its own NEV credits, or the purchase of NEV credits. Non-compliance with the NEV target can only

be offset by the purchase of NEV credits. The homologation of new products that exceed CAFC targets will be

suspended for OEMs that are unable to offset CAFC and/or NAV deﬁcits until the deﬁcits are offset.

Additional markets within the APAC region have enacted fuel consumption and GHG targets. India began enforcing a

phase I CAFC limit starting in April 2017 with a second, more stringent phase beginning in 2022.

South Korea has implemented a new phase of CAFE/CO

standards beginning in 2016 with increased targets for 2020.

In Japan, auto manufacturers are required to achieve the 2015 fuel economy standard for each vehicle weight class,

which applies through the 2019 ﬁscal year. In 2020, a new fuel economy standard will be implemented that switches

from vehicle weight class average to corporate average fuel economy. In Australia, although there is no mandatory

greenhouse gas requirement, the government is in the midst of a CO

standard revision which is expected to result in

a CO

target for light vehicles.

EMEA Region

Each automobile manufacturer must meet a speciﬁc sales-weighted ﬂeet average target for CO

emissions as related

to vehicle weight. This legislation sets an industry ﬂeet average target of 95 grams of CO

per kilometer starting in

2020 for passenger cars (130g/km until 2019). In order to promote the sale of ultra-efﬁcient vehicles, automobile

manufacturers that sell vehicles emitting less than 50 grams of CO

per kilometer earn additional CO

credits from

2020 to 2022. Furthermore, automobile manufacturers that make use of innovative technologies, or eco-innovations,

which improve real-world fuel economy but may not show in the test cycles, such as solar panels or LED lighting, may

gain a non-transferable average credit for the manufacturer’s ﬂeet of up to seven grams of CO

per kilometer.

The EU has also adopted standards for regulating CO

emissions from light commercial vehicles (“LCVs”). This

regulation requires that new light commercial vehicles meet a ﬂeet average CO

target of 147 grams of CO

per

kilometer in 2020 (175g/km until 2019).

In December 2018, the European Institutions agreed on new CO

emissions targets starting from 2025 and 2030: 15%

reduction from 2021 levels in 2025 (both passenger cars and LCV) and a 37.5% reduction for passenger cars and

31% reduction for LCV in 2030 from 2021 levels.

A new regulatory test procedure for measuring CO

emissions and fuel consumption of light duty vehicles, the World

harmonized Light vehicles Test Procedure (“WLTP”), entered into force on September 1, 2018 for all passenger cars.

The WLTP is expected to provide CO

emissions and fuel consumption values that are more representative of real

driving conditions.

The quantity of CO

emissions in 2019 will be affected not only by market evolution (such as the expected reduction

of diesel share), but also by the commercialization of vehicles compliant with the new Euro 6d-temp standard, which

regulates tailpipe emissions and entered into force on September 1, 2018. Compliance with this regulation has led to

new engine calibrations, implying higher CO

emissions. FCA has deﬁned a plan to manage the disruption introduced

by the new procedures, mainly based on technical actions (such as introduction of the new Gasoline Small Engine)

and commercial actions (such as the promotion of low CO

emission vehicle versions).

2018

ANNUAL REPORT

Other countries in the EMEA region, such as Switzerland and Saudi Arabia, have introduced speciﬁc regulations to

reduce vehicle CO

emissions or fuel consumption. FCA assumes for the time being that the United Kingdom will

continue to follow the EU GHG policy post-Brexit.

Vehicle Safety

NAFTA Region

Under U.S. federal law, all vehicles sold in the U.S. must comply with Federal Motor Vehicle Safety Standards

(“FMVSS”) promulgated by NHTSA, and must be certiﬁed by their manufacturer as being in compliance with all such

standards at the time of the ﬁrst purchase of the vehicle. In addition, if a vehicle contains a defect that is related to

motor vehicle safety or does not comply with an applicable FMVSS, the manufacturer must notify NHTSA and vehicle

owners and provide a remedy at no cost. Moreover, the TREAD Act authorized NHTSA to promulgate regulations

requiring Early Warning Reporting (“EWR”). EWR requires manufacturers to provide NHTSA several categories of

information, including all claims which involve one or more fatalities or injuries; all incidents of which the manufacturer

receives actual notice which involve fatalities or injuries which are alleged or proven to have been caused by a possible

defect in such manufacturer’s motor vehicle or motor vehicle equipment in the U.S.; and all claims involving one or

more fatalities in a foreign country when the possible defect is in a motor vehicle or motor vehicle equipment that is

identical or substantially similar to a motor vehicle or motor vehicle equipment offered for sale in the U.S., as well as

aggregate data on property damage claims from alleged defects in a motor vehicle or in motor vehicle equipment;

warranty claims; consumer complaints and ﬁeld reports about alleged or possible defects. The rules also require

reporting of customer satisfaction campaigns, consumer advisories, recalls, or other activity involving the repair or

replacement of motor vehicles or items of motor vehicle equipment, even if not safety related.

NHTSA has secured a voluntary commitment from manufacturers, including FCA, to equip future vehicles with

automatic electronic braking systems. The commitment will make these braking systems standard on virtually all

light-duty cars and trucks with a gross vehicle weight of 8,500 pounds or less beginning no later than September

1, 2022 and on virtually all trucks with a gross vehicle weight between 8,501 pounds and 10,000 pounds beginning

no later than September 1, 2025. Compliance with these requirements and commitments, as well as other possible

prospective NHTSA requirements, is likely to be costly.

In 2018, NHTSA updated guidelines for the testing and deployment of automated driving systems (“ADS”), providing

additional clarity and alignment with OEM requests, including the announcement of a possible pilot program to

encourage public road testing of vehicles equipped with ADS. Additionally, as of October 2018, legislation has passed

in the U.S. House of Representatives to encourage safe testing and commercial deployment of “highly automated

vehicles” (“HAVs”) and ADS-equipped vehicles.A similar bill is pending in the U.S. Senate. Both bills would direct a

series of rulemakings eventually affecting manufacturers. The ﬁnal bill could require that manufacturers introducing a

HAV or ADS-equipped vehicle into interstate commerce must provide the U.S. Department of Transportation with a

Safety Evaluation Report that describes how the manufacturer is addressing nine areas regarding vehicle safety, with

civil penalties for false or misleading reports.

At times, organizations like NHTSA or the U.S. Insurance Institute of Highway Safety (“IIHS”) issue or reissue safety

ratings applicable to vehicles. In October 2018, NHTSA held a public meeting to hear from stakeholders about

possible changes to the safety ratings issued by the agency. The timeframe for any such changes is not known at this

time. In 2017, the IIHS continued to introduce new tests and modiﬁed its “Top Safety Pick” protocol. Pursuant to the

new protocol, several of our vehicles’ top ratings have been downgraded until new technologies are introduced such

as new forward lighting systems. This could impact the market competitiveness of the affected vehicles.

In 2016, NHTSA issued a Notice of Proposed Rulemaking (“NPRM”) designed to enable vehicle-to-vehicle (“V2V”)

communication technology. Rulemaking in this area has been inactive since then, and any additional costs that would

have been associated with the NPRM are deferred for the foreseeable future. However, NHTSA has engaged with

industry to conﬁrm continued interest in facilitating the growth of this technology.

Furthermore, NHTSA has issued non-binding guidelines for addressing cybersecurity issues in the design and

manufacture of new motor vehicles, as well as guidance for the investigation and validation of cybersecurity measures.

Board Report

Group Overview

2018

ANNUAL REPORT

In Mexico, a new safety regulation based on U.S. standards is expected to take effect which will, among other things,

include a deadline for vehicle manufacturers to provide to the Federal Consumer Protection Agency (i) the launch date

and a detailed description of every safety campaign applicable to vehicles sold in Mexico, (ii) mandatory recall campaigns,

based on international agencies’ investigations and guidelines and (iii) mandatory repurchase of defective products.

LATAM Region

Vehicles sold in the LATAM region are subject to different vehicle safety regulations according to each country,

generally based on European and United Nations standards.Brazil published a draft of its 10 year safety regulatory

roadmap in 2017. This roadmap provides a staged approach to implementation of new testing requirements and

active safety technology. The more costly active safety technologies would be scheduled for implementation after

2024. In July 2018, the ﬁrst regulation related to Rota 2030 was enacted. Rota 2030 is a long-term program (three

cycles of ﬁve years each) which includes principles related to mandatory safety for all vehicles sold in Brazil. These

regulations were approved by the Brazilian Congress and sanctioned by the Brazilian President in December 2018 as

well as ordinary regulations to address certain minimum requirements and other metrics.

APAC Region

Many countries in the Asia Paciﬁc region, including China, South Korea, Japan and India, have adopted or are

adopting measures for pedestrian protection and vehicle safety regulations. For example, China published the

Regulation for Administration of Recall of Defective Vehicles effective in 2013 and the Implementation Provisions on

the Regulation for Administration of Recall of Defective Vehicles effective in 2016. In addition, India has implemented

vehicle crash regulations effective in 2017 for new models and 2019 for all models, and has introduced for

implementation in 2019 new standards relating to pedestrian safety, compulsory installation of airbags, speed limit

reminders, anti-lock braking systems and reverse parking sensors. In South Korea, amendments to major provisions

relating to vehicle accidents, ﬁre incidents, defect reporting and recall procedures have been proposed that may

considerably increase the liabilities and penalties of vehicle manufacturers.

EMEA Region

Vehicles sold in Europe are subject to vehicle safety regulations established by the EU or, in very limited cases and

aspects, by individual Member States. In 2009, the EU established a uniform legal framework for vehicle safety,

repealing more than 50 then-existing directives and replacing them with a single regulation known as the “General

Safety Regulation” (“GSR”) aimed at incorporating relevant United Nations standards. The incorporation of United

Nations standards commenced in 2012. In 2014, discussions began in Europe for a comprehensive upgrade to the

GSR, which is expected to lead to the implementation of a variable suite of passive and active safety technologies,

depending on vehicle type and classiﬁcation. The signiﬁcant items under discussion for mainstream vehicles

includes automatic emergency braking, intelligent speed assistance, lane keeping, drowsiness and attention

detection, advanced distraction recognition and an expanded scope for front and side crash testing. The timeline

for implementation of this GSR for new vehicle types is estimated to be 2022. In addition, in-vehicle emergency call

systems became mandatory for new vehicle types in the EU, Israel and Turkey markets in 2018. In Russia, a similar

in-vehicle emergency call system became mandatory in 2015 and there are now draft regulations for these systems in

many countries in the Middle East region.

Industrial Environmental Control

Our operations are subject to a wide range of environmental protection laws including those laws regulating air

emissions, water discharges, waste management and environmental clean-up. Certain environmental statutes

require that responsible parties fund remediation actions regardless of fault, legality of original disposal, or ownership

of a disposal site. Under certain circumstances, these laws impose joint and several liability as well as liability for

related damages to natural resources. Our Environmental Management System (“EMS”) formalizes our commitment

to responsible management of the environment. Applied at all plants operating worldwide, the EMS consists of

methodologies and processes designed to prevent or reduce the environmental impact of our manufacturing activities.

ISO 14001 is an internationally agreed standard that sets out the requirements for an EMS. At December 31, 2018,

the majority of the Group’s facilities have an ISO 14001 certiﬁed EMS in place.

2018

ANNUAL REPORT

Our commitment to environmental and sustainability issues is also reﬂected through our internal World Class

Manufacturing (“WCM”) system.

Workplace Health and Safety

FCA aims to provide all employees with a safe, healthy and productive work environment at every facility worldwide

and in every area of activity. Accordingly, the Group focuses on identifying and evaluating workplace safety risks,

implementing safety and ergonomic standards, promoting employee awareness and safe behavior and encouraging a

healthy lifestyle.

The goal of achieving zero accidents is formalized in the targets set by FCA, as well as through global adoption of

an Occupational Health and Safety Management System (“OHSMS”) certiﬁed to the OHSAS 18001 standard. At

December 31, 2018, the vast majority of our plants had an OHSMS in place that was OHSAS 18001 certiﬁed.

Effective safety management is also supported by the application of WCM tools and methodologies, active

involvement of employees and targeted investment.

Applicability of Banking Law and Regulation to Financial Services

Several of our captive ﬁnance companies, each of which provides ﬁnancial services to our customers, are regulated

as ﬁnancial institutions in the jurisdictions in which they operate. FCA Bank S.p.A., incorporated in Italy, is subject to

European Central Bank and Bank of Italy supervision. Within FCA Bank Group, two subsidiaries (the Austrian FCA

Bank G.m.b.H. and the Portuguese FCA Capital Portugal I.F.I.C., S.A.), are subject to the supervision of the European

Central Bank and of the local central banks, whereas certain other subsidiaries are subject to the supervision of the

local Supervisory Financial or Banking Authority. Banco Fidis S.A., incorporated in Brazil, is subject to Brazilian Central

Bank supervision. FCA Compañia Financiera S.A., incorporated in Argentina, is subject to Argentinian Central Bank

supervision. FCA Automotive Finance Co., Ltd, incorporated in China, is subject to the supervision of the Chinese

Banking Insurance Regulatory Commission and People’s Bank of China. As a result, those companies are subject

to regulation in a wide range of areas including solvency, capital requirements, reporting, customer protection and

account administration, among other matters.

Board Report

Group Overview

2018

ANNUAL REPORT

Financial Overview

Management’s Discussion and Analysis of the Financial Condition and Results of Operations of the Group

The following discussion of our financial condition and results of operations should be read together with the

information included under “GROUP OVERVIEW”, “SELECTED FINANCIAL DATA” and the Consolidated Financial

Statements included elsewhere in this report. This discussion includes forward-looking statements and involves

numerous risks and uncertainties, including, but not limited to, those described under “Forward-Looking Statements ”

and “Risk Factors”. Actual results may differ materially from those contained in any forward looking statements.

Trends, Uncertainties and Opportunities

Our results of operations and ﬁnancial condition are affected by a number of factors, including those that are outside

our control.

Shipments. Vehicle shipments are generally driven by our plans to meet consumer demand. Consumer demand

for vehicles is affected by economic conditions, availability and cost of dealer and customer ﬁnancing and incentives

offered to retail customers, as discussed further below. Transfer of control, and therefore revenue recognition,

generally corresponds to vehicle shipment. This generally occurs upon the release of the vehicle to the carrier

responsible for transporting the vehicle to the dealer or distributor, or when the vehicle is made available to the dealer

or distributor. Shipments and revenue recognition are generally not directly correlated with retail sales by dealers,

which may be affected by other factors including dealer decisions as to their appropriate inventory levels.

Product Development and Technology. A key driver of consumer demand and therefore our shipments, has been

the continued refresh, renewal and evolution of our vehicle portfolio, and we have committed signiﬁcant capital and

resources toward the introduction of new vehicles on new platforms, with additions of new powertrains and other new

technologies. In order to realize a return on the signiﬁcant investments we have made to sustain market share and to

achieve competitive operating margins, we will have to continue signiﬁcant investment in new vehicle launches. We

believe efforts in developing common vehicle platforms and powertrains have accelerated the time-to-market for many

of our new vehicle launches and resulted in cost savings.

The costs associated with product development, vehicle improvements and launches can impact our Net proﬁt. In

addition, our ability to continue to make the necessary investments in product development, and recover the related

costs, depends in large part on the market acceptance and success of the new or signiﬁcantly refreshed vehicles we

introduce. During a new vehicle launch and introduction to the market, we typically incur increased selling, general and

advertising expenses associated with the advertising campaigns and related promotional activity.

Costs we incur in the initial research phase for new projects (which may relate to vehicle models, vehicle platforms,

powertrains or technology) are expensed as incurred and reported as Research and development costs. Costs we

incur for product development are capitalized and recognized as intangible assets if and when the following two

conditions are both satisﬁed: (i)development expenditures can be measured reliably and (ii)the technical feasibility

of the project, and the anticipated volumes and pricing indicate it is probable that the development expenditures

will generate future economic beneﬁts. Capitalized development expenditures include all costs that may be directly

attributed to the development process. Such capitalized development expenditures are amortized on a straight-line

basis commencing from start of production over the expected economic useful life of the product developed, and

such amortization is recognized and reported as Research and development costs in our Consolidated Income

Statement. If vehicle production is planned to be terminated prior to the expected end date, amortization of capitalized

development expenditures is accelerated over the remaining useful economic life of that vehicle model or platform.

If vehicle production is terminated in the current period, all unamortized capitalized development expenditures are

expensed during that period.

Board Report

Financial Overview

2018

ANNUAL REPORT

Future developments in our product portfolio to support our growth strategies and their related development

expenditures could lead to signiﬁcant capitalization of development assets. Our time to market is at least 24 months,

but varies depending on our product, from the date the design is signed-off for tooling and production, after which the

project goes into production, resulting in an increase in amortization. Therefore, our operating results are impacted

by the cyclicality of our research and development expenditures based on our product portfolio strategies and our

product plans.

In order to meet expected changes in consumer demand and regulatory requirements, we intend to invest signiﬁcant

resources in product development and research and development. New markets for alternative fuel source vehicles

and autonomous vehicles are also beginning to emerge and we expect to invest resources in these areas in order to

meet future demand and to support compliance with emissions and fuel efﬁciency requirements. In addition, global

demand continues to shift from passenger cars to utility vehicles and away from diesel-powered vehicles.

Cost of revenues. Cost of revenues includes purchases (including costs related to the purchase of components

and raw materials), labor costs, depreciation, amortization, logistic and product warranty and recall campaign costs.

We purchase a variety of components, raw materials, supplies, utilities, logistics and other services from numerous

suppliers. These purchases have historically accounted for 70-80 percent of total Cost of revenues. Fluctuations in

Cost of revenues are primarily related to the number of vehicles we produce and sell along with shifts in vehicle mix,

as newer models of vehicles generally have more technologically advanced components and enhancements and

therefore higher costs per unit. Cost of revenues may also be affected by ﬂuctuations in raw material prices. The cost

of raw materials has historically comprised 10-15 percent of the total purchases described above, while the remaining

portion of purchases is made of components, conversion of raw materials and overhead costs. We typically seek to

manage these costs and minimize their volatility by using ﬁxed price purchase contracts, commercial negotiations and

technical efﬁciencies. Nevertheless, our Cost of revenues related to materials and components has increased as a

result of recent tariff activity and also as we have signiﬁcantly enhanced the content of our vehicles as we renew and

refresh our product offerings. Over time, technological advancements and improved material sourcing may reduce

the cost to us of the additional enhancements. In addition, we seek to recover higher costs through pricing actions,

but even when competitive conditions permit this, there may be a time lag between the increase in our costs and our

ability to realize improved pricing. Accordingly, our results are typically adversely affected, at least in the short term,

until price increases are accepted in the market.

Further, in many markets where our vehicles are sold, we are required to pay import duties on those vehicles, which

are included in Cost of revenues. We reﬂect these costs in the price charged to our customers to the extent market

conditions permit. However, for many of our vehicles, particularly in the mass-market vehicle segments, we cannot

always pass along increases in those duties to our dealers and distributors and remain competitive. Our ability to price

our vehicles to recover those increased costs has affected, and will continue to affect, our proﬁtability.

Pricing. Our proﬁtability depends in part on our ability to maintain or improve pricing on the sale of our vehicles to

dealers and ﬂeet customers and will also be signiﬁcantly impacted by our ability to pass along the increased costs of

the technology needed to meet increased regulatory compliance requirements.

In addition, the automotive industry continues to experience intense price competition resulting from the variety of

available competitive vehicles and excess global manufacturing capacity. Historically, manufacturers have promoted

products by offering dealer, retail and ﬂeet incentives, including cash rebates, option package discounts, and

subsidized ﬁnancing or leasing programs. The amount and types of incentives are dependent on numerous factors,

including market competition level, vehicle demand, economic conditions, model age and time of year, due to industry

seasonality. We plan to continue to use such incentives to price vehicles competitively and to manage demand and

support inventory management proﬁtability.

Vehicle Proﬁtability. Our results of operations reﬂect the proﬁtability of the vehicles we sell, which tends to vary

based upon a number of factors, including vehicle size, content of those vehicles and brand positioning. Vehicle

proﬁtability also depends on sales prices to dealers and ﬂeet customers, net of sales incentives, costs of materials

and components, as well as transportation and warranty costs. In the NAFTA segment, our larger vehicles such

as our larger SUVs and pickup trucks have historically been more proﬁtable than other vehicles and accounted for

approximately 68 percent of our total U.S. retail vehicle shipments in 2018. In recent years, consumer preferences for

certain larger vehicles, such as SUVs, have increased; however, there is no guarantee this will continue.

Board Report

Financial Overview

2018

ANNUAL REPORT

In all mass-market vehicle segments throughout the world, vehicles equipped with additional options are generally

more proﬁtable for us. As a result, our ability to offer attractive vehicle options and upgrades is critical to our ability

to increase our proﬁtability on these vehicles. In addition, in the U.S. and Europe, our vehicle sales to dealers for sale

to their retail consumers are normally more proﬁtable than our ﬂeet sales, as the retail consumers typically prefer

additional optional features while ﬂeet customers increasingly tend to concentrate purchases on smaller, more fuel-

efﬁcient vehicles with fewer optional features, which have historically had a lower proﬁtability per unit.

Vehicles sold under certain brand and model names are generally more proﬁtable when there is strong brand

recognition of those vehicles. In some cases this is tied to a long history for those brands and models, and in other

cases to customers identifying these vehicles as being more modern and responsive to customer needs.

Economic Conditions. Demand for new vehicles tends to reﬂect economic conditions in the various markets in

which we operate because retail sales depend on individual purchasing decisions, which in turn are affected by many

factors including levels of disposable income. For example, the recent economic deterioration and hyperinﬂationary

conditions in Argentina have signiﬁcantly impacted our shipments in the LATAM segment. Fleet sales and sales of light

commercial vehicles are also inﬂuenced by economic conditions, which drive vehicle utilization and investment activity.

Further, demand for light commercial vehicles and pickup trucks is driven, in part, by construction and infrastructure

projects. Therefore, our performance is affected by the macroeconomic trends in the markets in which we operate.

Regulation.We are subject to a complex set of regulatory regimes throughout the world in which vehicle safety,

emissions and fuel economy regulations have become increasingly stringent and the related enforcement regimes

increasingly active.These developments may affect our vehicle sales as well as our proﬁtability and reputation.For

example, the recent transition to World harmonized Light vehicles Test Procedure (“WLTP”) signiﬁcantly impacted

our shipments in the EMEA segment. We are subject to applicable national and local regulations and must achieve

an appropriate level of compliance in order to continue operations in every market, including a number of markets

in which we derive substantial revenue. Developing, engineering and manufacturing vehicles that meet these

requirements and therefore may be sold in those markets requires a signiﬁcant expenditure of management time and

ﬁnancial resources.

We pursue compliance with fuel economy and greenhouse gas regulations in the markets where we operate through

the most cost effective combination of developing, manufacturing and selling vehicles with better fuel economy

and lower emissions, purchasing compliance credits and paying regulatory penalties. The cost of each of these

components of our strategy has increased and is expected to continue to increase in the future. As the costs of each

of these components, particularly the relative costs of each component, changes, we intend to adjust our strategies in

an effort to maintain the most cost effective means of complying with the regulations. In addition, these costs and the

costs incurred to meet other regulatory requirements may be difﬁcult to pass through to customers, so the increased

costs may affect our results of operations and proﬁtability.

Further, developments in regulatory requirements in China, the largest single market in the world in 2018, limit in

some respects, the product offerings we can pursue as we expand the scope of our operations in that country. Refer

to“Risk Factors - Laws, regulations and governmental policies, including those regarding increased fuel efficiency

requirements and reduced greenhouse gas and tailpipe emissions, have a significant effect on how we do business.”

for more information.

Tariffs and Trade Policy. There has been a recent and signiﬁcant increase in activity and speculation regarding

tariffs and duties between the U.S. and its trading partners, including China and the EU. Tariffs or duties implemented

between the U.S. and its trading partners, and the implementation of the United States-Mexico-Canada Agreement or

the U.S.’s withdrawal from the North American Free Trade Agreement, may reduce consumer demand and/or make

our products less proﬁtable. In addition, the availability and price at which we are able to source components and raw

materials globally may be adversely affected.

Magneti Marelli. On October 22, 2018, we announced that we have entered into a deﬁnitive agreement with CK

Holdings, Ltd., a holding company of Calsonic Kansei Corporation, pursuant to which CK Holdings, Ltd. will acquire

our automotive components business, Magneti Marelli. The agreement represents a transaction value of €6.2

billion, subject to certain adjustments. The transaction is expected to close in the second quarter of 2019, subject to

regulatory approvals and other customary closing conditions.

2018

ANNUAL REPORT

Consolidation. The automotive industry is exceptionally capital intensive and capital expenditures and research

and development requirements in our industry have continued to grow signiﬁcantly in recent years as we pursue

technological innovations and respond to a number of challenges. Compliance with enhanced emissions and safety

regulations continue to impose new and increasing capital requirements as does the development of proprietary

components. While we continue to implement our business plan, and we believe that our business will continue

to grow and our operating margins will continue to improve, if we are unable to reduce our capital requirements

either through cooperation or consolidation with other manufacturers, we may not be able to reduce component

development costs, optimize manufacturing investments or product allocation and improve utilization of tooling,

machinery and equipment, as a result of which our product development and manufacturing costs will continue

to restrict our proﬁtability and return on capital. Although there can be no assurance that these challenges can be

overcome through large scale integration or product development and manufacturing collaboration, if we are unable

to pursue such beneﬁts our returns on capital employed may be impaired which could adversely affect our results of

operations and ﬁnancial condition.

Dealer and Customer Financing. Because dealers and retail customers ﬁnance their purchases of a large

percentage of the vehicles we sell worldwide, the availability and cost of ﬁnancing is a signiﬁcant factor affecting

our vehicle shipment volumes and Net revenues. Availability of customer ﬁnancing could affect the vehicle mix, as

customers who have access to greater ﬁnancing are able to purchase higher priced vehicles, whereas when customer

ﬁnancing is constrained, vehicle mix could shift towards less expensive vehicles. The low interest rate environment in

recent years has had the positive effect of reducing the effective cost of vehicle ownership. While interest rates in the

U.S. and Europe have been at historically low levels, the U.S. Federal Reserve has recently raised interest rates, which

may impact consumer ﬁnancing rates, and the availability and terms of ﬁnancing will continue to change over time,

impacting our results. We currently operate in many regions (including the U.S.) without a captive ﬁnance company,

and we continue to provide access to ﬁnancing through joint ventures and third party arrangements in several of our

key markets (including the U.S.). Therefore, we may be less able to ensure availability of ﬁnancing for our dealers and

retail customers in those markets than our competitors that own and operate afﬁliated ﬁnance companies.

Effects of Foreign Exchange Rates. Foreign exchange rates, including the U.S. Dollar/Euro exchange rate, have

ﬂuctuated signiﬁcantly in 2018, and may continue to do so in the future. We are affected by ﬂuctuations in foreign

exchange rates (i) through translation of foreign currency ﬁnancial statements into Euro for consolidation, which we

refer to as the translation impact, and (ii) through transactions by entities in the Group in currencies other than their

own functional currencies, which we refer to as the transaction impact. Given the size of our U.S. operations, a

strengthening of the U.S. dollar against the Euro generally would have a positive effect on our ﬁnancial results, which

are reported in Euro, and on our operations in relation to sales in the U.S. of vehicles and components produced in

Europe. We are primarily ﬁnanced by a mix of Euro, U.S. dollar and Brazilian Real denominated debt. Given the mix of

our debt and liquidity, strengthening of the U.S. dollar against the Euro generally would have a positive impact on our

net debt position.

In order to reduce the impacts of foreign exchange rates, we hedge a percentage of certain exposures. Refer to Note

30, Qualitative and quantitative information on financial risks within our Consolidated Financial Statements included

elsewhere in this report for additional information.

Board Report

Financial Overview

2018

ANNUAL REPORT

Shipment Information

As discussed in GROUP OVERVIEW—Overview of Our Business, our activities are carried out through ﬁve reportable

segments: four regional mass-market vehicle segments (NAFTA, LATAM, APAC and EMEA) and the Maserati global

luxury brand segment. The following table sets forth our vehicle shipment information by segment. Vehicle shipments

are generally aligned with current period production which is driven by our plans to meet consumer demand. Revenue

is recognized when control of our vehicles, services or parts has been transferred and the Group’s performance

obligations to our customers have been satisﬁed. The Group has determined that our customers from the sale of

vehicles and service parts are generally dealers, distributors or ﬂeet customers. Transfer of control, and therefore

revenue recognition, generally corresponds to the date when the vehicles or service parts are made available to the

customer, or when the vehicles or service parts are released to the carrier responsible for transporting them to the

customer. New vehicle sales through the Guaranteed Depreciation Program (“GDP”) are recognized as revenue when

control of the vehicle transfers to the ﬂeet customer, except in situations where the Group issues a put for which there

is a signiﬁcant economic incentive to exercise. Refer to Note 2, Basis of preparation, within our Consolidated Financial

Statements included elsewhere in this report for further details on our revenue recognition policy.

For a description of our dealers and distributors see GROUP OVERVIEW—Sales Overview. Accordingly, the number of

vehicles sold does not necessarily correspond to the number of vehicles shipped for which revenues are recorded in

any given period.

Years ended December 31

(thousands of units)

2018 2017 2016

NAFTA 2,633 2,401 2,587

LATAM 585 521 456

APAC 84 85 91

EMEA 1,318 1,365 1,306

Maserati 35 51 42

Total Consolidated shipments 4,655 4,423 4,482

Joint venture shipments 187 317 238

Total Combined shipments 4,842 4,740 4,720

For discussion of shipments for NAFTA, LATAM, APAC, EMEA and Maserati for 2018 as compared to 2017 and for

2017 as compared to 2016, refer to —Results by Segment below.

Non-GAAP Financial Measures

We monitor our operations through the use of several non-generally accepted accounting principles (“non-GAAP”)

ﬁnancial measures: Net cash/(debt), Net industrial cash/(debt), Adjusted Earnings Before Interest and Taxes (“Adjusted

EBIT”), Adjusted net proﬁt and certain information provided on a constant exchange rate (“CER”) basis. We believe

that these non-GAAP ﬁnancial measures provide useful and relevant information regarding our operating results and

enhance the overall ability to assess our ﬁnancial performance and ﬁnancial position. They provide us with comparable

measures which facilitate management’s ability to identify operational trends, as well as make decisions regarding

future spending, resource allocations and other operational decisions. These and similar measures are widely used

in the industry in which we operate, however, these ﬁnancial measures may not be comparable to other similarly

titled measures of other companies and are not intended to be substitutes for measures of ﬁnancial performance

and ﬁnancial position as prepared in accordance with IFRS as issued by the IASB as well as IFRS adopted by the

European Union.

Adjusted EBIT: excludes certain adjustments from Net proﬁt/(loss) from continuing operations including gains/(losses)

on the disposal of investments, restructuring, impairments, asset write-offs and unusual income/(expenses) that are

considered rare or discrete events that are infrequent in nature, and also excludes Net ﬁnancial expenses and Tax

expense/(beneﬁt).

2018

ANNUAL REPORT

Adjusted EBIT is used for internal reporting to assess performance and as part of the Group’s forecasting, budgeting

and decision making processes as it provides additional transparency to the Group’s core operations. We believe this

non-GAAP measure is useful because it excludes items that we do not believe are indicative of the Group’s ongoing

operating performance and allows management to view operating trends, perform analytical comparisons and

benchmark performance between periods and among our segments. We also believe that Adjusted EBIT is useful for

analysts and investors to understand how management assesses the Group’s ongoing operating performance on a

consistent basis. In addition, Adjusted EBIT is one of the metrics used in the determination of the annual performance

bonus for the Chief Executive Ofﬁcer of the Group and other eligible employees, including members of the Group

Executive Council.

Refer to the sections Group Results and Results by Segment below for further discussion and for a reconciliation of

this non-GAAP measure to Net proﬁt from continuing operations, which is the most directly comparable measure

included in our Consolidated Income Statement. Adjusted EBIT should not be considered as a substitute for Net proﬁt

from continuing operations, cash ﬂow or other methods of analyzing our results as reported under IFRS.

Adjusted Net Profit: is calculated as Net proﬁt/(loss) from continuing operations excluding post-tax impacts of

the same items excluded from Adjusted EBIT, as well as ﬁnancial income/(expenses) and tax income/(expenses)

considered rare or discrete events that are infrequent in nature.

We believe this non-GAAP measure is useful because it also excludes items that we do not believe are indicative of the

Group’s ongoing operating performance and provides investors with a more meaningful comparison of the Group’s

ongoing operating performance. In addition, Adjusted net proﬁt is one of the metrics used in the determination of the

annual performance bonus and the achievement of certain performance objectives established under the terms of the

equity incentive plan for the Chief Executive Ofﬁcer of the Group and other eligible employees, including members of

the Group Executive Council.

Refer to the section Group Results below for further discussion and for a reconciliation of this non-GAAP measure to

Net proﬁt from continuing operations, which is the most directly comparable measure included in our Consolidated

Income Statement. Adjusted net proﬁt should not be considered as a substitute for Net proﬁt from continuing

operations, cash ﬂow or other methods of analyzing our results as reported under IFRS.

Net Cash/(Debt) and Net Industrial Cash/(Debt): We believe Net cash/(debt) is useful in providing a measure of the

Group’s net indebtedness after consideration of cash and cash equivalents and current securities.

Due to different sources of cash ﬂows used for the repayment of the ﬁnancial debt between industrial activities and

ﬁnancial services (by cash from operations for industrial activities and by collection of ﬁnancial receivables for ﬁnancial

services) and the different business structure and leverage implications, we provide a separate analysis of Net cash/

(debt) between industrial activities and ﬁnancial services.

The division between industrial activities and ﬁnancial services represents a sub-consolidation based on the core

business activities (industrial or ﬁnancial services) of each Group company. The sub-consolidation for industrial activities

also includes companies that perform centralized treasury activities, such as raising funding in the market and ﬁnancing

Group companies, but do not, however, provide ﬁnancing to third parties. Financial services includes companies that

provide retail and dealer ﬁnancing as well as leasing and rental services in support of the mass-market vehicle brands

in certain geographical segments and for the Maserati luxury brand. In addition, activities of ﬁnancial services include

providing factoring services to industrial activities, as an alternative to factoring from third parties. Operating results of

such ﬁnancial services activities are included within the respective region or sector in which they operate.

Board Report

Financial Overview

2018

ANNUAL REPORT

Net industrial cash/(debt) (i.e., Net cash/(debt) of industrial activities) was management’s primary measure for

analyzing our ﬁnancial leverage and capital structure until the substantial completion of our balance sheet de-

leveraging this year and remains one of the key targets used to measure our performance. Net industrial cash/(debt)

is computed as: debt plus derivative ﬁnancial liabilities related to industrial activities less (i) cash and cash equivalents,

(ii) certain current debt securities, (iii) current ﬁnancial receivables from Group or jointly controlled ﬁnancial services

entities and (iv) derivative ﬁnancial assets and collateral deposits; therefore, debt, cash and cash equivalents and other

ﬁnancial assets/liabilities pertaining to ﬁnancial services entities are excluded from the computation of Net industrial

cash/(debt). Net industrial cash/(debt) should not be considered as a substitute for cash ﬂows or other ﬁnancial

measures under IFRS; in addition, Net industrial cash/(debt) depends on the amount of cash and cash equivalents

at each balance sheet date, which may be affected by the timing of monetization of receivables and the payment of

accounts payable, as well as changes in other components of working capital, which can vary from period to period

due to, among other things, cash management initiatives and other factors, some of which may be outside of the

Group’s control. Net industrial cash/(debt) should therefore be evaluated alongside these other measures as reported

under IFRS for a more complete view of the Company’s capital structure and liquidity. In addition, Net industrial cash/

(debt) is one of the metrics used in the determination of the annual performance bonus for the Chief Executive Ofﬁcer

of the Group and other eligible employees, including members of the Group Executive Council.

Refer to Liquidity and Capital Resources—Net Cash/(Debt) below for further information and the reconciliation of these

non-GAAP measures to Debt, which is the most directly comparable measure included in our Consolidated Statement

of Financial Position.

Industrial free cash flows: historically, due to our leveraged position, we used Net industrial cash/(debt) as a key metric

to focus our team on the fundamental task of de-leveraging the balance sheet. As our balance sheet de-leveraging

was substantially completed this year, we have substituted this key metric with a cash ﬂow metric going forward,

speciﬁcally Industrial free cash ﬂows, which we deﬁne as Cash ﬂows from operating activities less: cash ﬂows from

operating activities related to ﬁnancial services, net of eliminations; investment in property, plant and equipment

and intangible assets for industrial activities; and adjusted for discretionary pension contributions in excess of those

required by the pension plans, net of tax. The timing of Industrial free cash ﬂows may be affected by the timing of

monetization of receivables and the payment of accounts payable, as well as changes in other components of working

capital, which can vary from period to period due to, among other things, cash management initiatives and other

factors, some of which may be outside of the Group’s control.

Refer to Liquidity and Capital Resources—Industrial free cash flows for further information and the reconciliation of this

non-GAAP measure to Cash ﬂows from operating activities, which is the most directly comparable measure included

in our Consolidated Statement of Cash Flows. Industrial free cash ﬂows should not be considered as a substitute for

Net proﬁt from continuing operations, cash ﬂow or other methods of analyzing our results as reported under IFRS.

Constant Currency Information: The discussion within section Group Results includes information about our results at

constant exchange rates (“CER”), which is calculated by applying the prior year average exchange rates to translate

current ﬁnancial data expressed in local currency in which the relevant ﬁnancial statements are denominated (see

Note 2, Basis of preparation, within the Consolidated Financial Statements included elsewhere in this report for the

exchange rates applied). Although we do not believe that this non-GAAP measure is a substitute for GAAP measures,

we believe that results excluding the effect of currency ﬂuctuations provide additional useful information to investors

regarding the operating performance and trends in our business on a local currency basis.

2018

ANNUAL REPORT

Board Report

RESULTS OF OPERATIONS

Group Results – 2018 compared to 2017 and 2017 compared to 2016

The following is a discussion of the Group’s results of operations for the year ended December31, 2018 as compared

to the year ended December31, 2017 and for the year ended December31, 2017 as compared to the year ended

December31, 2016.

Years ended December 31,

(€ million)

2018 2017 2016

Net revenues € 110,412 € 105,730 € 105,798

Cost of revenues 95,011 89,710 90,927

Selling, general and other costs 7,318 7,177 7,388

Research and development costs 3,051 2,903 2,930

Result from investments 235 399 310

Reversal of a Brazilian indirect tax liability — 895 —

Gains on disposal of investments — 76 13

Restructuring costs 103 86 68

Net ﬁnancial expenses 1,056 1,345 1,858

Proﬁt before taxes 4,108 5,879 2,950

Tax expense 778 2,588 1,237

Net proﬁt from continuing operations 3,330 3,291 1,713

Proﬁt from discontinued operations, net of tax 302 219 101

Net proﬁt € 3,632 € 3,510 € 1,814

Net proﬁt attributable to:

Owners of the parent € 3,608 € 3,491 € 1,803

Non-controlling interests € 24 € 19 € 11

Net proﬁt from continuing operations attributable to:

Owners of the parent € 3,323 € 3,281 € 1,708

Non-controlling interests € 7 € 10 € 5

Net proﬁt from discontinued operations attributable to:

Owners of the parent € 285 € 210 € 95

Non-controlling interests € 17 € 9 € 6

As of January 1, 2018 the Group adopted IFRS 15 - Revenue from Contracts with Customers and IFRS 9 - Financial

Instruments. The impact of the adoption of these new standards was not material, and the Group does not expect a

material impact from the adoption of these new standards on an ongoing basis. Refer to Note 2, Basis of preparation,

within our Consolidated Financial Statements included elsewhere in this report, for further information.

As a result of the presentation of Magneti Marelli as a discontinued operation, the remaining Components activities

are no longer considered a separate reportable segment and are included within “Other activities”. Refer to Note 3,

Scope of consolidation, within our Consolidated Financial Statements included elsewhere in this report, for further

information.

Net revenues

Increase/(Decrease)

Years ended December 31, 2018 vs. 2017 2017 vs. 2016

(€ million)

2018 2017 2016 % Actual % CER % Actual % CER

Net revenues € 110,412 € 105,730 € 105,798 4.4% 9.3% (0.1)% 0.1%

For a discussion of Net revenues for each of our ﬁve reportable segments (NAFTA, LATAM, APAC, EMEA and

Maserati) for 2018 as compared to 2017 and for 2017 as compared to 2016, see Results by Segment below.

Financial Overview

2018

ANNUAL REPORT

Cost of revenues

Increase/(Decrease)

Years ended December 31, 2018 vs. 2017 2017 vs. 2016

(€ million)

2018 2017 2016 % Actual % CER % Actual % CER

Cost of revenues € 95,011 € 89,710 € 90,927 5.9% 10.8% (1.3)% (0.3)%

Cost of revenues as % of Net revenues 86.1% 84.8% 85.9%

Cost of revenues includes purchases (including commodity costs), labor costs, depreciation, amortization, logistic,

product warranty and recall campaign costs.

The increase in Cost of revenues in 2018 compared to 2017 was primarily related to (i) an increase in NAFTA, with higher

volumes and product costs for content and technology enhancements attributable to new models; (ii) an increase in

LATAM due to higher volumes and (iii) vehicle mix in EMEA, which were partially offset by decreases resulting from (iv)

foreign currency translation effects, primarily in NAFTA and LATAM and (v) lower volumes for Maserati.

The decrease in Cost of revenues in 2017 compared to 2016 was primarily related to (i) lower volumes, (ii) foreign

exchange translation effects, (iii) purchasing efﬁciencies, and (iv) the charges recognized in 2016, which were higher

than the charges recognized in 2017, for the estimated costs of recall campaigns related to an industry-wide recall

for airbag inﬂators manufactured by Takata Corporation. These were partially offset by (v) vehicle mix and (vi) higher

product costs for content and technology enhancements. The decrease in Cost of revenues was primarily attributable

to decreases in NAFTA and APAC, which were partially offset by increases in LATAM, EMEA, and Maserati.

Selling, general and other costs

Increase/(Decrease)

Years ended December 31, 2018 vs. 2017 2017 vs. 2016

(€ million)

2018 2017 2016 % Actual % CER % Actual % CER

Selling, general and other costs € 7,318 € 7,177 € 7,388 2.0% 6.1% (2.9)% (2.1)%

Selling, general and other costs as %

of Net revenues 6.6% 6.8% 7.0%

Selling, general and other costs includes advertising, personnel and administrative costs. Advertising costs amounted

to approximately 42 percent, 47 percent and 48 percent of total Selling, general and other costs for the years ended

December31, 2018, 2017 and 2016, respectively.

The increase in Selling, general and other costs in 2018 as compared with 2017 primarily relates to a provision for

€748 million recognized for costs related to ﬁnal settlements reached on civil, environmental and consumer claims

related to U.S. diesel emissions matters (refer to Note 25, Guarantees granted, commitments and contingent liabilities

within the Consolidated Financial Statements included elsewhere in this report), partially offset by lower advertising

costs in NAFTA and positive foreign currency translation effects.

The decrease in Selling, general and other costs in 2017 as compared with 2016 primarily relates to (i) lower

advertising and marketing costs, primarily in NAFTA, (ii) foreign exchange translation effects and (iii) cost efﬁciencies,

mainly in NAFTA and EMEA, which were partially offset by increased advertising costs in EMEA.

2018

ANNUAL REPORT

Research and development costs

Increase/(Decrease)

Years ended December 31, 2018 vs. 2017 2017 vs. 2016

(€ million)

2018 2017 2016 % Actual % CER % Actual % CER

Research and development

expenditures expensed € 1,448 € 1,506 € 1,467 (3.9)% 0.2% 2.7% 4.0%

Amortization of capitalized

development expenditures 1,456 1,294 1,357 12.5% 16.8% (4.6)% (4.6)%

Impairment and write-off of capitalized

development expenditures 147 103 106 42.7% 43.7% (2.8)% (2.8)%

Total Research and development

costs € 3,051 € 2,903 € 2,930 5.1% 9.1% (0.9)% (0.2)%

Years ended December 31,

2018 2017 2016

Research and development expenditures expensed as % of Net revenues 1.3% 1.4% 1.4%

Amortization of capitalized development expenditures as % of Net revenues 1.3% 1.2% 1.3%

Impairment and write-off of capitalized development expenditures as % of Net revenues 0.1% 0.1% 0.1%

Total Research and development costs as % of Net revenues 2.8% 2.7% 2.8%

The following table summarizes our research and development expenditures for the years ended December 31, 2018,

2017 and 2016:

Years ended December 31, Increase/(Decrease)

(€ million)

2018 2017 2016 2018 vs. 2017 2017 vs. 2016

Capitalized development expenditures € 2,079 € 2,431 € 2,395 (14.5)% 1.5%

Research and development expenditures expensed 1,448 1,506 1,467 (3.9)% 2.7%

Total Research and development expenditures € 3,527 € 3,937 € 3,862 (10.4)% 1.9%

Capitalized development expenditures as % of Total

Research and development expenditures 58.9% 61.7% 62.0%

Total Research and development expenditures as %

of Net revenues 3.2% 3.7% 3.7%

We conduct research and development for new vehicles and technology to improve the performance, safety, fuel

efﬁciency, reliability, consumer perception and environmental impact of our vehicles. Research and development costs

consist primarily of material costs, services and personnel related expenses that support the development of new and

existing vehicles with powertrain technologies. For further details of research and development costs, see Trends,

Uncertainties and Opportunities—Product Development and Technology and Overview of Our Business - Research

and Development.

The increase in amortization of capitalized development expenditure in 2018 compared to 2017 was mainly due to

higher amortization in NAFTA, primarily attributable to the all-new Ram 1500, all-new Jeep Wrangler and the new Jeep

Cherokee.

The impairment and write-off of capitalized development expenditures during 2018, primarily in EMEA, was due to

changes in product plans in connection with the 2018-2022 business plan.

The decrease in amortization of capitalized development expenditures in 2017 compared to 2016 was mainly

attributable to changes in the expected lifecycle of certain models and foreign exchange translation effects, which was

partially offset by the increase attributable to all-new Maserati Levante, all-new Alfa Romeo Giulia, and Stelvio, all-new

Jeep Compass, and all-new Fiat Argo in LATAM.

The impairment and write-off of capitalized development expenditures during the year ended December 31, 2017

mainly related to global product portfolio changes in EMEA and changes in the LATAM product portfolio.

Board Report

Financial Overview

2018

ANNUAL REPORT

Result from investments

Years ended December 31, Increase/(Decrease)

(€ million)

2018 2017 2016 2018 vs. 2017 2017 vs. 2016

Result from investments € 235 € 399 € 310 (41.1)% 28.7%

The decrease in Result from investments in 2018 compared to 2017 was primarily attributable to lower results from

the GAC FCA JV in APAC and Tofas JV in EMEA, partially offset by improved results from FCA Bank in EMEA.

The increase in Results from investments in 2017 compared to 2016 was primarily attributable to improved results

from the GAC FCA JV in APAC, due to the increased localized production in China, as well as improved results from

the FCA Bank.

Reversal of a Brazilian indirect tax liability

In June 2017, the Group reversed a Brazilian indirect tax liability of €895 million, reﬂecting certain court decisions.

As this liability related to the Group’s Brazilian operations in multiple segments and given the signiﬁcant and unusual

nature of the item, it was not attributed to the results of the related segments and was excluded from Group Adjusted

EBIT (refer to Note 22, Other liabilities and Tax payables) for the year ended December 31, 2017.

Net financial expenses

Years ended December 31, Increase/(Decrease)

(€ million)

2018 2017 2016 2018 vs. 2017 2017 vs. 2016

Net ﬁnancial expenses € 1,056 € 1,345 € 1,858 (21.5)% (27.6)%

The decrease in Net ﬁnancial expenses in 2018 compared to 2017, and in 2017 compared to 2016 was primarily due

to the continuation of the planned reduction in gross debt.

Tax expense

Years ended December 31, Increase/(Decrease)

(€ million)

2018 2017 2016 2018 vs. 2017 2017 vs. 2016

Tax expense € 778 € 2,588 € 1,237 (69.9)% 109.2%

Effective tax rate 18.5% 44.2% 40.5% -2570 bps +370 bps

The decrease in Tax expense in 2018 compared to 2017 was primarily attributable to: (i) €734 million tax expense

recorded in 2017 as a result of the decrease in recognized deferred tax assets in Brazil; (ii) net €88 million for the

estimated tax expense recorded in 2017 for the December 2017 U.S. Tax Cuts and Jobs Act (the “Tax Act”); (iii) €673

million decrease recognized in 2018 as a result of the Tax Act, and (iv) net €334 million tax beneﬁts for prior years’

tax positions ﬁnalized in 2018, including a reduction to the estimated 2017 U.S. one-time deemed repatriation tax

expense by €70 million and tax beneﬁt of €94 million from an accelerated discretionary pension contribution (refer

to Note 19, Employee benefits liabilities within our Consolidated Financial Statements for additional detail); partially

offset by (v) tax impacts from the recognition of a provision for costs related to ﬁnal settlements reached on civil,

environmental and consumer claims related to U.S. diesel emissions matters; and (vi) lower operating results in APAC.

Refer to Note 7, Tax expense within our Consolidated Financial Statement for additional details.

The net tax beneﬁts of €334 million for prior years’ tax positions ﬁnalized in 2018 is composed of: (i) tax beneﬁt of €447

million for U.S. provision to return adjustments (including a reduction to the estimated 2017 U.S. one-time deemed

repatriation tax expense of €70 million, and tax beneﬁt of €94 million from an accelerated discretionary pension

contribution, refer to Note 19, Employee benefits liabilities within our Consolidated Financial Statements for additional

detail); partially offset by (ii) net tax expense of €113 million primarily for the impact of uncertain tax positions and other

prior years’ tax positions.

2018

ANNUAL REPORT

The decrease in the deferred tax assets in Brazil in 2017 was composed of:

€281 million related to the reversal of the Brazilian indirect tax liability mentioned above; and

€453 million that was written off as the Group revised its outlook on Brazil to reﬂect the slower pace of recovery and

outlook for the subsequent years, largely resulting from increased political uncertainty, and concluded that a portion

of the deferred tax assets in Brazil was no longer recoverable.

The above items were excluded from Adjusted net proﬁt.

The decrease in the effective tax rate to 19 percent in 2018 from 44 percent in 2017 was mainly due to: (i) tax expense

recorded in 2017 as a result of the decrease in recognized deferred tax assets in Brazil; (ii) net tax beneﬁts recognized

for impacts of the Tax Act; and (iii) net tax beneﬁts recognized for prior years’ tax positions ﬁnalized in 2018; partially

offset by (iv) tax impacts from the recognition of a provision for costs related to ﬁnal settlements reached on civil,

environmental and consumer claims related to U.S. diesel emissions matters.

The increase in Tax expense in 2017 compared to 2016 was primarily attributable; to (i) higher proﬁt before taxes,

particularly in NAFTA, (ii) net decreases in generation and usage of tax credits; (iii) the impact of the December 2017

U.S. tax reform of €88 million, as noted above; and (iv) a decrease in Brazilian deferred tax assets of €734 million, as

noted above.

The increase in the effective tax rate to 44.2 percent in 2017 from 40.5 percent in 2016 was mainly due to the expense

recorded in 2017 as a result of the decrease in recognized deferred tax assets in Brazil.

Profit from discontinued operations, net of tax

Years ended December 31, Increase/(Decrease)

(€ million)

2018 2017 2016 2018 vs. 2017 2017 vs. 2016

Proﬁt from discontinued operations, net of tax € 302 € 219 € 101 n.m. n.m.

n.m. = Number is not meaningful

Magneti Marelli is presented as a discontinued operation in the Consolidated Financial Statements for the years

ended December 31, 2018, 2017 and 2016. For more information, refer to Note 3, Scope of consolidation, within our

Consolidated Financial Statements included elsewhere in this report.

The impact of ceasing depreciation of the property, plant and equipment and amortization of the intangible assets of

Magneti Marelli on its classiﬁcation as held for sale as required by IFRS 5 was €96 million, net of tax of €20 million.

Net profit from continuing operations

Years ended December 31, Increase/(Decrease)

(€ million)

2018 2017 2016 2018 vs. 2017 2017 vs. 2016

Net proﬁt from continuing operations € 3,330 € 3,291 € 1,713 1.2% 92.1%

The increase in Net proﬁt from continuing operations in 2018 compared to 2017 was mainly driven by (i) lower Tax

and Net ﬁnancial expenses, and (ii) improved NAFTA and LATAM operating performance net of lower results in APAC,

Maserati and EMEA. These were partially offset by (iii) a provision for €748 million recognized for costs related to ﬁnal

settlements reached on civil, environmental and consumer claims related to U.S. diesel emissions matters and (iv) the

€895 million reversal in 2017 of a liability related to Brazilian indirect taxes previously accrued by the Group’s Brazilian

subsidiaries.

The increase in Net proﬁt from continuing operations in 2017 compared to 2016 was mainly driven by improved

operating performance in 2017, lower ﬁnancial expenses, as well as the €895 million gain from the reversal of a

Brazilian indirect tax liability, which were partially offset by higher income taxes for the year, including the decrease in

deferred tax assets in Brazil discussed above.

Board Report

Financial Overview

2018

ANNUAL REPORT

Adjusted EBIT

Increase/(Decrease)

Years ended December 31, 2018 vs. 2017 2017 vs. 2016

(€ million)

2018 2017 2016 % Actual % CER % Actual % CER

Adjusted EBIT € 6,738 € 6,609 € 5,680 2.0% 7.9% 16.4% 25.5%

Adjusted EBIT margin (%) 6.1% 6.3% 5.4% -20 bps — +90 bps —

The following charts present our Adjusted EBIT walk by segment for 2018 as compared to 2017 and for 2017 as

compared to 2016:

Adjusted EBIT by segment

2018 compared to 2017 (€ million)

For the year ended December 31, 2018, the Adjusted EBIT related to Magneti Marelli that was excluded from the

Group’s Adjusted EBIT result was €546 million, net of intercompany eliminations. For more information, refer to Note

3, Scope of consolidation, within our Consolidated Financial Statements included elsewhere in this report.

Adjusted EBIT by segment

2017 compared to 2016 (€ million)

For the year ended December 31, 2017, the Adjusted EBIT related to Magneti Marelli that was excluded from the

Group’s Adjusted EBIT result was €445 million, net of intercompany eliminations. For the year ended December 31,

2016, the Adjusted EBIT related to Magneti Marelli that was excluded from the Group’s Adjusted EBIT result was €376

million, net of intercompany eliminations. For more information, refer to Note 3, Scope of consolidation, within our

Consolidated Financial Statements included elsewhere in this report.

NAFTA LATAM APAC EMEA 20182017

6,609

Maserati Other &

Eliminations

1,003

208

(468)

(329)

(409)

124

6,738

NAFTA LATAM APAC EMEA 20172016

5,680

Maserati Other &

Eliminations

146

195

221

206

6,609

2018

ANNUAL REPORT

For a discussion of Adjusted EBIT for each of our ﬁve reportable segments (NAFTA, LATAM, APAC, EMEA and

Maserati) in 2018 as compared to 2017 and for 2017 as compared to 2016, see Results by Segment below.

The following table summarizes the reconciliation of Net proﬁt from continuing operations to Adjusted EBIT:

Years ended December 31,

(€ million)

2018 2017 2016

Net proﬁt from continuing operations € 3,330 € 3,291 € 1,713

Tax expense 778 2,588 1,237

Net ﬁnancial expenses 1,056 1,345 1,858

Adjustments:

Charge for U.S. diesel emissions matters 748 — —

Impairment expense and supplier obligations 353 219 177

China inventory impairment 129 — —

Costs for recall, net of recovery - airbag inﬂators 114 102 414

U.S. special bonus payment 111 — —

Restructuring costs, net of reversals 103 86 68

Employee beneﬁts settlement losses 92 — —

Port of Savona (Italy) ﬂood and ﬁre 43 — —

Deconsolidation of Venezuela — 42 —

Currency devaluations — — 19

Tianjin (China) port explosions insurance recoveries — (68) (55)

Gains on disposal of investments — (76) (13)

(Recovery of)/costs for recall - contested with supplier (50) — 132

NAFTA capacity realignment (60) (38) 156

Brazilian indirect tax - reversal of liability/recognition of credits (72) (895) —

Other 63 13 (26)

Total Adjustments 1,574 (615) 872

Adjusted EBIT € 6,738 € 6,609 € 5,680

During the year ended December 31, 2018 Adjusted EBIT excluded adjustments primarily related to:

€748 million provision recognized for costs related to ﬁnal settlements reached on civil, environmental and

consumer claims related to U.S. diesel emissions matters (refer to Note 25 - Guarantees granted, commitments

and contingent liabilities to the Consolidated Financial Statements included elsewhere in this report);

€353 million relating to impairment expense of €297 million and supplier obligations of €56 million, primarily in

EMEA, resulting from changes in product plans in connection with the 2018-2022 business plan;

€129 million relating to impairment of inventory in connection with the accelerated adoption of new emission

standards in China and slower than expected sales;

€114 million costs for recall, net of recovery in relation to Takata airbag inﬂators. During 2017, €102 million costs

were recorded in Cost of revenues, relating to an expansion of the scope of the Takata airbag inﬂator recalls, of

which €29 million related to the previously announced recall in NAFTA and €73 million related to the preventative

safety campaigns in LATAM. During 2016, estimated costs of recall campaigns related to Takata airbag inﬂators

of €414 million were recorded within Cost of revenues in the Consolidated Income Statement for the year ended

December 31, 2016, to adjust the warranty provision for an expansion in May 2016 of the population recalled. As

the charges for the warranty adjustment were due to an industry-wide recall resulting from parts manufactured by

Takata, and, due to the ﬁnancial uncertainty of Takata, we determined these charges were unusual in nature, and

as such, the charges for 2016, 2017 and 2018 were excluded from Adjusted EBIT (refer to Note 25, Guarantees

granted, commitments and contingent liabilities, within our Consolidated Financial Statements included elsewhere

in this report for additional information);

Board Report

Financial Overview

2018

ANNUAL REPORT

€111 million charge in relation to a special bonus payment, announced January 11, 2018, of $2,000 to

approximately 60,000 hourly and salaried employees in the United States, excluding senior management, as a

result of the Tax Cuts and Jobs Act;

€103 million relating to restructuring costs, which included €123 million of costs in EMEA offset by a €28 million

reversal of previously recorded restructuring costs in LATAM;

€92 million charge arising on settlement of a portion of a supplemental retirement plan and an annuity buyout in

NAFTA;

€43 million charge in relation to costs incurred in relation to the ﬂood and ﬁre in the Port of Savona (Italy);

€50 million gain from the partial recovery of amounts accrued in 2016 in relation to costs for a recall which were

contested with a supplier;

€60 million reduction of costs previously provided in relation to the NAFTA capacity realignment plan. During the

year ended December 31, 2015, as part of the plan to improve margins in NAFTA, the Group realigned a portion

of its manufacturing capacity in the region to better meet market demand for Ram pickup trucks and Jeep vehicles

within the Group’s existing plant infrastructure. During the year ended December 31, 2016, net incremental costs

of €156 million from the implementation of the plan were recognized and also excluded from Adjusted EBIT. During

the year ended December 31, 2017, €38 million income related to adjustments to reserves were recognized and

excluded from Adjusted EBIT; and

€72 million of gains in relation to the recognition of credits for amounts paid in prior years in relation to indirect taxes

in Brazil.

During the year ended December 31, 2017 Adjusted EBIT excluded adjustments primarily related to:

€219 million charge relating to asset impairments, primarily in LATAM and EMEA, resulting from changes in the

product portfolio, as well as, impairments of certain real estate assets in Venezuela;

€102 million charge for the estimated costs of recall campaigns related to Takata airbag inﬂators, referred to above;

€86 million restructuring costs, primarily of which €75 million related to workforce restructuring costs in LATAM;

€42 million net loss resulting from deconsolidation of our operations in Venezuela. Refer to Note 3 - Scope of

consolidation;

€68 million income reﬂecting ﬁnal insurance recoveries related to the explosions at the Port of Tianjin, China.

On August 12, 2015, a series of explosions which occurred at a container storage station at the Port of Tianjin

impacted several storage areas containing approximately 25,000 FCA branded vehicles, of which approximately

13,300 were owned by FCA and approximately 11,400 vehicles were previously sold to our distributor. As a result

of the explosions, nearly all of the vehicles at the Port of Tianjin were affected and some were destroyed. During

the year ended December 31, 2016, €55 million of insurance recoveries relating to Tianjin were excluded from

Adjusted EBIT. Insurance recoveries related to losses incurred in connection with the explosions at the Port of

Tianjin are excluded from Adjusted EBIT to the extent the insured loss to which the recovery relates was excluded

from Adjusted EBIT.Insurance recoveries are included in Adjusted EBIT to the extent they relate to costs, increased

incentives or business interruption losses that were included in Adjusted EBIT;

€76 million gain on disposal of investments, primarily related to a €49 million gain on the disposal of the Group’s

publishing business;

€38 million income related to adjustments to reserves for the NAFTA capacity realignment plan referred to above; and

€895 million gain on the reversal of a liability for Brazilian indirect taxes, as reported above.

During the year ended December 31, 2016 Adjusted EBIT excluded adjustments primarily related to:

€177 million charges relating to asset impairments, primarily resulting from the Group’s capacity realignment to SUV

production in China, which resulted in an impairment charge of €90 million for locally-produced Fiat Viaggio and

Ottimo vehicles, and €73 million of impairment losses and asset write-offs, of which €43 million related to certain of

FCA Venezuela’s assets due to the continued deterioration of the economic conditions in Venezuela;

2018

ANNUAL REPORT

€414 million charge for the estimated costs of recall campaigns related to Takata airbag inﬂators, referred to above;

€68 million restructuring costs, primarily relating to LATAM and Components;

€55 million insurance recoveries relating to the Tianjin port explosions referred to above;

€156 million relating to the NAFTA capacity alignment referred to above; and

€132 million which was recorded within Cost of revenues in the Consolidated Income Statement, related to

estimated costs associated with a recall for which costs were contested with a supplier. AlthoughFCA believed the

supplier has responsibility for the recall, only a partial recovery of the estimated costs was recognized pursuant to a

cost sharing agreement.

Adjusted net profit

Years ended December 31, Increase/(Decrease)

(€ million)

2018 2017 2016 2018 vs. 2017 2017 vs. 2016

Adjusted net proﬁt € 4,707 € 3,512 € 2,353 34.0% 49.3%

The increase in Adjusted net proﬁt in 2018 compared to 2017 was driven by improved operating performance and the

reduction in Net ﬁnancial expenses and Tax expense.

The increase in Adjusted net proﬁt in 2017 compared to 2016, was driven by improved operating performance and the

reduction in Net ﬁnancial expenses, which were partially offset by the increase in Tax expense.

The following table summarizes the reconciliation of Net proﬁt from continuing operations to Adjusted net proﬁt:

Years ended December 31,

(€ million)

2018 2017 2016

Net proﬁt from continuing operations € 3,330 € 3,291 € 1,713

Adjustments (as above) 1,574 (615) 872

Tax impact on adjustments (125) 14 (232)

Brazil deferred tax assets write-off — 453 —

Reduction of deferred tax assets related to reversal of a Brazilian indirect

tax liability — 281 —

Impact of U.S. tax reform (72) 88 —

Total adjustments, net of taxes 1,377 221 640

Adjusted net proﬁt € 4,707 € 3,512 € 2,353

During the year ended December 31, 2018, Adjusted net proﬁt excluded adjustments related to:

€125 million gain reﬂecting the tax impact on the items excluded from Adjusted EBIT above; and

€72 million gain relating to the impact of December 2017 U.S. tax reform.

During the year ended December 31, 2017 Adjusted net proﬁt excluded adjustments related to:

€14 million expense reﬂecting the tax impact on the items excluded from Adjusted EBIT above;

€453 million expense relating to the write-off of deferred tax assets in Brazil as reported above;

€281 million expense arising on decrease in deferred tax assets related to the release of the Brazilian indirect tax

liability noted above; and

€88 million expense relating to the impact of December 2017 U.S. tax reform.

During the year ended December 31, 2016 Adjusted net proﬁt excluded adjustments related to:

€232 million gain, reﬂecting the tax impact on the items excluded from Adjusted EBIT above.

Board Report

Financial Overview

2018

ANNUAL REPORT

Results by Segment – 2018 compared to 2017 and 2017 compared to 2016

(€million,except

shipments whichare

in thousands of units)

Net revenues Adjusted EBIT Shipments

Years ended December 31

2018 2017 2016 2018 2017 2016 2018 2017 2016

NAFTA € 72,384 € 66,094 € 69,094 € 6,230 € 5,227 € 5,133 2,633 2,401 2,587

LATAM 8,152 8,004 6,197 359 151 5 585 521 456

APAC 2,703 3,250 3,662 (296) 172 105 84 85 91

EMEA 22,815 22,700 21,860 406 735 540 1,318 1,365 1,306

Maserati 2,663 4,058 3,479 151 560 339 35 51 42

Other activities 2,888 3,248 3,116 (40) (98) (175) — — —

Unallocated items

& eliminations

(1)

(1,193) (1,624) (1,610) (72) (138) (267) — — —

Total € 110,412 € 105,730 € 105,798 € 6,738 € 6,609 € 5,680 4,655 4,423 4,482

(1)

Primarily includes intercompany transactions which are eliminated in consolidation; also includes, primarily in 2017, costs related to the launch

of the Alfa Romeo Giulia platform, which were not allocated to the mass-market vehicle segments due to the limited number of shipments.

The following is a discussion of Net revenues, Adjusted EBIT and shipments for each segment for the year ended

December31, 2018 as compared to the year ended December31, 2017, and for the year ended December31, 2017

as compared to the year ended December31, 2016. We review changes in our results of operations with the following

operational drivers:

Volume: reﬂects changes in products sold to our customers, primarily dealers and ﬂeet customers. Change in

volumes is driven by industry volume, market share and changes in dealer stock levels. Vehicles manufactured and

distributed by our unconsolidated subsidiaries are not included within volume;

Mix: generally reﬂects the changes in product mix, including mix among vehicle brands and models, as well as

changes in regional market and distribution channel mix, including mix between retail and ﬂeet customers;

Net price: primarily reﬂects changes in prices to our customers including higher pricing related to content

enhancement, net of discounts, price rebates and other sales incentive programs, as well as related foreign

currency transaction effects;

Industrial costs: primarily include cost changes to manufacturing and purchasing of materials that are associated

with content, technology and enhancement of vehicle features, as well as industrial efﬁciencies and inefﬁciencies, recall

campaign and warranty costs, research and development costs and related foreign currency transaction effects;

Selling, general and administrative costs (“SG&A”): primarily include costs for advertising and promotional

activities, purchased services, information technology costs and other costs not directly related to the development

and manufacturing of our products; and

Other: includes other items not mentioned above, such as foreign currency exchange translation and results from

joint ventures and associates.

NAFTA

Increase/(Decrease)

Years ended December 31 2018 vs. 2017 2017 vs. 2016

2018 2017 2016 % Actual % CER % Actual % CER

Shipments (thousands of units) 2,633 2,401 2,587 9.7% — (7.2)% —

Net revenues (€ million) € 72,384 € 66,094 € 69,094 9.5% 14.5% (4.3)% (2.6)%

Adjusted EBIT (€ million) € 6,230 € 5,227 € 5,133 19.2% 24.9% 1.8% 4.0%

Adjusted EBIT margin (%) 8.6% 7.9% 7.4% +70 bps — +50 bps —

2018

ANNUAL REPORT

Shipments

The increase in vehicle shipments in 2018 compared to 2017 was primarily driven by the all-new Jeep Wrangler

and the all-new Ram 1500, as well as increased shipments of new Jeep Cherokee and Jeep Compass. Shipments

reﬂected increases in (i) the U.S. of 311 thousand units (+15 percent), which were partially offset by decreases in (ii)

Canada of 60 thousand units (-22 percent) and (iii) Mexico of 22 thousand units (-25 percent).

The decrease in vehicle shipments in 2017 compared to 2016 was primarily driven by lower ﬂeet volumes as a result of

planned ﬂeet sales reductions, primarily for Jeep, and the discontinuance of the Jeep Patriot, Dodge Dart and Chrysler

200, which was partially offset by increased shipments for the Ram and Alfa Romeo brands, Jeep Grand Cherokee

and the all-new Jeep Compass. Shipments reﬂected decreases in (i) the U.S. of 189 thousand units (-9 percent),

which were partially offset by increases in (ii) Mexico of 4 thousand units (+4 percent), with shipments in (iii) Canada

remaining ﬂat during the period.

Net revenues

The increase in NAFTA Net revenues in 2018 compared to 2017 was primarily due to €6.6 billion from an increase

in volumes and positive mix and €2.9 billion from positive net pricing, partially offset by €3.3 billion due to negative

foreign exchange translation effects.

The decrease in NAFTA Net revenues in 2017 compared to 2016 was primarily attributable to a €1.7 billion net

decrease resulting from lower shipments (as described above), net of favorable vehicle and channel mix and €1.2

billion from negative foreign currency translation effects.

Adjusted EBIT

The following charts reﬂect the change in NAFTA Adjusted EBIT by operational driver for 2018 as compared to 2017

and for 2017 as compared to 2016:

Adjusted EBIT by operational driver

2018 compared to 2017 (€ million)

The increase in NAFTA Adjusted EBIT in 2018 compared to 2017 was primarily attributable to:

higher shipments and favorable vehicle and market mix;

positive net pricing, primarily for new vehicles and pricing actions on existing vehicles, net of higher incentives; and

lower selling, general and administrative expenses primarily due to lower advertising expense.

These were partially offset by:

higher industrial costs, which mainly related to product content for approximately €3 billion, launch costs, logistic

costs for approximately €1 billion and depreciation and amortization related to new vehicles, partially offset by

purchasing efﬁciencies and lower warranties; and

negative foreign currency translation effects.

Board Report

Financial Overview

Volume & Mix Net price Industrial costs SG&A Other 20182017

6,230

(401)

314

2,445

2,928

(4,283)

5,227

2018

ANNUAL REPORT

Adjusted EBIT by operational driver

2017 compared to 2016 (€ million)

The increase in NAFTA Adjusted EBIT in 2017 compared to 2016 was primarily attributable to:

favorable mix, net of lower shipments, as described above;

positive pricing, partially offset by higher incentives and foreign exchange impacts due to the Canadian Dollar; and

lower SG&A expenditures, primarily due to lower advertising costs.

These were partially offset by:

higher industrial costs due to higher product costs for content enhancements and increased costs for the capacity

realignment plan, partially offset by purchasing efﬁciencies and lower warranty costs;

negative foreign exchange translation effects; and

a prior year one-off residual values adjustment, included within Other above.

LATAM

Increase/(Decrease)

Years ended December 31 2018 vs. 2017 2017 vs. 2016

2018 2017 2016 % Actual % CER % Actual % CER

Shipments (thousands of units) 585 521 456 12.3% — 14.3% —

Net revenues (€ million) € 8,152 € 8,004 € 6,197 1.8% 21.0% 29.2% 23.6%

Adjusted EBIT (€ million) € 359 € 151 € 5 137.7% 197.5% n.m. n.m.

Adjusted EBIT margin (%) 4.4% 1.9% 0.1% +250 bps — +180 bps —

n.m. = Number is not meaningful.

Shipments

The increase in vehicle shipments in 2018 compared to 2017 was primarily attributable to higher demand in Brazil

partially offset by the impact of Argentina economic downturn, with the all-new Fiat Argo and Cronos and Fiat Strada,

as well as Pernambuco-built vehicles, partially offset by discontinued vehicles. Shipments reﬂected (i) an increase of

72 thousand units (+19 percent) in Brazil, (ii) a decrease of 20 thousand units (-18 percent) in Argentina and (iii) other

LATAM markets increasing by 12 thousand units (+41 percent).

The increase in vehicle shipments in 2017 compared to 2016 was primarily attributable to improving market conditions

and the success of the Fiat Mobi, the all-new Fiat Argo and Jeep Compass, partially offset by the discontinued Fiat

Palio Family. Shipments reﬂected (i) an increase of 31 thousand units (+9 percent) in Brazil and (ii) an increase of 30

thousand units (+37 percent) in Argentina.

Net revenues

LATAM Net revenues slightly increased in 2018 compared to 2017 with €1.6 billion beneﬁt from higher volumes,

favorable vehicle mix and positive net pricing, which were partially offset by €1.5 billion from negative foreign exchange

translation effects and the weakening Argentine Peso.

Volume & Mix Net price Industrial costs SG&A Other 20172016

5,227

(209)

324

106

(219)

5,133

2018

ANNUAL REPORT

The increase in LATAM Net revenues in 2017 compared to 2016 was primarily attributable to €1.4 billion from higher

shipments (as described above) and favorable vehicle mix, €0.2 billion from positive net pricing, partially offset by

increased incentives, and €0.3 billion from favorable foreign currency translation effects.

Adjusted EBIT

The following charts reﬂect the change in LATAM Adjusted EBIT by operational driver for 2018 as compared to 2017

and for 2017 as compared to 2016:

Adjusted EBIT by operational driver

2018 compared to 2017 (€ million)

The increase in LATAM Adjusted EBIT in 2018 compared to 2017 was primarily attributable to:

higher volumes and favorable mix; and

positive net pricing in Brazil.

These were partially offset by:

higher industrial costs, primarily from higher depreciation and amortization and research and development costs on

new vehicles;

higher advertising costs related to new vehicles; and

negative foreign currency effects.

Adjusted EBIT by operational driver

2017 compared to 2016 (€ million)

The increase in LATAM Adjusted EBIT in 2017 compared to 2016 was primarily attributable to:

increased volumes and favorable vehicle mix;

favorable net pricing, partially offset by increased incentives; and

lower indirect taxes in Brazil.

Board Report

Financial Overview

Volume & Mix Net price Industrial costs SG&A Other 20182017

359

(85)

(71)

317

125

(78)

151

Volume & Mix Net price Industrial costs SG&A Other 20172016

151

(12)

(3)

249

180

(268)

2018

ANNUAL REPORT

These were partially offset by:

higher industrial costs due to input cost inﬂation; and

higher depreciation and amortization related to new vehicles.

APAC

Increase/(Decrease)

Years ended December 31 2018 vs. 2017 2017 vs. 2016

2018 2017 2016 % Actual % CER % Actual % CER

Combined shipments (thousands of units) 209 290 233 (27.9)% — 24.5% —

Consolidated shipments (thousands of units) 84 85 91 (1.2)% — (6.6)% —

Net revenues (€ million) € 2,703 € 3,250 € 3,662 (16.8)% (12.8)% (11.3)% (9.2)%

Adjusted EBIT (€ million) € (296) € 172 € 105 (272.1)% (274.1)% 63.8% 71.8%

Adjusted EBIT margin (%) (11.0)% 5.3% 2.9% -1630 bps — +240 bps —

We locally produce and distribute the Jeep Cherokee, Jeep Renegade, Jeep Compass and all-new Jeep Grand

Commander through the 50 percent owned GAC Fiat Chrysler Automobiles Co. (“GAC FCA JV”). The results of the

GAC FCA JV are accounted for using the equity method, with recognition of our share of the net income of the joint

venture in the line item “Result from investment” within the Consolidated Income Statement. We also produce the all-

new Jeep Compass through our joint operation with Fiat India Automobiles Private Limited (“FIAPL”) and we recognize

our related interest in the joint operation on a line by line basis.

Shipments of our consolidated subsidiaries, which includes vehicles produced by FIAPL, are reported in both

consolidated and combined shipments. Shipments of the GAC FCA JV joint venture are not included in consolidated

shipments and are only in combined shipments.

The GAC FCA JV was fully operational by 2017, producing four Jeep sport utility vehicle (“SUV”) models (all-new

Grand Commander, Cherokee, Renegade and Compass) by 2018 as compared to the production of only one Jeep

SUV model (Cherokee) in 2016.

Shipments

The slight decrease in consolidated shipments in 2018 compared to 2017 was primarily attributable to lower import

volumes, partially offset by increased shipments of the all-new Jeep Compass in India. These factors including the

weakness of the Chinese market, with increased competition, particularly in the SUV segments, drove the decrease in

combined shipments in 2018 compared to 2017.

The slight decrease in consolidated shipments in 2017 compared to 2016 was primarily attributable to planned

reductions of Jeep imports in China, partially offset by the launch of Alfa Romeo in the region and Jeep Compass

production in India. The increase in combined shipments in 2017 as compared to 2016 was due to the ramp up in

localized Jeep production through the GAC FCA JV.

Net revenues

The decrease in APAC Net revenues in 2018 compared to 2017 was primarily due to unfavorable mix and pricing

actions, lower import volumes in China and in addition to negative foreign exchange translation effects. These were

partially offset by increased shipments in India.

The decrease in APAC Net revenues in 2017 compared to 2016 was primarily due to lower consolidated shipments,

as described above, lower parts and components sales, and negative foreign exchange effects.

2018

ANNUAL REPORT

Adjusted EBIT

The following charts reﬂect the change in APAC Adjusted EBIT by operational driver for 2018 as compared to 2017

and for 2017 as compared to 2016:

Adjusted EBIT by operational driver

2018 compared to 2017 (€ million)

The decrease in APAC Adjusted EBIT in 2018 compared to 2017 was primarily attributable to:

lower Net revenues, as described above;

lower results from the GAC FCA JV (included in Other above); and

the beneﬁt of the Tianjin port explosions ﬁnal insurance recovery of €93 million included in the prior year results

(included in Other above).

These were partially offset by:

lower advertising and selling, general and administrative expenses mainly related to China Jeep imports.

Adjusted EBIT by operational driver

2017 compared to 2016 (€ million)

The increase in APAC Adjusted EBIT in 2017 compared to 2016 was primarily attributable to:

insurance recoveries included within Adjusted EBIT of €93 million relating to the Tianjin (China) port explosions;

favorable vehicle mix and lower incentives; and

improved results from the GAC FCA JV (included in Other above).

These were partially offset by:

launch costs related to the Alfa Romeo brand; and

higher industrial costs from negative foreign exchange transaction effects.

Board Report

Financial Overview

Volume & Mix Net price Industrial costs SG&A Other 20172016

172117

(18)

(94)

105

Volume & Mix Net price Industrial costs SG&A Other 20182017

(296)(231)

(142)

(135)

172

2018

ANNUAL REPORT

EMEA

Increase/(Decrease)

Years ended December 31 2018 vs. 2017 2017 vs. 2016

2018 2017 2016 % Actual % CER % Actual % CER

Shipments (thousands of units) 1,318 1,365 1,306 (3.4)% — 4.5% —

Net revenues (€ million) € 22,815 € 22,700 € 21,860 0.5% 1.0% 3.8% 4.4%

Adjusted EBIT (€ million) € 406 € 735 € 540 (44.8)% (46.2)% 36.1% 35.6%

Adjusted EBIT margin (%) 1.8% 3.2% 2.5% -140 bps — +70 bps —

Shipments

The decrease in vehicle shipments in 2018 compared to 2017 was primarily attributable to lower Fiat shipments,

partially offset by increased shipments of the Jeep Compass and the all-new Jeep Wrangler. Shipments reﬂected

(i) a decrease in passenger car shipments to 1,031 thousand units (-4%) and (ii) a decrease in shipments of light

commercial vehicles (“LCVs”) to 287 thousand units (-3%).

The increase in vehicle shipments in 2017 compared to 2016 was primarily attributable to the all-new Alfa Romeo Stelvio

and Jeep Compass, as well as the Fiat Tipo family. Shipments reﬂected (i) an increase in passenger car shipments to

1,068 thousand units (+6 percent) and (ii) an increase in shipments of LCVs to 297 thousand units (+1 percent).

Net revenues

EMEA Net revenues in 2018 were in line with 2017, with favorable vehicle mix being offset by lower volumes, negative

net pricing and foreign exchange effects.

The increase in EMEA Net revenues in 2017 compared to 2016 was primarily attributable to a positive effect of €1.6

billion related to increases in volumes (as described above) and favorable mix. This was partially offset by negative net

pricing and by negative foreign currency exchange impacts including depreciation of the British Pound sterling.

Adjusted EBIT

The following charts reﬂect the change in EMEA Adjusted EBIT by operational driver for 2018 as compared to 2017

and for 2017 as compared to 2016:

Adjusted EBIT by operational driver

2018 compared to 2017 (€ million)

The decrease in EMEA Adjusted EBIT in 2018 compared to 2017 was primarily attributable to:

negative net pricing, also impacted by the transition to WLTP, higher incentives and foreign exchange transaction

impacts;

lower volumes and unfavorable trim and channel mix, and

higher advertising costs.

These were partially offset by:

lower industrial costs, primarily due to purchasing and manufacturing efﬁciencies; and

continued cost containment actions.

168

Volume & Mix Net price Industrial costs SG&A Other 20182017

406

(19)

(176)

(318)

735

2018

ANNUAL REPORT

Adjusted EBIT by operational driver

2017 compared to 2016 (€ million)

The increase in EMEA Adjusted EBIT in 2017 compared to 2016 was primarily attributable to:

higher volumes and favorable vehicle mix, as described above;

lower industrial costs mainly due to purchasing and manufacturing cost efﬁciencies, partially offset by higher

amortization and depreciation costs related to new vehicles; and

improved results from the FCA Bank joint venture (included in Other above).

These were partially offset by:

unfavorable net pricing, primarily due to higher incentives and negative foreign exchange effects, including

depreciation of the British Pound sterling.

Maserati

Increase/(Decrease)

Years ended December 31 2018 vs. 2017 2017 vs. 2016

2018 2017 2016 % Actual % CER % Actual % CER

Shipments (thousands of units) 35 51 42 (31.4)% — 21.4% —

Net revenues (€ million) € 2,663 € 4,058 € 3,479 (34.4)% (33.0)% 16.6% 19.3%

Adjusted EBIT (€ million) € 151 € 560 € 339 (73.0)% (72.6)% 65.2% 67.7%

Adjusted EBIT margin (%) 5.7% 13.8% 9.7% -810 bps — +410 bps —

Shipments

The decrease in Maserati shipments in 2018 compared to 2017 was mainly due to China (-52 percent), as well as

lower volumes in North America (-26 percent) and Europe (-21 percent).

The increase in Maserati shipments in 2017 compared to 2016 was primarily attributable to increase in shipments

for the Maserati Levante, partially offset by lower Maserati Ghibli and Quattroporte volumes, which drove higher

shipments in China (+31 percent), Europe (+25 percent) and North America (+11 percent).

Net revenues

The decrease in Maserati Net revenues in 2018 compared to 2017 was primarily due to lower volumes and unfavorable mix.

The increase in Maserati Net revenues in 2017 compared to 2016 was primarily driven by higher shipments, partially

offset by negative foreign exchange effects.

Adjusted EBIT

The decrease in Maserati Adjusted EBIT in 2018 compared to 2017 was primarily due to lower shipments and

unfavorable market mix, increased depreciation and amortization expense and foreign exchange. These were partially

offset by lower advertising and marketing spend.

The increase in Maserati Adjusted EBIT in 2017 compared to 2016 was primarily due to higher shipments (as

described above) and lower industrial costs primarily due to manufacturing and purchasing efﬁciencies. These were

partially offset by negative foreign currency exchange effects.

Board Report

Financial Overview

Volume & Mix Net price Industrial costs SG&A Other 20172016

735

226

(242)

149

540

2018

ANNUAL REPORT

LIQUIDITY AND CAPITAL RESOURCES

Liquidity Overview

We require signiﬁcant liquidity in order to meet our obligations and fund our business. Short-term liquidity is required

to purchase raw materials, parts and components for vehicle production, as well as to fund selling, administrative,

research and development, and other expenses. In addition to our general working capital and operational needs, we

expect to use signiﬁcant amounts of cash for the following purposes: (i)capital expenditures to support our existing

and future products, (ii)principal and interest payments under our ﬁnancial obligations and (iii)pension and employee

beneﬁt payments. We make capital investments in the regions in which we operate primarily related to initiatives to

introduce new products, including for electriﬁcation and autonomous driving, enhance manufacturing efﬁciency,

improve capacity and for maintenance, and for regulatory and environmental compliance. Our capital expenditures

in 2019 are expected to be approximately €8.5 billion, which we plan to fund primarily with cash generated from our

operating activities, as well as with credit lines provided to certain of our Group entities.

Our business and results of operations depend on our ability to achieve certain minimum vehicle shipment volumes.

As is typical for an automotive manufacturer, we have signiﬁcant ﬁxed costs and, as such, changes in our vehicle

shipment volumes can have a signiﬁcant effect on proﬁtability and liquidity. We generally receive payment from dealers

and distributors shortly after shipment, whereas there is a lag between the time we receive parts and materials from

our suppliers and the time we are required to pay for them. Therefore, during periods of increasing vehicle shipments,

there is generally a corresponding positive impact on our cash ﬂow and liquidity. Conversely, during periods in which

vehicle shipments decline, there is generally a corresponding negative impact on our cash ﬂow and liquidity. Delays in

shipments of vehicles, including delays in shipments in order to address quality issues, tend to negatively affect our cash

ﬂow and liquidity. In addition, the timing of our collections of receivables for export shipments of vehicles, ﬂeet sales,

as well as sales of powertrain systems and pre-assembled parts of vehicles tend to be longer due to different payment

terms. Although we regularly enter into factoring transactions for such receivables in order to accelerate collections and

transfer relevant risks to the factor, a change in vehicle shipment volumes may cause ﬂuctuations in our working capital.

The increased internationalization of our product portfolio may also affect our working capital requirements as there may

be an increased requirement to ship vehicles to countries different from where they are produced. In addition, working

capital can be affected by the trend and seasonality of shipments of vehicles with a buy-back commitment.

Management believes that the funds currently available, in addition to those funds that will be generated from operating

and ﬁnancing activities, will enable the Group to meet its obligations and fund its businesses including funding planned

investments, working capital needs as well as fulﬁll its obligations to repay its debts in the ordinary course of business.

Fidis S.p.A., our 100 percent owned captive ﬁnance company, supports working capital needs in all regions at a

Group level (including the Maserati segment) through the offering of receivable ﬁnancing activity (also known as

factoring). In addition, Fidis S.p.A. provides ﬁnancing to selected dealers in Italy.

Liquidity needs are met primarily through cash generated from operations, including the sale of vehicles, service and

parts to dealers, distributors and other consumers worldwide.

The operating cash management and liquidity investment of the Group are coordinated with the objective of ensuring

effective and efﬁcient management of the Group’s funds. The companies raise capital in the ﬁnancial markets through

various funding sources.

On March 6, 2017, Fiat Chrysler Finance US Inc. (“FCF US”), a ﬁnance subsidiary, was incorporated under the laws of

Delaware and became an indirect, 100 percent owned subsidiary of the Company. On May 9, 2017, FCF US and the

Company ﬁled an automatically effective shelf registration statement with the SEC on Form F-3. If FCF US issues debt

securities, they will be fully and unconditionally guaranteed by the Company. No other subsidiary of the Company will

guarantee such indebtedness.

Certain notes issued by FCA and its treasury subsidiaries include covenants which may be affected by circumstances

related to certain subsidiaries (including FCA Italy and FCA US); in particular, there are cross-default clauses which

may accelerate repayments in the event that such subsidiaries fail to pay certain of their debt obligations.

2018

ANNUAL REPORT

Long-term liquidity requirements may involve some level of debt reﬁnancing as outstanding debt becomes due or

we are required to make principal payments. Although we believe that our current level of total available liquidity is

sufﬁcient to meet our short-term and long-term liquidity requirements, we regularly evaluate opportunities to improve

our liquidity position in order to enhance ﬁnancial ﬂexibility and to achieve and maintain a liquidity and capital position

consistent with that of other companies in our industry.

However, any actual or perceived limitations of our liquidity may limit the ability or willingness of counterparties,

including dealers, consumers, suppliers, lenders and ﬁnancial service providers, to do business with us, or require us

to restrict additional amounts of cash to provide collateral security for our obligations. Our liquidity levels are subject to

a number of risks and uncertainties, including those described in Risk Factors.

Available Liquidity

The following table summarizes our available liquidity, and includes Magneti Marelli for comparability with prior periods:

At December 31

(€ million)

2018 2017 2016

Cash, cash equivalents and current securities

(1)

€ 13,397 € 12,814 € 17,559

Undrawn committed credit lines

(2)

7,728 7,563 6,242

Total Available liquidity

(3)

€ 21,125 € 20,377 € 23,801

(1)

Current securities are comprised of short-term or marketable securities which represent temporary investments but do not satisfy all the

requirements to be classified as cash equivalents as they may not be able to be readily converted into cash, or they are subject to significant

risk of change in value (even if they are short-term in nature or marketable).

(2)

Excludes the undrawn €0.1 billion long-term dedicated credit lines available to fund scheduled investments at December31, 2018 (€0.1 billion

was undrawn at December31, 2017 and €0.3 billion was undrawn at December 31, 2016).

(3)

The majority of our liquidity is available to our treasury operations in Europe and U.S.; however, liquidity is also available to certain subsidiaries

which operate in other countries. Cash held in such countries may be subject to restrictions on transfer depending on the foreign jurisdictions

in which these subsidiaries operate. Based on our review of such transfer restrictions in the countries in which we operate and maintain material

cash balances, we do not believe such transfer restrictions had an adverse impact on the Group’s ability to meet its liquidity requirements at

the dates presented above.

Our liquidity is principally denominated in U.S. Dollar and Euro. Out of the total €13.4 billion of cash, cash equivalents and

current securities available at December31, 2018 (€12.8 billion at December31, 2017, €17.6 billion at December31,

2016), €7.8 billion or 58.2 percent were denominated in U.S. Dollar (€7 billion, or 54.7 percent, at December31, 2017

and €9.8 billion, or 55.7 percent, at December31, 2016) and €1.9 billion, or 14.2 percent, were denominated in Euro

(€2.3 billion, or 18.0 percent, at December31, 2017 and €3.3 billion, or 18.8 percent, at December31, 2016).

In March 2018, the Group amended its syndicated revolving credit facility originally signed in June 2015 and

previously amended in March 2017 (as amended, the “RCF”). The amendment extended the RCF’s ﬁnal maturity

to March 2023. The RCF, which is available for general corporate purposes and for the working capital needs of

the Group, is structured in two tranches: €3.125 billion, with a 37-month tenor and two extension options of 1-year

and of 11-months exercisable on the ﬁrst and second anniversary of the amendment signing date, respectively, and

€3.125 billion, with a 60-month tenor. The amendment was accounted for as a debt modiﬁcation and, as a result, the

new costs associated with the March 2018 amendment as well as the remaining unamortized debt issuance costs

related to the original €5.0 billion RCF and the previous March 2017 amendment will be amortized over the life of the

amended RCF. At December31, 2018, the €6.25 billion RCF was undrawn.

In the March 2017 amendment, the original RCF was increased from €5.0 billion to €6.25 billion and the ﬁnal maturity

extended to March 2022. The amendment was accounted for as a debt modiﬁcation and, as a result, the remaining

unamortized debt issuance costs related to the original €5.0 billion RCF and the new costs associated with the

amendment were amortized over the life of the RCF.

At December31, 2018, undrawn committed credit lines totaling €7.7 billion included the €6.25 billion RCF and

approximately €1.5 billion of other revolving credit facilities. At December31, 2017, undrawn committed credit lines

totaling €7.6 billion included the €6.25 billion RCF and approximately €1.3 billion of other revolving credit facilities.

Board Report

Financial Overview

2018

ANNUAL REPORT

The €0.7 billion increase in total available liquidity from December31, 2017 to December31, 2018 primarily reﬂects

positive net cash ﬂow for the year, which is cash ﬂow from operating activities, net of cash used in investing activities

and cash used in ﬁnancing activities, for the year. Refer to the section Cash Flows below for additional information.

Cash Flows

Year Ended December 31, 2018 compared to the Years Ended December 31, 2017 and 2016

The following table summarizes the cash ﬂows from operating, investing and ﬁnancing activities for each of the years

ended December 31, 2018, 2017 and 2016. Also, refer to our Consolidated Statement of Cash Flows and Note

29, Explanatory notes to the Consolidated Statement of Cash Flows, within our Consolidated Financial Statements

included elsewhere in this report for additional information.

Years ended December 31,

(€ million)

2018

(1)

2017

(1)

2016

(1)

Cash ﬂows from operating activities - continuing operations € 9,464 € 9,680 € 9,912

Cash ﬂows from operating activities - discontinued operations 484 705 682

Cash ﬂows used in investing activities - continuing operations (6,106) (8,726) (8,490)

Cash ﬂows used in investing activities - discontinued operations (632) (570) (549)

Cash ﬂows used in ﬁnancing activities - continuing operations (2,695) (4,287) (5,126)

Cash ﬂows used in ﬁnancing activities - discontinued operations (90) (186) (1)

Translation exchange differences 106 (1,296) 228

Total change in cash and cash equivalents 531 (4,680) (3,344)

Cash and cash equivalents at beginning of the period 12,638 17,318 20,662

Total change in cash and cash equivalents 531 (4,680) (3,344)

Less: Cash and cash equivalents at end of the period included within

Assets held for sale 719 — —

Cash and cash equivalents at end of the period € 12,450 € 12,638 € 17,318

(1)

The cash flows of the Group for the years ended December 31, 2018, 2017 and 2016 have been re-presented following the classification of

Magneti Marelli as a discontinued operation for the year ended December 31, 2018; Magneti Marelli operating results were excluded from the

Group’s continuing operations and are presented as a single line item within the Consolidated Income Statement for the each of the periods

presented. The assets and liabilities of Magneti Marelli have been classified as Assets held for sale and Liabilities held for sale within the

Consolidated Statement of Financial Position at December 31, 2018, while the assets and liabilities of Magneti Marelli have not been classified

as such within the comparative Consolidated Statement of Financial Position for any of the periods presented. Amounts exclude transactions

and balances between Magneti Marelli and other companies of the Group, refer to Note 3, Scope of consolidation within our Consolidated

Financial Statements included elsewhere within the report for additional information.

Operating Activities — Year Ended December 31, 2018

For the year ended December31, 2018, net cash from operating activities of €9,948 million was primarily the result

of: (i) net proﬁt from continuing operations of €3,330 million adjusted to add back €5,507 million for depreciation

and amortization expense; in addition to (ii) a net increase of €913 million in provisions primarily due to a provision

of €748 million recognized for costs related to ﬁnal settlements reached on civil,environmental and consumer claims

related to U.S. diesel emissions matters; (iii) €457 million in relation to the decrease in net deferred tax assets,

mainly due to increased deferred tax liabilities in NAFTA and (iii) cash ﬂow from operating activities of discontinued

operations of €484 million. These positive impacts were partially offset by the negative effect of the change in

working capital of €1,106 million primarily driven by (a) a decrease in trade payables of €1,240 million related to

lower production volumes in EMEA during the three months ended December 31, 2018 compared to the same

period in 2017, (b) decrease in other payables, net of receivables of €1,284 million mainly as a result of higher

indirect tax receivables in LATAM, decreased income tax payables in NAFTA and lower advance from customers

in LATAM and EMEA, and partially offset by (c) a decrease in inventories of €1,399 million due to inventory

management actions across all the regions.

2018

ANNUAL REPORT

Operating Activities — Year Ended December 31, 2017

For the year ended December31, 2017, net cash from operating activities of €10,385 million was primarily the result

of: (i) net proﬁt from continuing operations of €3,291 million adjusted to add back €5,474 million for depreciation

and amortization expense, in addition to a net decrease of €1,075 million in deferred tax assets mainly related to

LATAM, and other non-cash items of €197 million; (ii) €102 million dividends received mainly from our equity method

investments; and (iii) the negative effect of the change in working capital of €539 million primarily driven by (a) €1,596

million increase in inventories related to ramp-up of new models at year end, including the all-new Alfa Romeo Stelvio

and the new Jeep Wrangler, as well as volume increases in LATAM and Maserati, and (b) increase in trade receivables

of €157 million, which were partially offset by (c)increase in trade payables of €937 million primarily related to

increased production volumes in NAFTA and LATAM in the fourth quarter of 2017 as compared to the same period in

2016, and (d) a €277 million positive impact from increases in other payables and receivables, primarily related to tax

payables and higher deferred revenue.

Operating Activities — Year Ended December 31, 2016

For the year ended December31, 2016, net cash from operating activities of €10,594 million was primarily the result

of (i) net proﬁt from continuing operations of €1,713 million adjusted to add back €5,549 million for depreciation and

amortization expense and other non-cash items of €87 million, (ii) a net increase of €1,453 million in provisions mainly

due to the increase in the warranty provision of €414 million in NAFTA for recall campaigns related to an industry wide

recall for airbag inﬂators resulting from parts manufactured by Takata, estimated net costs of €132 million associated

with a recall for which costs are being contested with a supplier, and an increase in accrued sales incentives primarily

related to NAFTA and EMEA; (iii) €123 million dividends received mainly from our equity method investments and (iv)

the positive effect of the change in working capital of €646 million that was primarily driven by (a) decrease in trade

receivables of€131 million, (b)increase in trade payables of €729 million mainly related to increased production

levels in EMEA, that was partially offset by reduced activity in LATAM and the effect of localized Jeep production in

China, (c) €280 million increase in other payables and receivables primarily related to the net payment of taxes and

deferred expenses, which were partially offset by (d) €494 million increase in inventories mainly related to the increased

production of new vehicle models in EMEA.

Investing Activities — Year Ended December 31, 2018

For the year ended December31, 2018, net cash used in investing activities of €6,738 million was primarily the result of (i)

€5,392 million of capital expenditures, including €2,079 million of capitalized development expenditures primarily related

to NAFTA and EMEA, that supported investments in existing and future products, including investments in electriﬁcation

and autonomous driving, and (ii) a €676 million net increase in receivables from ﬁnancing activities primarily related to the

increase in the lending portfolio of the ﬁnancial services activities in LATAM, EMEA and in APAC.

Investing Activities — Year Ended December 31, 2017

For the year ended December31, 2017, net cash used in investing activities of €9,296 million was primarily the result

of (i) €8,105 million of capital expenditures, including €2,431 million of capitalized development expenditures primarily

related to NAFTA and EMEA, that supported investments in existing and future products, including investments in

electriﬁcation and autonomous driving, and (ii) an €836 million net increase in receivables from ﬁnancing activities

primarily related to the increase in the lending portfolio of the ﬁnancial services activities of the Group in China and

Europe, which were partially offset by (iii) proceeds received of €144 million from the sale of FCA’s investment in CNH

Industrial N.V. (“CNHI”), which were recognized in the line Change in securities within the Statement of Cash Flows

(refer to Note 13, Other Financial assets in the Consolidated Financial Statements included elsewhere in this report).

Board Report

Financial Overview

2018

ANNUAL REPORT

Investing Activities — Year Ended December 31, 2016

For the year ended December31, 2016, net cash used in investing activities of €9,039 million was primarily the result

of (i) €8,241 million of capital expenditures, including €2,395 million of capitalized development expenditures that

supported investments in existing and future products, which primarily related to the mass-market vehicle operations

in NAFTA and EMEA as well as the investment in the Alfa Romeo brand, (ii) a total of €113 million for investments in

joint ventures, associates and unconsolidated subsidiaries that primarily related to an additional investment in the

GAC FCA JV and (iii) €488 million of a net increase in receivables from ﬁnancing activities that primarily related to the

increase in lending portfolio of the ﬁnancial services activities of the Group in China and Europe.

Financing Activities —Year Ended December 31, 2018

For the year ended December31, 2018, net cash used in ﬁnancing activities of €2,785 million was primarily the result

of (i) the payment in November 2018 of the outstanding principal and accrued interest of U.S. $1,009 million (€893

million) FCA US’s tranche B term loan maturing December 31, 2018 (the “Tranche B Term Loan due 2018”), (ii) the

repayment at maturity of two notes under the Medium Term Note Programme (“MTN Programme”, previously referred

to as the Global Medium Term Note Programme, or “GMTN” Programme), one with a principal amount of €1,250

million and one with a principal amount of €600 million.

Financing Activities —Year Ended December 31, 2017

For the year ended December31, 2017, net cash used in ﬁnancing activities of €4,473 million was primarily the result

of (i) the voluntary prepayment in February 2017 of the outstanding principal and accrued interest of U.S.$1,826 million

(€1,721 million) FCA US’s tranche B term loan maturing May 24, 2017 (the “Tranche B Term Loan due 2017”), (ii) the

repayment at maturity of three notes under the MTN Programme, one with a principal amount of €850 million, one

with a principal amount of €1,000 million and one with a principal amount of CHF 450 million (€385 million), and (iii) the

repayment of other long-term debt, net of proceeds, of a principal amount of €889 million.

Financing Activities —Year Ended December 31, 2016

For the year ended December31, 2016, net cash used in ﬁnancing activities of €5,127 million was primarily the

result of (i) the repayment at maturity of three notes issued under the MTN Programme, two of which were for an

aggregate principal amount of €2,000 million and one for a principal amount of CHF 400 million (€373 million) and (ii)

the repayment of other long-term debt for a total of €4,605 million, which included the (a) €1,800 million (U.S.$2.0

billion) of cash used for the voluntary prepayments of principal of FCA US’s Tranche B Term Loans (refer to the

section Capital Market and Other Financing Transactions below), (b) the payment of the ﬁnancial liability related to the

mandatory convertible securities of €213 million upon their conversion to FCA shares and (c) repayments at maturity

of other long-term debt of €2,605 million primarily in Brazil, which were partially offset by (iii) the issuance of a new

note under the MTN Programme for a principal amount of €1,250 million (refer to the section Capital Market and Other

Financing Transactions below) and (iv) proceeds from other long-term debt for a total of €1,309 million, which included

the proceeds from the €250 million loan entered into with the European Investment Bank (“EIB”) in December 2016

(refer to the section Capital Market and Other Financing Transactions below).

2018

ANNUAL REPORT

Net Cash/(Debt)

The following table details our Net cash/(debt) at December31, 2018 and 2017 and provides a reconciliation of this

non-GAAP measure to Debt, which is the most directly comparable measure included in our Consolidated Statement

of Financial Position.

At December 31

2018

(1)

2017

(1)

(€ million)

Industrial

Activities

Financial

Services Consolidated

Industrial

Activities

Financial

Services Consolidated

Third parties debt (principal) € (12,174) € (2,406) € (14,580) € (16,375) € (1,647) € (18,022)

Capital market

(2)

(7,699) (413) (8,112) (9,443) (308) (9,751)

Bank debt (3,850) (1,548) (5,398) (6,219) (986) (7,205)

Other debt

(3)

(625) (445) (1,070) (713) (353) (1,066)

Accrued interest and other adjustments

(4)

52 — 52 53 (2) 51

Debt with third parties, from continuing

operations (12,122) (2,406) (14,528) (16,322) (1,649) (17,971)

Debt classiﬁed as held for sale (177) — (177) — — —

Debt with third parties including

discontinued operations (12,299) (2,406) (14,705) (16,322) (1,649) (17,971)

Intercompany, net

(5)

560 (560) — 844 (844) —

Current ﬁnancial receivables from jointly-

controlled ﬁnancial services companies

(6)

242 — 242 285 — 285

Debt, net of intercompany and current

ﬁnancial receivables from jointly-controlled

ﬁnancial services companies including

discontinued operations (11,497) (2,966) (14,463) (15,193) (2,493) (17,686)

Derivative ﬁnancial assets/(liabilities), net and

collateral deposits

(7)

150 1 151 204 2 206

Current debt securities

(8)

219 — 219 176 — 176

Cash and cash equivalents 12,275 175 12,450 12,423 215 12,638

Cash and cash equivalents, current debt

securities and derivative ﬁnancial assets/

(liabilities), net classiﬁed as held for sale

(9)

725 — 725 — — —

Total Net cash/(debt) € 1,872 € (2,790) € (918) € (2,390) € (2,276) € (4,666)

(1)

The assets and liabilities of Magneti Marelli have been classified as Assets held for sale and Liabilities held for sale within the Consolidated

Statement of Financial Position at December 31, 2018, while the assets and liabilities of Magneti Marelli have not been classified as such

within the comparative Consolidated Statement of Financial Position for any of the periods presented. Amounts above at December 31, 2018,

exclude balances between Magneti Marelli and other companies of the Group (net financial payables due from Magneti Marelli to other group

companies of €444 million as at December 31, 2018). Refer to Note 3, Scope of consolidation within our Consolidated Financial Statements

included elsewhere within the report for additional information.

(2)

Includes notes issued under the Medium Term Programme, or MTN Programme, and other notes (€7,699 million at December31, 2018 and

€9,422 million at December31, 2017) and other debt instruments (€413 million at December31, 2018 and €329 million at December31, 2017)

issued in financial markets, mainly from LATAM financial services companies.

(3)

Includes asset-backed financing, i.e. sales of receivables for which de- recognition is not allowed under IFRS (€464 million December31, 2018

and €360 million at December31, 2017) and arrangements accounted for as a lease under IFRIC 4 - Determining whether an arrangement

contains a lease, and other debt.

(4)

Includes adjustments for fair value accounting on debt and net (accrued)/deferred interest and other amortizing cost adjustments.

(5)

Net amount between industrial activities entities’ financial receivables due from financial services entities (€958 million at December31, 2018

and €983 million at December31, 2017) and industrial activities entities’ financial payables due to financial services entities (€398 million at

December31, 2018 and €139 million at December31, 2017).

(6)

Financial receivables due from FCA Bank.

(7)

Fair value of derivative financial instruments (net positive €90 million at December31, 2018 and net positive €145 million at December31,

2017) and collateral deposits (€61 million at December31, 2018 and €61 millionat December31, 2017).

(8)

Excludes certain debt securities held pursuant to applicable regulations (€72 million at December31, 2018 and €59 million December31,

2017).

(9)

Includes €9 million of current debt securities. There were no collateral deposits classified as held for sale.

As of December31, 2018, Net debt was €0.9 billion, €3.7 billion lower as compared to €4.7 billion as at December31,

2017. Net debt from industrial activities improved by €4.3 billion (refer to Change in Net Industrial Cash/(Debt), below),

which was partially offset by an increase of €0.5 billion in net debt from ﬁnancial services that was used to support the

increase in ﬁnancing activities in LATAM, EMEA and, to a lesser extent, APAC.

Board Report

Financial Overview

2018

ANNUAL REPORT

Change in Net Industrial Cash/(Debt)

As described in Non-GAAP Financial Measures, Net industrial cash/(debt) is a measure for analyzing our ﬁnancial

leverage and capital structure. The following section sets forth an explanation of the changes in our Net industrial

cash/(debt) during 2018 and 2017, including discontinued operations.

At December 31, 2018, Net industrial cash of €1,872 million improved by €4,262 million from a Net industrial debt

position of €(2,390) million at December31, 2017 primarily as a result of (i) cash ﬂow from industrial operating activities

of €9,889 million, which represents the majority of the consolidated cash ﬂow from operating activities of €9,948

million (refer to the section Cash Flows above), (ii) investments in property, plant and equipment and intangible assets

of industrial activities of €6,025 million and (iii) positive foreign exchange translation effects of €351 million.

At December 31, 2017, Net industrial debt of €2,390 million decreased by €2,195 million from €4,585 million at

December31, 2017 primarily as a result of (i) cash ﬂow from industrial operating activities of €10,239 million, which

represents the majority of the consolidated cash ﬂow from operating activities of €10,385 million (refer to the section

Cash Flows above), (ii) proceeds received of €144 million from the sale of FCA’s investment in CNHI as noted above,

(iii) €165 million positive change in hedging derivatives positions, and (iv) a €276 million change in the scope of

activities, which were partially offset by (v) investments in industrial activities of €8,663 representing investments in

property, plant and equipment and intangible assets.

Capital Market and Other Financing Transactions

Notes Issued Through The MTN Programme

Certain notes issued by the Group are governed by the terms and conditions of the MTN Programme (previously

known as the Global Medium Term Note Programme, or “GMTN” Programme). A maximum of €20 billion may be

used under this programme, of which notes of €5.1 billion were outstanding at December31, 2018 (€6.9 billion at

December31, 2017). Notes under the MTN Programme are issued, or otherwise guaranteed, by FCA NV. We may

from time to time buy back notes in the market that have been issued. Such buybacks, if made, depend upon market

conditions, the Group’s ﬁnancial situation and other factors which could affect such decisions.

Changes in notes issued under the MTN Programme during 2018 were due to the:

repayment at maturity of a note in March 2018 with a principal amount of €1,250 million; and

repayment at maturity of a note in July 2018 with a principal amount of €600 million.

Changes in notes issued under the MTN Programme during 2017 were due to the:

repayment at maturity of a note in March 2017 with a principal amount of €850 million;

repayment at maturity of a note in June 2017 with a principal amount of €1,000 million; and

repayment at maturity of a note in November 2017 with a principal amount of CHF 450 million (€385 million).

As of December31, 2018, FCA was in compliance with the covenants of the notes issued under the MTN

Programme (refer to Note 21, Debt, within our Consolidated Financial Statements included elsewhere in this report,

for information related to the outstanding notes at December31, 2018 and 2017 under the MTN Programme and the

related covenants).

Other Notes

In 2015, FCA NV issued U.S.$1.5 billion (€1.4 billion) principal amount of 4.5 percent unsecured senior debt securities

due April 15, 2020 (the “2020 Notes”) and U.S.$1.5 billion (€1.4 billion) principal amount of 5.25 percent unsecured

senior debt securities due April 15, 2023 (the “2023 Notes”) at an issue price of 100 percent of their principal amount.

The 2020 Notes and the 2023 Notes, collectively referred to as the “Notes”, rank pari passu in right of payment with

respect to all of FCA’s existing and future senior unsecured indebtedness and senior in right of payment to any of

FCA’s future subordinated indebtedness and existing indebtedness, which is by its terms subordinated in right of

payment to the Notes. Interest on the 2020 Notes and the 2023 Notes is payable semi-annually in April and October.

2018

ANNUAL REPORT

Bank Debt

FCA US Tranche B Term Loans

On November 13, 2018, FCA US prepaid the U.S.$1,009 million (€893 million) outstanding principal and accrued

interest on its Tranche B term loan maturing December 31, 2018 (the “Tranche B Term Loan due 2018”). The

prepayment was made with cash on hand and resulted in a €1 million loss on extinguishment.

At December31, 2017, €836 million, including accrued interest, was outstanding under FCA US’s Tranche B

Term Loan maturing December 31, 2018. On February 24, 2017, FCA US prepaid the U.S.$1,826 million (€1,721

million) outstanding principal and accrued interest on its tranche B term loan maturing May 24, 2017 (the “Tranche

B Term Loan due 2017”). The prepayment was made with cash on hand and resulted in a €3 million loss on

extinguishment. On April 12, 2017, FCA US amended the credit agreement that governs the Tranche B Term Loan

due 2018, reducing the applicable interest rate spreads by 0.50 percent per annum and reduced the LIBOR ﬂoor by

0.75 percent per annum, to 0.00 percent. For the years ended December 31, 2018, 2017 and 2016, interest was

accrued based on LIBOR.

On March 15, 2016, FCA US entered into amendments to the credit agreements that govern the Tranche B Term

Loans, to, among other items, eliminate covenants restricting the provision of guarantees and payment of dividends

by FCA US for the beneﬁt of the rest of the Group, to enable a uniﬁed ﬁnancing platform and to provide free ﬂow

of capital within the Group. In conjunction with these amendments, FCA US made a U.S.$2.0 billion (€1.8 billion)

voluntary prepayment of principal at par with cash on hand, of which U.S.$1,288 million (€1,159 million) was applied to

the Tranche B Term Loan due 2017 and U.S.$712 million (€641 million) was applied to the Tranche B Term Loan due

2018. Accrued interest related to the portion of principal prepaid of the Tranche B Term Loans and related transaction

fees were also paid.

The prepayments of principal were accounted for as debt extinguishments, and as a result, a non-cash charge of

€10 million was recorded within Net ﬁnancial expenses in the Consolidated Income Statement for the year ended

December 31, 2016, which consisted of the write-off of the remaining unamortized debt issuance costs. The

amendments to the remaining principal balance were analyzed on a lender-by-lender basis and accounted for as debt

modiﬁcations in accordance with IAS 39 - Financial Instruments: Recognition and Measurement. As such, the debt

issuance costs for each of the amendments were capitalized and amortized over the respective remaining terms of the

Tranche B Term Loans.

European Investment Bank Borrowings

FCA has ﬁnancing agreements with the European Investment Bank (“EIB”) for a total of €0.7 billion outstanding at

December31, 2018 (€1.1 billion outstanding at December31, 2017), which included the residual debt due under the

following facilities:

the facility for €250 million (maturing in December 2019) entered into in December 2016 to support the Group’s

investment plan (2017-2019) in research and development centers in Italy, which includes a number of key

objectives such as greater fuel efﬁciency, a reduction in CO

emissions by petrol and alternative fuel engines and the

study of new hybrid architectures, as well as certain capital expenditures for facilities located in southern Italy;

the facility for €500 million (maturing in June 2021), entered into in May 2011 (guaranteed by SACE and the Serbian

Authorities) for an investment program relating to the modernization and expansion of production capacity of an

automotive plant in Serbia; and

the facility for €420 million (maturing in June 2022), entered into in June 2018 to support research and development

projects to be implemented by FCA during the period 2018-2020.

Board Report

Financial Overview

2018

ANNUAL REPORT

Brazil

Our Brazilian subsidiaries have access to various local bank facilities in order to fund investments and operations. Total

debt outstanding under those facilities amounted to a principal amount of €2.3 billion at December31, 2018 (€3.2

billion at December31, 2017). The loans primarily include subsidized loans granted by public ﬁnancing institutions

such as Banco Nacional do Desenvolvimento (“BNDES”), with the aim to support industrial projects in certain areas.

This provided the Group the opportunity to fund large investments in Brazil with loans of sizeable amounts at attractive

rates. At December31, 2018, outstanding subsidized loans amounted to €1.4 billion (€2.1 billion at December31,

2017), of which approximately €1.0 billion (€1.3 billion at December31, 2017), related to the construction of the plant

in Pernambuco (Brazil), which has been supported by subsidized credit lines totaling Brazilian Real (“BRL”) 6.5 billion

(€1.5 billion). Approximately €0.1 billion (€0.1 billion at December31, 2017), of committed credit lines contracted to

fund scheduled investments in the area were undrawn at December31, 2018.

Mexico Bank Loan

FCA Mexico, S.A. de C.V., (“FCA Mexico”), our principal operating subsidiary in Mexico, has a USD-denominated non-

revolving loan agreement (“Mexico Bank Loan”) maturing on March 20, 2022 and bears interest at one-month LIBOR

plus 3.35 percent per annum. At December31, 2018, the Mexico Bank Loan had an outstanding balance of €0.3

billion (€0.4 billion at December31, 2017). As of December31, 2018, we may prepay all or any portion of the loan

without premium or penalty. The Mexico Bank Loan requires FCA Mexico to maintain certain ﬁxed assets as collateral,

and comply with certain covenants, including, but not limited to, ﬁnancial maintenance covenants, limitations on liens,

incurrence of debt and asset sales. As of December31, 2018, FCA Mexico was in compliance with all covenants

under the Mexico Bank Loan (refer to Note 21, Debt, within our Consolidated Financial Statements included elsewhere

in this report, for information related to the covenants).

Other Debt

During the year ended December31, 2018, Other debt remained in line with the year ended December 31, 2017.

During the year ended December 31, 2017, FCA US’s Canadian subsidiary made payments on the Canada Health

Care Trust (“HCT”) Tranche B Note totaling €272 million, which included a scheduled payment of principal and

accrued interest, and the prepayment of the remaining scheduled payments due on the Canada HCT Tranche B

Note. The prepayment, of €226 million, was accounted for as a debt extinguishment, and as a result, a gain on

extinguishment of €9 million was recorded within Net ﬁnancial expenses in the Consolidated Income Statement for

the year ended December 31, 2017. This Canada HCT Note represented FCA US’s principal Canadian subsidiary’s

remaining ﬁnancial liability to the Canadian Health Care Trust arising from the settlement of its obligations for

postretirement health care beneﬁts for National Automobile, Aerospace, Transportation and General Workers Union of

Canada “CAW” (now part of Unifor), which represented employees, retirees and dependents.

Debt secured by assets

At December31, 2018, debt secured by assets of the Group amounted to €1,095 million (€1,348 million at

December31, 2017), of which €261 million (€281 million at December31, 2017) was due to creditors for assets

acquired under ﬁnance leases and the remaining amount mainly related to subsidized ﬁnancing in Latin America.

The total carrying amount of assets acting as security for loans for the Group (excluding the amounts secured

in relation to the Tranche B Term Loan) amounted to €2,214 million at December31, 2018 (€2,372 million at

December31, 2017) (Note 11, Property, plant and equipment). At December31, 2017, debt secured by assets of

FCA US, in relation the Tranche B Term Loan amounted to €836 million.

2018

ANNUAL REPORT

Industrial free cash ﬂows

As described in Non-GAAP Financial Measures, Industrial free cash ﬂows is management’s key cash ﬂow metric. The

following table provides a reconciliation of Cash ﬂows from operating activities, the most directly comparable measure

included in our Consolidated Statement of Cash Flows, to Industrial free cash ﬂows for the years ended December31,

2018, 2017 and 2016. The amounts below include Magneti Marelli for comparability with prior periods and previously

provided guidance:

Years ended December 31,

(€ million)

2018 2017 2016

Cash ﬂows from operating activities € 9,464 € 9,680 € 9,912

Less: Operating activities not attributable to industrial activities (59) (159) (67)

Less: Capital expenditures for industrial activities (6,025) (8,663) (8,812)

Add back: Discretionary pension contribution, net of tax 478 — —

Industrial free cash ﬂows € 4,342 € 1,563 € 1,715

Excluding impacts from discretionary pensions contributions, net of tax, cash ﬂows from operating activities were

€9,942 million in 2018, €268 million higher than in 2017. Capital expenditures for industrial activities decreased €2,638

million as compared to 2017.

The decrease in Industrial free cash ﬂows of €152 million in 2017 as compared to 2016 primarily related to lower cash

ﬂows from continuing operations.

Board Report

Financial Overview

2018

ANNUAL REPORT

Risk Management

RISK MANAGEMENT

Our Approach

Risk management is an important business driver and is integral to the achievement of the Group’s long-term business

plan. We take an integrated approach to risk management, where risk and opportunity assessment are at the core of

the leadership team agenda. Our success as an organization depends on our ability to identify and capitalize on the

opportunities generated by our business and the markets in which we compete. By managing the associated risks, we

strive to achieve a balance between our goals of growth and return and the related risks.

Risk Management Framework

The Group’s risk management framework (the “Framework”) is based on the COSO Framework (Committee of

Sponsoring Organizations of the Treadway Commission Report - Enterprise Risk Management model) and the

principles of the Dutch Corporate Governance Code. The Framework consists of a set of policies, procedures and

organizational structures aimed at identifying, measuring, managing and monitoring the principal risks to which the

Company is exposed. The Framework is integrated within the Company’s organization and corporate governance and

supports the protection of corporate assets, the efﬁciency and effectiveness of business processes, the reliability of

ﬁnancial information and compliance with laws and regulations.

The Framework consists of the following three levels of oversight:

Level 1 operating areas, which identify and assess risks as well as establish speciﬁc actions for management of risks

Level 2 speciﬁc individuals identiﬁed as risk owners, which deﬁne methodologies and tools for both monitoring and managing risks

Level 3 enterprise risk management (“ERM”) functions, which support the monitoring of our risks and manage discussions of our

risks at the Group level

In addition to the three levels of control, the results of the ERM process are part of the risk assessment of Group Internal Audit in

deﬁning its audit plan and accordingly, speciﬁc audits are planned for global enterprise risk management signiﬁcant risks.

Appetite for Signiﬁcant Risk

We align our risk appetite to our business plan. Risk boundaries are set through our strategy, Code of Conduct,

budgets and policies. We have established Risk Management Committees which are responsible for supporting

risk governance in their respective region/sector. A Global Risk Management Committee (“GRMC”) was established

in 2017 to promote a culture of proactive risk monitoring and management by the relevant risk owners throughout

the Group. The GRMC is chaired by the Group CFO and other members are representatives from the Legal, Risk

Management, Internal Audit functions and from business operations. The mission of this Committee is to provide

broad process oversight and to facilitate our integrated risk assessment process. Responsibilities include:

Providing guidance to the ERM program.

Reviewing the results of the annual Enterprise Risk Assessment (“ERA”).

Assisting in the review of Key Risk Indicators (“KRIs”) and Dashboards, including:

Identifying risks to be discussed with the GRMC, and

Reviewing and providing feedback on risk mitigation plans on the risks discussed with the GRMC.

Assisting in the development of the Company’s risk appetite and risk tolerance, which represent disclosures

required in our EU Annual Report.

Board Report

Risk Management

2018

ANNUAL REPORT

Board Report

Risk Management

Reviewing risk management disclosure in the EU Annual Report.

Reviewing the design of the Group’s risk management functions, including reporting lines of authority,

communications and control functions to ensure they are appropriate.

In addition, we utilize the operational focus of our existing Product (Group and Regional) and Commercial Committees

to support risk governance. The Product Committee oversees capital investment, engineering and product

development, while the Commercial Committee oversees matters related to sales and marketing. Both committees

include executive managers from each of the Companies’ brands, all of whom also have separate functional

responsibilities across all the brands. Through our integrated approach our various committees support our Group

Executive Council (“GEC”), CFO, CEO and Board of Directors (through the Audit Committee) with risk oversight. Our

risk appetite differs by risk category as shown below.

Risk category Category description Risk appetite

Strategic Risk that may arise from the pursuit of FCA’s

business plan, from strategic changes in the

business environment, and/or from adverse

strategic business decisions.

We are prepared to take risks in a responsible way that takes our

stakeholders’ interests into account and are consistent with our business

plan.

Operational Risk relating to internal processes, people and

systems or external events (including legal and

reputational risks).

We look to mitigate operational risks to the maximum extent based on

cost/beneﬁt considerations.

Financial Risk relating to uncertainty of return and the

potential for ﬁnancial loss due to ﬁnancial

performance.

We seek capital market and other transactions to strengthen our ﬁnancial

position while allowing us to ﬁnance our operations on a consolidated

global basis.

Compliance Risk of non-compliance with relevant

regulations and laws, internal policies and

procedures.

We hold ourselves, as well as our employees, responsible for acting with

honesty, integrity and respect, including complying with our Code of

Conduct, applicable laws and regulations everywhere we do business.

Signiﬁcant risks identiﬁed and control measures taken

On an annual basis, an enterprise risk assessment is performed, beginning with our operating segments. Risks identiﬁed to

have high or medium-high levels of potential impact on our organization and to which we have a high or medium-high level

of vulnerability based on the mitigating factors within our Group are considered signiﬁcant risks. Results of the assessment

are consolidated into a Group report for review and validation with the Global Risk Management Committee and Group

CEO. In addition, risk dashboards are maintained for the most signiﬁcant risks to the Group to support the monitoring of

risk indicators along with the current and go-forward mitigation efforts. Once validated, results are discussed with the Audit

Committee, assisting the Board of Directors in their responsibility for strategic oversight of risk management activities.

Each key global focus risk has been classiﬁed by risk categories and control measures and mitigating actions are

subsequently deﬁned for each identiﬁed risk. The risks, control measures and mitigating actions presented below are

not all-inclusive. The sequence in which these risks and mitigating actions are presented does not reﬂect any order or

importance, likelihood or materiality.

Risk Category Key Global Risk Description Control / Mitigating Actions

Compliance Regulatory Compliance

Our ability to manage the impact of regulatory

compliance with vehicle fuel economy (“FE”),

greenhouse gas (“GHG”) and zero emission

vehicle (“ZEV”) requirements.

Group Product Committee (“GPC”) manages approval for investments in

FE/ GHG/ZEV related compliance.

Central coordination and oversight of internal checks and conformity

activities under senior management to promote consistency in approach

and process across our operations.

compliance strategy communicated at the June 2018 Capital

Markets Day outlined technologies and applications being pursued to

improve fuel consumption and emissions.

The “Leave No Doubt” program encourages employees, contractors,

suppliers and dealers to report any issue which may concern vehicle

safety, emissions or regulatory compliance.

2018

ANNUAL REPORT

Risk Category Key Global Risk Description Control / Mitigating Actions

Operational Product Quality and Customer Satisfaction

Our ability to produce vehicles to meet product

quality standards, gain market acceptance and

satisfy customer expectations.

Quality and customer satisfaction performance improvement metrics

monitored at GEC and Product Committees meetings.

World Class Manufacturing (“WCM”) principles deployed throughout our

manufacturing operations, foster a manufacturing culture that targets

improved safety, quality and efﬁciency.

Operational Vehicle Cybersecurity

Our ability to protect our complex electronic

control systems contained in our vehicles

against a signiﬁcant malfunction, disruption or

security breach.

Cross-functional team of professionals focus on the cybersecurity

of our vehicles through activities such as threat monitoring, design

enhancements, and third-party penetration testing. Cybersecurity is

considered throughout a vehicle’s life cycle including development,

manufacturing and service.

Financial rewards offered for discovery and reporting of potential

cybersecurity vulnerabilities through a crowdsourced bounty program.

Active engagement in the Automotive - Information Sharing and Analysis

Center (“Auto-ISAC”). The Auto-ISAC enhances the industry’s ability

to quickly learn of new threats and vulnerabilities and to work in a

collaborative manner on threat triage.

Operational Interruption of Critical Supplies and

Supplier Quality

Our ability to manage our critical supplies to

ensure alignment with required expectations,

needs and quality standards and prevent

interruption resulting in production blockages.

Active monitoring of the ﬁnancial health of suppliers to mitigate disruption

due to ﬁnancial distress of companies in our supply chain.

Monitoring political, environmental and economic events, globally, for to

anticipate or identify events that could lead to supply chain disruption so

that mitigating action can be taken.

Operational /

Strategic

Talent Management - Attraction,

Development & Retention of Critical

Resources

Our ability to manage globally all aspects of

Talent Management - including attraction,

development and retention to facilitate internal

benchmarking and improvement in order to

meet current and future needs.

Convergence of key HR talent management processes, metrics,

and reporting, along with adding global HR process oversight and

governance, are planned in the 2019 - 2021 business cycle, including:

• Implementation of a single, worldwide Learning Management System

• Agreeing the plan to merge current regional HRIS systems into one

common Group level system

• Further enhancement to standardization of retention/attrition metrics

and reporting, including global views by function with inclusion of

internal and external benchmarks (initially introduced in mid-2018)

• Development of a consistent employer value proposition for use by

each region in attracting talent

• Deployment of Regional best practice sharing and integration

methodology

Strategic Technology Development and Product

Launch

Our ability to develop and launch products

with new technologies (e.g., electriﬁcation

and propulsion, autonomous driving and

connected vehicles) to meet regulatory

requirements and customer expectations.

GEC and Product Committees’ reviews of product plans and

commercialization strategies in order to deﬁne investment needs in the

near and long-term.

Increased research focus on autonomous driving technology;

collaborative efforts (e.g., Waymo) allow leveraging of capabilities and

resources to achieve synergies and economies of scale needed to

advance autonomous driving technologies.

Strategic Product Portfolio & Technology Strategies

Our ability to create a product portfolio that

supports achievement of strategic objectives,

including completeness of product range and

technological content.

GEC and Product Committees’ reviews of product plans and

commercialization strategies in order to deﬁne investment needs in the

near and long-term.

Strategic Commercial Policies (Pricing)

Our ability to manage volume, price and

market mix to ensure competitive pricing

consistent with competitors’ achievements

and internal targets.

Sales and marketing (including pricing) is monitored by the Commercial

Committees.

2018

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Board Report

Risk Management

Control measures and comprehensive mitigation actions listed above for key global risks were monitored throughout

the year by the Risk Management Committees in our regions and business sectors to ensure that these are relevant

and sufﬁcient. As needed, control measures and mitigation actions are enhanced to ensure risks are appropriately

addressed. We believe this approach allows us to address risk on a timely basis and ensure effectiveness of the

control measures taken.

Current or planned improvements in the overall risk management system

We continue to engage the business in key risk areas to benchmark our processes with peer companies and explore

opportunities for improvement. Our goal in implementing these changes is to strengthen the identiﬁcation of key risk

indicators in order to monitor risks in a more predictive way and evaluate remediation plans and to promote efﬁcient

monitoring of risks throughout the Group. We will continue engaging the business in reviewing our management and

monitoring activities for key risks throughout the Group in the upcoming year. As we continue to evolve our Group

ERM program, we will strive to identify best practices, reﬁne key risk indicators identiﬁed for the signiﬁcant risks facing

our organization and reﬁne our processes to identify and escalate risk developments. In 2019, we plan to upgrade

our current Governance, Risk management and Compliance tool, which includes implementing the ERM module for

improved efﬁciency and risk monitoring and reporting.

Further information regarding the risks we face, the signiﬁcant impact during the past ﬁnancial year (if any), the

consequences thereof and the expected impact on results or ﬁnancial position, are described in Risk Factors below.

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RISK FACTORS

We face a variety of risks in our business. The risks and uncertainties described below are not the only ones facing

us. Additional risks and uncertainties that we are unaware of or that we currently believe to be immaterial, may also

become important factors that affect us.

Risks Related to Our Business, Strategy and Operations

If our vehicle shipment volumes deteriorate, particularly shipments of our pickup trucks and larger sport utility vehicles

in the U.S. retail market, our results of operations and financial condition will suffer.

As is typical for an automotive manufacturer, we have signiﬁcant ﬁxed costs and, therefore, changes in vehicle

shipment volumes can have a disproportionately large effect on our proﬁtability.

Further, our proﬁtability in the U.S., Canada, Mexico and Caribbean islands (“NAFTA”), a region which contributed a

majority of our proﬁt in each of the last three years, is particularly dependent on demand for our pickup trucks and

larger SUVs. For example, our pickup trucks and larger SUVs have historically been more proﬁtable than other vehicles

and accounted for approximately 68 percent of our total U.S. retail vehicle shipments in 2018. A shift in consumer

demand away from these vehicles within the NAFTA region, and towards compact and mid-size passenger cars,

whether in response to higher fuel prices or other factors, could adversely affect our proﬁtability.

Our dependence within the NAFTA region on pickup trucks and larger SUVs remained high in 2018 as we continued

implementation of our plan to reallocate more production capacity to these vehicle types after we ceased production

in the region of compact and mid-size passenger cars in 2016. Our dependence on these vehicles is expected to

continue given our 2018-2022 business plan’s focus on pickup trucks and SUVs in the NAFTA region. For additional

information on factors affecting vehicle proﬁtability, see GROUP OVERVIEW-Overview of Our Business and Trends,

Uncertainties and Opportunities.

Moreover, we tend to operate with negative working capital as we generally receive payment for vehicles within a

few days of shipment, whereas there is a lag between the time when parts and materials are received from suppliers

and when we pay for such parts and materials; therefore, if our vehicle shipments decline materially we may suffer

a signiﬁcant negative impact on cash ﬂow and liquidity as we continue to pay suppliers during a period in which

we receive reduced proceeds from vehicle shipments. If vehicle shipments decline, or if they were to fall short of

our assumptions, due to recessionary conditions, changes in consumer conﬁdence, geopolitical events, inability to

produce sufﬁcient quantities of certain vehicles, limited access to ﬁnancing or other factors, such decline or shortfall

could have a material adverse effect on our business, ﬁnancial condition and results of operations.

Our businesses are affected by global financial markets and general economic and other conditions over which we

have little or no control.

Our results of operations and ﬁnancial position may be inﬂuenced by various macroeconomic factors within the various

countries in which we operate including changes in gross domestic product, the level of consumer and business

conﬁdence, changes in interest rates for or availability of consumer and business credit, the rate of unemployment and

foreign currency exchange rates.

In general, the automotive sector has historically been subject to highly cyclical demand and tends to reﬂect the overall

performance of the economy, often amplifying the effects of economic trends. Given the difﬁculty in predicting the

magnitude and duration of economic cycles, there can be no assurances as to future trends in the demand for our

products in any of the markets in which we operate.

In addition to slow economic growth or recession, other economic circumstances, such as increases in energy prices,

fuel prices and ﬂuctuations in prices of raw materials or contractions in infrastructure spending, could have negative

consequences for the industry in which we operate and, together with the other factors referred to previously, could

have a material adverse effect on our business, ﬁnancial condition and results of operations.

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Board Report

Risk Management

We are also subject to risks inherent to operating globally, including those related to:

exposure to local political conditions;

import and/or export restrictions;

multiple tax regimes, including regulations relating to transfer pricing and withholding and other taxes on

remittances and other payments to or from subsidiaries;

compliance with applicable anti-corruption laws;

foreign investment and/or trade restrictions or requirements (including tariffs), foreign exchange controls and

restrictions on the repatriation of funds; and

the introduction of more stringent laws and regulations.

We are particularly susceptible to these risks in the emerging markets where we operate, including Turkey, China, Brazil,

Argentina, India and Russia. Unfavorable developments in any one or a combination of these risk areas (which may vary

from country to country) could have a material adverse effect on our business, ﬁnancial condition and results of operations.

For instance, on June 23, 2016, a majority of voters in a national referendum in the United Kingdom (“UK”) voted in favor

of the UK leaving (“Brexit”) the European Union (the “EU”). On March 29, 2017, the UK government submitted an Article

50 notiﬁcation pursuant to the Treaty of the European Union, triggering a two year negotiation period to determine the

terms of the UK’s withdrawal from the EU and the UK’s future relationship with the EU. During this time, the government

of the UK may revoke its notiﬁcation to leave the EU or extend the Article 50 negotiation period. The referendum has

created signiﬁcant uncertainty about the future relationship between the UK and the EU. On November 14, 2018, the

EU and UK government agreed the terms of a withdrawal agreement that must be ratiﬁed by the UK and the European

Parliament ahead of the UK’s withdrawal on March 29, 2019. It remains unclear whether the withdrawal agreement, or

any alternative agreement, will be ﬁnalized and ratiﬁed ahead of this deadline. In this case, and if the Article 50 negotiation

period is not extended or the Article 50 notiﬁcation revoked, there will be no transitional period and a “no-deal” Brexit will

occur on March 29, 2019. The UK will then revert to trading on World Trade Organization rules.

Although we do not believe Brexit, including a no-deal Brexit, would have a direct material impact on our operations or

materially impact our tax expense, a no-deal Brexit or the terms of the ﬁnal withdrawal agreement may result in greater

restrictions on imports and exports between the UK and EU countries, a ﬂuctuation in currency exchange rates and

additional regulatory complexity, which could have a material adverse effect on our business, ﬁnancial condition and

results of operations. Further, the UK referendum has given new impetus to independence movements in Scotland

and Northern Ireland (and to a lesser extent, Wales) to remain in the EU by separating from the UK. It has also inspired

certain political parties within other EU member states to consider withdrawal and raised the possibility of referendums

on continued EU membership in other EU member states. Any of these events, along with any political, economic and

regulatory changes that may occur, could have a material adverse effect on the Company’s business and results of

operations in Europe.

Additionally, in recent years, certain member countries of the European Union have implemented austerity measures

to avoid defaulting on debt repayments. If a country within the euro area was to default on its debt or withdraw from

the euro currency, or, in a more extreme circumstance, the euro currency was to be dissolved entirely, the impact on

markets around the world, and on the Company’s global business, could be immediate and signiﬁcant.

New or revised agreements between the U.S. and its trading partners may also impact our business, in particular with

respect to our production of vehicles outside the U.S. for import into the U.S., particularly from Canada, Mexico and

Italy. Any new policies and any steps we may take to address such agreements could have a material adverse effect

on our business, ﬁnancial condition and results of operations.

There has been a recent and signiﬁcant increase in activity and speculation regarding tariffs and duties between the

U.S. and its trading partners. Tariffs or duties implemented between the U.S. and its trading partners could have a

material adverse effect on our business, ﬁnancial condition and results of operations. Tariffs or duties that directly

impact our products could reduce consumer demand and/or make our products less proﬁtable. In addition, a

continued escalation in tariff or duty activity between the U.S. and its major trading partners could negatively impact

global economic activity, which could in turn reduce demand for our products.

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ANNUAL REPORT

In addition, we and other Brazilian taxpayers have recently had signiﬁcant disputes with the Brazilian tax authorities

regarding the application of Brazilian tax law. While we believe that it is more likely than not that there will be no

signiﬁcant impact from these disputes, given the current economic conditions and political uncertainty in Brazil,

new tax laws may be introduced, changes to the application of existing tax laws may occur or the realization of

accumulated tax beneﬁts may be limited, delayed or denied, which could have a material adverse effect on our

business, ﬁnancial condition and results of operations.

We may be unsuccessful in efforts to increase the growth of some of our brands that we believe have global appeal

and reach.

The volume growth and margin expansion strategies reﬂected in our business plan include the renewal of key

products, the launch of white space products, the implementation of various electriﬁed powertrain applications and

partnerships relating to the development of autonomous driving technologies.

These strategies have required and will continue to require signiﬁcant investments in products, powertrains,

production facilities and distribution networks. If we are unable to achieve our volume growth and margin expansion

goals, we may be unable to earn a sufﬁcient return on these investments which could have a material adverse effect

on our business, ﬁnancial condition and results of operations.

Our future performance depends on our ability to offer innovative, attractive products.

Our success depends on, among other things, our ability to develop innovative, high-quality products that are

attractive to consumers and provide adequate proﬁtability.

We may not be able to effectively compete with other automakers with regard to electriﬁcation, autonomous driving,

mobility and other emerging trends in the industry. In certain cases, the technologies that we plan to employ are

not yet commercially practical and depend on signiﬁcant future technological advances by us, our partners and by

suppliers. There can be no assurance that these advances will occur in a timely or feasible manner, that the funds

we have budgeted or expended for these purposes will be adequate, or that we will be able to obtain rights to use

these technologies. Further, our competitors and others are pursuing similar technologies and other competing

technologies, and there can be no assurance that they will not acquire and implement similar or superior technologies

sooner than we will or on an exclusive basis or at a signiﬁcant cost advantage.

In addition, as a result of the extended product development cycle and inherent difﬁculty in predicting consumer

acceptance, a vehicle that we believe will be attractive may not generate sales in sufﬁcient quantities and at high

enough prices to be proﬁtable. It generally takes two years or more to design and develop a new vehicle, and a

number of factors may lengthen that schedule. For example, if we determine that a safety or emissions defect, a

mechanical defect or a non-compliance with regulation exists with respect to a vehicle model prior to retail launch,

the launch of such vehicle could be delayed until we remedy the defect or non-compliance. Various elements may

also contribute to consumers’ acceptance of new vehicle designs, including competitors’ product introductions, fuel

prices, general economic conditions and changes in styling preferences.

If we fail to develop products that contain desirable technologies and are attractive to and accepted by consumers,

the residual value of our vehicles could be negatively impacted. In addition, the increasing pace of inclusion of new

innovations and technologies in our and our competitors’ vehicles could also negatively impact the residual value

of our vehicles. While we may not be impacted as signiﬁcantly by declines in the residual value of our vehicles as

compared to our competitors that own and operate U.S. captive ﬁnance companies, a deterioration in residual value

could increase the cost that consumers pay to lease our vehicles or increase the amount of subvention payments that

we make to support our leasing programs.

The failure to develop and offer innovative, attractive and relevant products on a timely basis that compare favorably

to those of our principal competitors could have a material adverse effect on our business, ﬁnancial condition and

results of operations. Our high proportion of ﬁxed costs, both due to our signiﬁcant investment in property, plant and

equipment as well as the requirements of our collective bargaining agreements and other applicable labor relations

regulations, which limit our ﬂexibility to adjust personnel costs to changes in demand for our products, may further

exacerbate this risk.

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Board Report

Risk Management

Laws, regulations and governmental policies, including those regarding increased fuel efficiency requirements and

reduced greenhouse gas and tailpipe emissions, have a significant effect on how we do business.

As we seek to comply with government regulations, particularly those related to fuel efﬁciency, vehicle safety and

greenhouse gas and tailpipe emissions standards, we must devote signiﬁcant ﬁnancial and management resources,

as well as vehicle engineering and design attention, to these legal requirements. We expect the number and scope of

these regulatory requirements, along with the costs associated with compliance, to increase signiﬁcantly in the future,

and these costs could be difﬁcult to pass through to consumers. For a further discussion of the regulations we are

subject to, see Environmental and Other Regulatory Matters.

In addition, fuel efﬁciency regulations have increased in several markets. For example, in September 2017, China’s

Ministry of Industry and Information Technology released administrative rules regarding corporate average fuel

consumption (“CAFC”) and new energy vehicle (“NEV”) credits that became effective in April 2018. Non-compliance

with the CAFC target in these administrative rules can be offset through carry-forward CAFC credits, transfer of CAFC

credits within afﬁliates, the OEMs use of its own NEV credits, or the purchase of NEV credits. Non-compliance with the

NEV target can only be offset by the purchase of NEV credits. If we are unable to comply with the applicable targets

and fail to offset a negative balance of credits, our sales or production of new passenger vehicles that fail to meet

CAFC targets could be suspended. Although we continue to evaluate their speciﬁc impact, these regulations could

materially adversely affect our business, ﬁnancial condition and results of operations.

We are subject to diesel emissions investigations by several governmental agencies and to a number of related private

lawsuits.

On January 10, 2019, we announced that FCA USreached ﬁnal settlements on civil, environmental and consumer

claims with the U.S. Environmental Protection Agency (“EPA”), U.S. Department of Justice, the California Air

Resources Board, the State of California, 49 other States and U.S. Customs and Border Protection, for which we

have accrued €748 million, of which approximately €350 million will be paid in civil penalties to resolve differences

over diesel emissions requirements.We also announced that FCA US had reached settlements in connection with a

putative class action on behalf of consumers in connection with which FCA US agreed to pay an average of $2,800

per vehicle for each eligible customer affected by the recall.

We remain subject to diesel emissions-related investigations by the U.S. Securities and Exchange Commission and

the U.S. Department of Justice, Criminal Division. In addition, we remain subject to a number of related private lawsuits

and the potential for additional claims by consumers who choose not to participate in the class action settlement.

We have also received inquiries from other regulatory authorities in a number of jurisdictions as they examine the

on-road tailpipe emissions of several automakers’ vehicles and, when jurisdictionally appropriate, we continue to

cooperate with these governmental agencies and authorities.

In Europe, we have been working with the Italian Ministry of Transport (“MIT”) and the Dutch Vehicle Regulator

(“RDW”), the authorities that certiﬁed FCA diesel vehicles for sale in the European Union, and the UK Driver and

Vehicle Standards Agency (“DVSA”). We also initially responded to inquiries from the German authority, the

Kraftfahrt-Bundesamt (“KBA”), regarding emissions test results for our vehicles, and we discussed the KBA

reported test results, our emission control calibrations and the features of the vehicles in question. After these initial

discussions, the MIT, which has sole authority for regulatory compliance of the vehicles it has certiﬁed, asserted its

exclusive jurisdiction over the matters raised by the KBA, tested the vehicles, determined that the vehicles complied

with applicable European regulations and informed the KBA of its determination. Thereafter, mediations have been

held under European Commission (“EC”) rules, between the MIT and the German Ministry of Transport and Digital

Infrastructure, which oversees the KBA, in an effort to resolve their differences. The mediation was concluded with

no action being taken with respect to FCA. In May 2017, the EC announced its intention to open an infringement

procedure against Italy regarding Italy’s alleged failure to respond to EC’s concerns regarding certain FCA emission

control calibrations. The MIT has responded to the EC’s allegations by conﬁrming that the vehicles’ approval

process was correctly performed.

2018

ANNUAL REPORT

In addition, at the request of the French Consumer Protection Agency, the Juge d’Instruction du Tribunal de Grande

Instance of Paris is investigating diesel vehicles of a number of automakers including FCA, regarding whether the sale

of those vehicles violated French consumer protection laws. In December 2018, the Korean Ministry of Environment

announced its determination that 2,428 FCA vehicles imported in Korea during 2015, 2016 and 2017 were not

emissions compliant and that the vehicles with a subsequent update of the emission control calibrations voluntarily

performed by FCA, although compliant, would have required re-homologation of the vehicles concerned.

While we believe that we have made meaningful progress in resolving a signiﬁcant portion of the emissions related

investigations and litigation, the results of the unresolved inquiries and private litigation cannot be predicted at this

time. Those inquiries and litigation may lead to further enforcement actions, penalties or damage awards, any of which

may have a material adverse effect on our business, results of operations and reputation.

Our success largely depends on the ability of our management team to operate and manage effectively.

Our success largely depends on the ability of our senior executives and other members of management to effectively

manage the Group and individual areas of the business. Our management team is critical to the execution of our

strategic direction and implementation of our business plan.

We have developed succession plans that we believe are appropriate, although it is difﬁcult to predict with any

certainty that we will be able to replace these individuals with persons of equivalent experience and capabilities. If we

are unable to ﬁnd adequate replacements or to attract, retain and incentivize senior executives, other key employees

or new qualiﬁed personnel, such inability could have a material adverse effect on our business, ﬁnancial condition and

results of operations.

We may be subject to more intensive competition if other manufacturers pursue consolidations.

We have for some time advocated for consolidation in the automotive industry due to our view that our industry is

characterized by signiﬁcant duplication in product development costs, much of which does not drive consumer-

perceived value. We believe that sharing product development costs among manufacturers, preferably through

consolidation, would enable automakers to improve their return on capital employed for product development and

manufacturing and enhance utilization of tooling, machinery and equipment. While we continue to implement our

business plan, and we believe that our business will continue to grow and our operating margins will continue to

improve, if our competitors are able to successfully integrate with one another and we were not to enhance our own

collaborations or adapt effectively to increased competition, our competitors’ integration could have a material adverse

effect on our business, ﬁnancial condition and results of operations.

Product recalls and warranty obligations may result in direct costs, and any resulting loss of vehicle sales could have

material adverse effects on our business.

We, and the U.S. automotive industry in general, have experienced a sustained increase in recall activity to address

performance, compliance or safety-related issues. Our costs to recall vehicles have been signiﬁcant and typically

include the cost of replacement parts and labor to remove and replace parts. These costs substantially depend on the

nature of the remedy and the number of vehicles affected, and may arise many years after a vehicle’s sale. Product

recalls may also harm our reputation, force us to halt the sale of certain vehicles and cause consumers to question

the safety or reliability of our products. Given the intense regulatory activity across the automotive industry, ongoing

compliance costs are expected to remain high.

Any costs incurred, or lost vehicle sales, resulting from product recalls could materially adversely affect our ﬁnancial

condition and results of operations. Moreover, if we face consumer complaints, or we receive information from vehicle

rating services that calls into question the safety or reliability of one of our vehicles and we do not issue a recall, or if we

do not do so on a timely basis, our reputation may also be harmed and we may lose future vehicle sales. We are also

obligated under the terms of our warranty agreements to make repairs or replace parts in our vehicles at our expense

for a speciﬁed period of time. Therefore, any failure rate that exceeds our assumptions could have a material adverse

effect on our business, ﬁnancial condition and results of operations.

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Board Report

Risk Management

The automotive industry is highly competitive and cyclical and we may suffer from those factors more than some of

our competitors.

Substantially all of our revenues are generated in the automotive industry, which is highly competitive, encompassing

the production and distribution of passenger cars, light commercial vehicles and components and production

systems. We face competition from other international passenger car and light commercial vehicle manufacturers and

distributors and components suppliers in Europe, North America, Latin America and the Asia Paciﬁc region. These

markets are all highly competitive in terms of product quality, innovation, the introduction of new technologies, pricing,

fuel economy, reliability, safety, consumer service and ﬁnancial services offered, and many of our competitors are

better capitalized with larger market shares.

In the automotive business, sales to consumers are cyclical and subject to changes in the general condition of the

economy, the readiness of consumers to buy and their ability to obtain ﬁnancing, as well as the possible introduction

of measures by governments to stimulate demand. The automotive industry is also subject to the constant renewal

of product offerings through frequent launches of new models and the incorporation of new technologies in those

models. A negative trend in the automotive industry or our inability to adapt effectively to external market conditions

coupled with more limited capital than many of our principal competitors could have a material adverse effect on our

business, ﬁnancial condition and results of operations.

Additionally, global vehicle production capacity exceeds current demand. In the event that industry shipments

decrease and overcapacity intensiﬁes, our competitors may attempt to make their vehicles more attractive or less

expensive to consumers by adding vehicle enhancements, providing subsidized ﬁnancing or leasing programs, or

by reducing vehicle prices whether directly or by offering option package discounts, price rebates or other sales

incentives in certain markets. Manufacturers in countries that have lower production costs may also choose to export

lower-cost automobiles to more established markets. An increase in these actions could have a material adverse

effect on our business, ﬁnancial condition and results of operations.

Our lack of a captive finance company in certain key markets could place us at a competitive disadvantage to

other automakers that may be able to offer consumers and dealers financing and leasing on better terms than our

consumers and dealers are able to obtain.

Our dealers enter into wholesale ﬁnancing arrangements to purchase vehicles from us to hold in inventory and facilitate

retail sales, and retail consumers use a variety of ﬁnance and lease programs to acquire vehicles.

Unlike many of our competitors, we do not currently own and operate a controlled ﬁnance company dedicated solely

to our mass-market vehicle operations in the U.S. and certain key markets in Europe, Asia and South America.

Instead we have elected to partner with specialized ﬁnancial services providers through joint ventures and commercial

agreements. Our lack of a controlled ﬁnance company in these key markets may increase the risk that our dealers

and retail consumers will not have access to sufﬁcient ﬁnancing on acceptable terms which may adversely affect our

vehicle sales in the future. Furthermore, many of our competitors are better able to implement ﬁnancing programs

designed to maximize vehicle sales in a manner that optimizes proﬁtability for them and their ﬁnance companies on an

aggregate basis. Since our ability to compete depends on access to appropriate sources of ﬁnancing for dealers and

retail consumers, our lack of a controlled ﬁnance company in those markets could have a material adverse effect on

our business, ﬁnancial condition and results of operations.

In the event that we establish a captive ﬁnancial services company in the U.S., we will be subject to the risks inherent

in such businesses, including reliance on public debt markets to provide the capital necessary to support our ﬁnancing

programs, underwriting risk, default risk, compliance with laws and regulations related to consumer lending and

competition with other consumer ﬁnance companies and third-party ﬁnancial institutions.

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ANNUAL REPORT

In other markets, we rely on controlled ﬁnance companies, joint ventures and commercial relationships with third

parties, including third party ﬁnancial institutions, to provide ﬁnancing to our dealers and retail consumers. The ability of

a ﬁnance company to provide ﬁnancing services at competitive rates is subject to various factors, including:

the performance of loans and leases in their portfolio, which could be materially affected by delinquencies, defaults

or prepayments;

wholesale auction values of used vehicles;

higher than expected vehicle return rates and the residual value performance of vehicles they lease; and

ﬂuctuations in interest rates and currency exchange rates.

Any ﬁnancial services provider, including our joint ventures and controlled ﬁnance companies, will also face other demands on

its capital, including the need or desire to satisfy funding requirements for dealers or consumers of our competitors as well as

liquidity issues relating to other investments. Furthermore, they may be subject to regulatory changes that may increase their

costs, which may impair their ability to provide competitive ﬁnancing products to our dealers and retail consumers.

To the extent that a ﬁnancial services provider is unable or unwilling to provide sufﬁcient ﬁnancing at competitive rates

to our dealers and retail consumers, such dealers and retail consumers may not have sufﬁcient access to ﬁnancing to

purchase or lease our vehicles. As a result, our vehicle sales and market share may suffer, which could have a material

adverse effect on our business, ﬁnancial condition and results of operations.

Vehicle retail sales depend heavily on affordable interest rates for vehicle financing.

In certain regions, including NAFTA, ﬁnancing for new vehicle sales has been available at relatively low interest rates

for several years due to, among other things, expansive government monetary policies. As interest rates rise, generally

market rates for new vehicle ﬁnancing are expected to rise as well, which may make our vehicles less affordable to retail

consumers or steer consumers to less expensive vehicles that tend to be less proﬁtable for us, adversely affecting our

ﬁnancial condition and results of operations. Additionally, if consumer interest rates increase substantially or if ﬁnancial

service providers tighten lending standards or restrict their lending to certain classes of credit, consumers may not desire

to or be able to obtain ﬁnancing to purchase or lease our vehicles. Furthermore, because purchasers of our vehicles may

be relatively more sensitive to changes in the availability and adequacy of ﬁnancing and macroeconomic conditions, our

vehicle sales may be disproportionately affected by changes in ﬁnancing conditions relative to the vehicle sales of our

competitors. As a result, a substantial increase in consumer interest rates or tightening of lending standards could have a

material adverse effect on our business, ﬁnancial condition and results of operations.

Our business operations and reputation may be impacted by various types of claims, lawsuits, and other contingencies.

We are involved in various disputes, claims, lawsuits, investigations and other legal proceedings relating to several

matters, including product liability, warranty, vehicle safety, emissions and fuel economy, product performance,

asbestos, personal injury, dealers, suppliers and other contractual relationships, environment, securities law, labor,

antitrust, intellectual property, tax and other matters. We estimate such potential claims and contingent liabilities

and, where appropriate, record provisions to address these contingent liabilities. The ultimate outcome of the legal

proceedings pending against us is uncertain, and such proceedings could have a material adverse effect on our

ﬁnancial condition or results of operations. Furthermore, additional facts may come to light or we could, in the future,

be subject to judgments or enter into settlements of lawsuits and claims that could have a material adverse effect

on our business, ﬁnancial condition and results of operations. While we maintain insurance coverage with respect to

certain claims, not all claims or potential losses can be covered by insurance, and even if claims could be covered

by insurance, we may not be able to obtain such insurance on acceptable terms in the future, if at all, and any such

insurance may not provide adequate coverage against any such claims. See also Note 20, Provisions, and Note 25,

Guarantees granted, commitments and contingent liabilities, within the Consolidated Financial Statements included

elsewhere in this report for additional information. Further, publicity regarding such investigations and lawsuits,

whether or not they have merit, may adversely affect our reputation and the perception of our vehicles with retail

customers, which may adversely affect demand for our vehicles, and have a material adverse effect on our business,

ﬁnancial condition and results of operations. For additional risks regarding certain proceedings, see “We are subject to

diesel emissions investigations by several governmental agencies and to a number of related private lawsuits.”

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Risk Management

A significant security breach compromising the electronic control systems contained in our vehicles could damage our

reputation, disrupt our business and adversely impact our ability to compete.

Our vehicles, as well as vehicles manufactured by other original equipment manufacturers (or “OEMs”), contain complex

systems that control various vehicle processes including engine, transmission, safety, steering, brakes, window and door

lock functions. These electronic control systems, which are increasingly connected to external cloud-based systems, are

susceptible to cybercrime, including threats of intentional disruption and theft of personal information. These threats are

also likely to increase in terms of sophistication and frequency as the level of connectivity and autonomy in our vehicles

increases. A signiﬁcant malfunction, disruption or security breach compromising the electronic control systems contained

in our vehicles could damage our reputation, expose us to signiﬁcant liability and could have a material adverse effect on

our business, ﬁnancial condition and results of operations.

A significant malfunction, disruption or security breach compromising the operation of our information technology

systems could damage our reputation, disrupt our business and adversely impact our ability to compete.

Our ability to keep our business operating effectively depends on the functional and efﬁcient operation of our

information, data processing and telecommunications systems, including our vehicle design, manufacturing, inventory

tracking and billing and payment systems. In addition, our vehicles are increasingly connected to external cloud-based

systems. These systems are regularly the target of threats from third parties. A signiﬁcant or large-scale malfunction or

interruption of any one of our computer or data processing systems, including through the exploitation of a weakness

in our systems or the systems of our vendors, could have a material adverse effect on our ability to manage and keep

our manufacturing and other operations running effectively, and damage our reputation. A malfunction or security

breach that results in a wide or sustained disruption to our business could have a material adverse effect on our

business, ﬁnancial condition and results of operations.

In addition to supporting our operations, we use our systems to collect and store conﬁdential and sensitive data,

including information about our business, our consumers and our employees. As our technology continues to evolve,

we anticipate that we will collect and store even more data in the future and that our systems will increasingly use

remote communication features that are sensitive to both willful and unintentional security breaches. Much of our

value is derived from our conﬁdential business information, including vehicle design, proprietary technology and

trade secrets, and to the extent the conﬁdentiality of such information is compromised, we may lose our competitive

advantage and our vehicle shipments may suffer. We also collect, retain and use personal information, including data

we gather from consumers for product development and marketing purposes, and data we obtain from employees.

In the event of a breach in security that allows third parties access to this personal information, we are subject to a

variety of ever-changing laws on a global basis that require us to provide notiﬁcation to the data owners, and that

subject us to lawsuits, ﬁnes and other means of regulatory enforcement. For example, the General Data Protection

Regulation (Regulation (EU) 2016/679) (the “GDPR”), which took full effect in May 2018, has increased the stringency

of European Union data protection requirements and related penalties. Non-compliance with the GDPR can result in

ﬁnes of the higher of €20 million or 4% of annual worldwide revenue. The requirements of the GDPR have necessitated

changes to our existing business practices and systems in order to comply with the GDPR or to address the concerns

of our customers or business partners. Complying with any new data protection-related regulatory requirements could

force us to incur substantial expenses or require us to change our business practices in a manner that has a material

adverse effect on our business, ﬁnancial condition and results of operations.

Our reputation could also suffer in the event of a data breach, which could cause consumers to purchase their vehicles

from our competitors. Ultimately, any signiﬁcant compromise in the integrity of our data security could have a material

adverse effect on our business, ﬁnancial condition and results of operations.

There can be no assurance that we will be able to offset the earnings power lost from the expected sale of Magneti Marelli.

On October 22, 2018, we announced that we have entered into a deﬁnitive agreement with CK Holdings, Ltd., a

holding company of Calsonic Kansei Corporation, pursuant to which CK Holdings, Ltd. will acquire our automotive

components business, Magneti Marelli. The agreement represents a transaction value of €6.2 billion, subject to certain

adjustments. This transaction is expected to close in the second quarter of 2019, subject to regulatory approvals

and other customary closing conditions and, subject to Board of Directors approval, will enable the payment of an

extraordinary dividend of €2 billion at closing.

2018

ANNUAL REPORT

If the improvement in our capital position resulting from the sale of Magneti Marelli is not sufﬁcient to offset the related

loss of revenue and earnings, we could experience a material adverse effect on our business, ﬁnancial condition and

results of operations.

We may not be able to adequately protect our intellectual property rights, which may harm our business.

Our success depends, in part, on our ability to protect our intellectual property rights. If we fail to protect our

intellectual property rights, others may be able to compete against us using intellectual property that is the same as or

similar to our own. In addition, there can be no guarantee that our intellectual property rights are sufﬁcient to provide

us with a competitive advantage against others who offer products similar to ours. Despite our efforts, we may be

unable to prevent third parties from infringing our intellectual property and using our technology for their competitive

advantage. Any such infringement could have a material adverse effect on our business, ﬁnancial condition and results

of operations.

The laws of some countries in which we operate do not offer the same protection of our intellectual property rights as

do the laws of the U.S. or Europe. In addition, effective intellectual property enforcement may be unavailable or limited

in certain countries, making it difﬁcult for us to protect our intellectual property from misuse or infringement there.

Our inability to protect our intellectual property rights in some countries could have a material adverse effect on our

business, ﬁnancial condition and results of operations.

Our reliance on joint arrangements in certain emerging markets may adversely affect the development of our business

in those regions.

We intend to expand our presence in emerging markets, including China and India, through partnerships and joint

ventures. For instance the GAC FCA JV locally produces the Jeep Cherokee, Jeep Renegade, Jeep Compass and

all-new Jeep Grand Commander for the Chinese market, expanding the portfolio of Jeep SUVs currently available

to Chinese consumers. We also have a joint operation with TATA Motors Limited for the production of certain of our

vehicles, engines and transmissions in India.

Our reliance on joint arrangements to enter or expand our presence in these markets may expose us to risk of conﬂict

with our joint arrangement partners and the need to divert management resources to oversee these arrangements.

Further, as these arrangements require cooperation with third party partners, these joint arrangements may not be

able to make decisions as quickly as we would if we were operating on our own or may take actions that are different

from what we would do on a standalone basis in light of the need to consider our partners’ interests. As a result, we

may be less able to respond timely to changes in market dynamics, which could have a material adverse effect on our

business, ﬁnancial condition and results of operations.

We face risks associated with increases in costs, disruptions of supply or shortages of raw materials, parts,

components and systems used in our vehicles.

We use a variety of raw materials in our business including steel, aluminum, lead, resin and copper, and precious

metals such as platinum, palladium and rhodium, as well as energy. As we begin to implement various electriﬁed

powertrain applications throughout our portfolio in accordance with our business plan, we will also depend on a

signiﬁcant supply of lithium, nickel and cobalt. The prices for these raw materials ﬂuctuate, and market conditions

can affect our ability to manage our Cost of revenues over the short term. We may not be successful in managing

our exposure to these risks. Substantial increases in the prices for raw materials would increase our operating costs

and could reduce proﬁtability if the increased costs cannot be offset by changes in vehicle prices or countered by

productivity gains. In particular, certain raw materials are sourced from a limited number of suppliers and from a

limited number of countries. We cannot guarantee that we will be able to maintain arrangements with these suppliers

that assure access to these raw materials, and in some cases this access may be affected by factors, including

government policy, that are outside of our control and the control of our suppliers. For instance, natural or man-made

disasters or civil unrest may have severe and unpredictable effects on the price and availability of certain raw materials

in the future.

2018

ANNUAL REPORT

Board Report

Risk Management

As with raw materials, we are also at risk for supply disruption and shortages in parts and components for use in our

vehicles for many reasons including, but not limited to, supplier disputes, particularly with regard to warranty recovery

claims, supplier ﬁnancial distress, tight credit markets, trade restrictions, tariffs, natural or man-made disasters, or

production difﬁculties. We will continue to work with suppliers to monitor potential disruptions and shortages and to

mitigate the effects of any emerging shortages on our production volumes and revenues. However, there can be no

assurances that these events will not have an adverse effect on our production in the future, and any such effect may

be material. Further, there can be no assurance that trade restrictions and tariffs will not be imposed, and if imposed,

tariffs and other trade restrictions may make the cost of required raw materials more expensive or delay or limit our

access to these raw materials, each of which could have a material adverse effect on our business, ﬁnancial condition

and results of operations.

Any interruption in the supply or any increase in the cost of raw materials, parts, components and systems could

negatively impact our ability to achieve our vehicle shipment objectives and proﬁtability. The potential impact of an

interruption is particularly high in instances where a part or component is sourced exclusively from a single supplier.

Long-term interruptions in supply of raw materials, parts, components and systems may result in a material impact on

vehicle production, vehicle shipment objectives, and proﬁtability. Cost increases which cannot be recouped through

increases in vehicle prices, or countered by productivity gains, could have a material adverse effect on our business,

ﬁnancial condition and results of operations.

Labor laws and collective bargaining agreements with our labor unions could impact our ability to increase the

efficiency of our operations.

Substantially all of our production employees are represented by trade unions, are covered by collective bargaining

agreements and/or are protected by applicable labor relations regulations that may restrict our ability to modify

operations and reduce costs quickly in response to changes in market conditions. See Overview of Our Business -

Employees for a description of these arrangements, including the four-year national collective bargaining agreement

between FCA US and the UAW which will expire in September 2019. These and other provisions in our collective

bargaining agreements may impede our ability to restructure our business successfully to compete more effectively,

especially with those automakers whose employees are not represented by trade unions or are subject to less stringent

regulations, which could have a material adverse effect on our business, ﬁnancial condition and results of operations.

We are subject to risks associated with exchange rate fluctuations, interest rate changes, credit risk and other

market risks.

We operate in numerous markets worldwide and are exposed to market risks stemming from ﬂuctuations in currency

and interest rates. The exposure to currency risk is mainly linked to the differences in geographic distribution of our

manufacturing activities and commercial activities, resulting in cash ﬂows from sales being denominated in currencies

different from those connected to purchases or production activities. Additionally, a signiﬁcant portion of our operating

cash ﬂow is generated in U.S. Dollars and, although we have signiﬁcant U.S. Dollar-denominated debt, the majority of

our indebtedness is denominated in Euro and Brazilian Real.

We use various forms of ﬁnancing to cover funding requirements for our industrial activities and for providing ﬁnancing

to our dealers and consumers. Moreover, liquidity for industrial activities is also principally invested in variable-rate

or short-term ﬁnancial instruments. Our ﬁnancial services businesses normally operate a matching policy to offset

the impact of differences in rates of interest on the ﬁnanced portfolio and related liabilities. Nevertheless, changes in

interest rates can affect our Net revenues, ﬁnance costs and margins.

In addition, although we manage risks associated with ﬂuctuations in currency and interest rates through ﬁnancial

hedging instruments, ﬂuctuations in currency or interest rates could have a material adverse effect on our business,

ﬁnancial condition and results of operations.

Our ﬁnancial services activities are also subject to the risk of insolvency of dealers and retail consumers, as well as

unfavorable economic conditions in markets where these activities are carried out. Despite our efforts to mitigate such

risks through the credit approval policies applied to dealers and retail consumers, there can be no assurances that we

will be able to successfully mitigate such risks, particularly with respect to a general change in economic conditions.

2018

ANNUAL REPORT

We are a Dutch public company with limited liability, and our shareholders may have rights different from those of

shareholders of companies organized in the U.S.

The rights of our shareholders may be different from the rights of shareholders governed by the laws of U.S.

jurisdictions. We are a Dutch public company with limited liability (naamloze vennootschap). Our corporate affairs are

governed by our articles of association and by the laws governing companies incorporated in the Netherlands. The

rights of shareholders and the responsibilities of members of our board of directors may be different from the rights

of shareholders and the responsibilities of members of our board of directors in companies governed by the laws of

other jurisdictions including the U.S. In the performance of its duties, our board of directors is required by Dutch law to

consider our interests and the interests of our shareholders, our employees and other stakeholders, in all cases with

due observation of the principles of reasonableness and fairness. It is possible that some of these parties will have

interests that are different from, or in addition to, your interests as a shareholder.

It may be difficult to enforce U.S. judgments against us.

We are incorporated under the laws of the Netherlands, and a substantial portion of our assets are outside of the U.S.

Most of our directors and senior management and our independent auditors are resident outside the U.S., and all or

a substantial portion of their respective assets may be located outside the U.S. As a result, it may be difﬁcult for U.S.

investors to effect service of process within the U.S. upon these persons. It may also be difﬁcult for U.S. investors to

enforce within the U.S. judgments predicated upon the civil liability provisions of the securities laws of the U.S. or any

state thereof. In addition, there is uncertainty as to whether the courts outside the U.S. would recognize or enforce

judgments of U.S. courts obtained against us or our directors and ofﬁcers predicated upon the civil liability provisions

of the securities laws of the U.S. or any state thereof. Therefore, it may be difﬁcult to enforce U.S. judgments against

us, our directors and ofﬁcers and our independent auditors.

We operate so as to be treated as exclusively resident in the UK for tax purposes, but the relevant tax authorities may

treat us as also being tax resident elsewhere.

We are not a company incorporated in the UK. Therefore, whether we are resident in the UK for tax purposes depends

on whether our “central management and control” is located (in whole or in part) in the UK. The test of “central

management and control” is largely a question of fact and degree based on all the circumstances, rather than a

question of law. Nevertheless, the decisions of the UK courts and the published practice of Her Majesty’s Revenue

& Customs (“HMRC”), suggest that we, a group holding company, are likely to be regarded as having become UK-

resident on this basis from incorporation and remaining so if, as we intend, (i) at least half of the meetings of our

Board of Directors are held in the UK with a majority of directors present in the UK for those meetings; (ii) at those

meetings there are full discussions of, and decisions are made regarding, the key strategic issues affecting us and our

subsidiaries; (iii) those meetings are properly minuted; (iv) at least some of our directors, together with supporting staff,

are based in the UK; and (v) we have permanent staffed ofﬁce premises in the UK.

Although it has been accepted by HMRC that our “central management and control” is in the UK, we would

nevertheless not be treated as UK-resident if (a)we were concurrently resident in another jurisdiction (applying the tax

residence rules of that jurisdiction) that has a double tax treaty with the UK and (b)there were a tie-breaker provision in

that tax treaty which allocated exclusive residence to that other jurisdiction.

Our residence for Italian tax purposes is largely a question of fact based on all circumstances. We set up and we

have thus far maintained, and intend to continue to maintain, our management and organizational structure in such

a manner that we should not be regarded as an Italian tax resident either for Italian domestic law purposes or for

the purposes of the Italy-UK tax treaty and should be deemed resident in the UK from our incorporation for the

purposes of the Italy-UK tax treaty. Because this analysis is highly factual and may depend on future changes in our

management and organizational structure, there can be no assurance regarding the ﬁnal determination of our tax

residence. Should we be treated as an Italian tax resident, we would be subject to taxation in Italy on our worldwide

income and may be required to comply with withholding tax and/or reporting obligations provided under Italian tax

law, which could result in additional costs and expenses.

2018

ANNUAL REPORT

Board Report

Risk Management

Although it has been accepted that our “central management and control” is in the UK, we are considered to be

resident in the Netherlands for Dutch corporate income tax and Dutch dividend withholding tax purposes on the basis

that we are incorporated there. Nonetheless, we can be regarded as solely resident in either the UK or the Netherlands

under the Netherlands-UK tax treaty if the UK and Dutch competent authorities agree that this is the case. We have

received a ruling from the UK and Dutch competent authorities that we should be treated as resident solely in the

UK for the purposes of the treaty. If there is a change over time to the facts upon which this ruling issued by the

competent authorities is based, the ruling may be withdrawn or cease to apply.

We do not expect a UK exit from the European Union resulting from the referendum held in June 2016 to affect our tax

residency in the UK; however, we are unable to predict with certainty whether the discussions to implement the UK’s

exit from the European Union will ultimately have any impact on this matter.

If we are deemed to not maintain a permanent establishment in Italy, we could experience a material increase in our

tax liability.

Whether we have maintained a permanent establishment in Italy following the Merger (an “Italian P.E.”) is largely a

question of fact based on all the circumstances. We believe that, on the understanding that we should be a UK-

resident company under the Italy-UK tax treaty, we are likely to be treated as maintaining an Italian P.E. because we

have maintained and intend to continue to maintain sufﬁcient employees, facilities and activities in Italy to qualify as

maintaining an Italian P.E. Should this be the case (i) the embedded gains on our assets connected with the Italian P.E.

cannot be taxed as a result of the Merger; (ii) our tax-deferred equity reserves cannot be taxed, inasmuch as they have

been recorded in the Italian P.E.’s ﬁnancial accounts; and (iii) the Italian ﬁscal unit that was headed by Fiat before the

Merger (the “Fiscal Unit”), continues with respect to our Italian subsidiaries whose shareholdings are part of the Italian

P.E.’s net worth.

FCA ﬁled a ruling request with the Italian tax authorities in respect of the continuation of the Fiscal Unit via the Italian

P.E. on April 16, 2014. The Italian tax authorities issued the ruling on December 10, 2014 (the “2014 Ruling”),

conﬁrming that the Fiscal Unit may continue via the Italian P.E. Moreover, in another ruling issued on October 9, 2015

(the “2015 Ruling”), the Italian tax authorities conﬁrmed that the separation of Ferrari from the Group (including the ﬁrst

demerger of certain assets held through the Italian P.E.) would qualify as a tax-free, neutral transaction from an Italian

income tax perspective. Lastly, in a ruling released on October 28, 2016, the Italian tax authorities conﬁrmed that the

Italian P.E. could determine its computation base for the purposes of the Italian regime on notional interest deduction

(Aiuto alla Crescita Economica) without taking into account certain anti-avoidance provisions (the “2016 Ruling”,

and together with the 2014 Ruling and the 2015 Ruling, the “Rulings”). However, the Rulings are not assessments

of certain sets of facts and circumstances. Therefore, even though the 2014 Ruling conﬁrms that the Fiscal Unit may

continue via the Italian P.E. and the 2015 Ruling and the 2016 Ruling assume such a P.E. to exist, this does not

rule out that the Italian tax authorities may in the future verify whether FCA actually has a P.E. in Italy and potentially

challenge the existence of such a P.E. Because the analysis is highly factual, there can be no assurance regarding our

maintenance of an Italian P.E. following the Merger.

Risks Related to Our Liquidity and Existing Indebtedness

Limitations on our liquidity and access to funding may limit our ability to execute our business strategies and improve

our financial condition and results of operations.

Our performance depends on, among other things, our ability to ﬁnance debt repayment obligations and planned

investments from operating cash ﬂow, available liquidity, the renewal or reﬁnancing of existing bank loans and/or

facilities and possible access to capital markets or other sources of ﬁnancing. Although we have measures in place

that are designed to ensure adequate liquidity levels, our liquidity is subject to signiﬁcant potential absorption if our

vehicle shipments decline materially as we operate with negative working capital. For a discussion of these factors,

see FINANCIAL OVERVIEW-Liquidity and Capital Resources. In addition, the majority of our credit ratings are below

investment grade and any deterioration may signiﬁcantly affect our funding and prospects.

2018

ANNUAL REPORT

We could, therefore, ﬁnd ourselves in the position of having to seek additional ﬁnancing and/or having to reﬁnance

existing debt, including in unfavorable market conditions, with limited availability of funding and a general increase in

funding costs. Any limitations on our liquidity, due to a decrease in vehicle shipments, the amount of or restrictions in

our existing indebtedness, conditions in the credit markets, general economic conditions or otherwise, may adversely

impact our ability to execute our business strategies and impair our ﬁnancial condition and results of operations.

In addition, any actual or perceived limitations of our liquidity may limit the ability or willingness of counterparties,

including dealers, consumers, suppliers, lenders and ﬁnancial service providers, to do business with us, which could

have a material adverse effect on our business, ﬁnancial condition and results of operations.

We have significant outstanding indebtedness, which may limit our ability to obtain additional funding on competitive

terms and limit our financial and operating flexibility.

Although we have substantially completed the de-leveraging of our balance sheet this year, the extent of our

indebtedness may still have important consequences on our operations and ﬁnancial results, including:

we may not be able to secure additional funds for working capital, capital expenditures, debt service requirements

or general corporate purposes;

we may need to use a portion of our projected future cash ﬂow from operations to pay principal and interest on our

indebtedness, which may reduce the amount of funds available to us for other purposes, including product development;

we are more ﬁnancially leveraged than our competitors, which may put us at a competitive disadvantage; and

we may not be able to adjust rapidly to changing market conditions, which may make us more vulnerable to a

downturn in general economic conditions or our business.

These risks may be exacerbated by volatility in the ﬁnancial markets, particularly those resulting from perceived strains

on the ﬁnances and creditworthiness of several governments and ﬁnancial institutions.

Restrictive covenants in our debt agreements could limit our financial and operating flexibility.

The indentures governing certain of our outstanding public indebtedness, and other credit agreements to which companies

in the Group are a party, contain covenants that restrict the ability of certain companies in the Group to, among other things:

incur additional debt;

make certain investments;

sell certain assets or merge with or into other companies;

use assets as security in other transactions; and

enter into sale and leaseback transactions.

For more information regarding our credit facilities and debt, see FINANCIAL OVERVIEW-Liquidity and Capital Resources.

We may be exposed to shortfalls in our pension plans.

Certain of our deﬁned beneﬁt pension plans are currently underfunded. As of December31, 2018, our deﬁned beneﬁt

pension plans were underfunded by approximately €4.0 billion and may be subject to signiﬁcant minimum contributions

in future years. Our pension funding obligations may increase signiﬁcantly if the investment performance of plan assets

does not keep pace with beneﬁt payment obligations. Mandatory funding obligations may increase because of lower

than anticipated returns on plan assets, whether as a result of overall weak market performance or particular investment

decisions, changes in the level of interest rates used to determine required funding levels, changes in the level of

beneﬁts provided for by the plans, or any changes in applicable law related to funding requirements. Our deﬁned beneﬁt

plans currently hold signiﬁcant investments in equity and ﬁxed income securities, as well as investments in less liquid

instruments such as private equity, real estate and certain hedge funds. Due to the complexity and magnitude of certain

investments, additional risks may exist, including the effects of signiﬁcant changes in investment policy, insufﬁcient

market capacity to complete a particular investment strategy and an inherent divergence in objectives between the ability

to manage risk in the short term and the ability to quickly re-balance illiquid and long-term investments.

2018

ANNUAL REPORT

Board Report

Risk Management

To determine the appropriate level of funding and contributions to our deﬁned beneﬁt plans, as well as the investment

strategy for the plans, we are required to make various assumptions, including an expected rate of return on plan

assets and a discount rate used to measure the obligations under deﬁned beneﬁt pension plans. Interest rate

increases generally will result in a decline in the value of investments in ﬁxed income securities and the present value

of the obligations. Conversely, interest rate decreases will generally increase the value of investments in ﬁxed income

securities and the present value of the obligations. See Note 2, Basis of preparation-Significant accounting policies —

Employee benefits within the Consolidated Financial Statements included elsewhere in this report.

Any reduction in the discount rate or the value of plan assets, or any increase in the present value of obligations, may

increase our pension expenses and required contributions and, as a result, could constrain liquidity and materially

adversely affect our ﬁnancial condition and results of operations. If we fail to make required minimum funding

contributions, we could be subject to reportable event disclosure to the U.S. Pension Beneﬁt Guaranty Corporation,

as well as interest and excise taxes calculated based upon the amount of any funding deﬁciency.

Risks Related to our Common Shares

Our maintenance of two exchange listings may adversely affect liquidity in the market for our common shares and

could result in pricing differentials of our common shares between the two exchanges.

Our common shares are listed and traded on both the New York Stock Exchange and the Mercato Telematico

Azionario operated by Borsa Italiana. The dual listing of our common shares may split trading between the two

markets and may result in limited trading liquidity of the shares in one or both markets, which may adversely affect the

development of an active trading market for our common shares on either or both exchanges and may result in price

differentials between the exchanges. Differences in the trading schedules, as well as volatility in the exchange rate of

the two trading currencies, among other factors, may result in different trading prices for our common shares on the

two exchanges, which may contribute to volatility in the trading of our shares.

The loyalty voting structure may affect the liquidity of our common shares and reduce our common share price.

Our loyalty voting structure may limit the liquidity of our common shares and adversely affect the trading prices of

our common shares. The loyalty voting structure is intended to reward shareholders for maintaining long-term share

ownership by granting initial shareholders and persons holding our common shares continuously for at least three

years at any time following the effectiveness of the Merger the option to elect to receive our special voting shares. Our

special voting shares cannot be traded and, immediately prior to the deregistration of common shares from the FCA

Loyalty Register, any corresponding special voting shares shall be transferred to us for no consideration (om niet). This

loyalty voting structure is designed to encourage a stable shareholder base and, conversely, it may deter trading by

those shareholders who are interested in gaining or retaining our special voting shares. Therefore, the loyalty voting

structure may reduce liquidity in our common shares and adversely affect their trading price.

The loyalty voting structure may make it more difficult for shareholders to acquire a controlling interest, change our

management or strategy or otherwise exercise influence over us, and the market price of our common shares may be

lower as a result.

The provisions of our articles of association which establish the loyalty voting structure may make it more difﬁcult for

a third party to acquire, or attempt to acquire, control of our company, even if a change of control were considered

favorably by shareholders holding a majority of our common shares. As a result of the loyalty voting structure, a

relatively large proportion of our voting power could be concentrated in a relatively small number of shareholders who

would have signiﬁcant inﬂuence over us. As of February 20, 2019, Exor N.V., which controls FCA, owns 28.98 percent

of the FCA common shares, had a voting interest in FCA of 42.11 percent due to its participation in the loyalty voting

structure and as a result will have the ability to exercise signiﬁcant inﬂuence on matters involving our shareholders.

Such shareholders participating in the loyalty voting structure could effectively prevent change of control transactions

that may otherwise beneﬁt our shareholders. The loyalty voting structure may also prevent or discourage shareholders’

initiatives aimed at changing our management or strategy or otherwise exerting inﬂuence over us.

2018

ANNUAL REPORT

There may be potential Passive Foreign Investment Company tax considerations for U.S. Shareholders.

Shares of our stock held by a U.S. holder would be stock of a passive foreign investment company (“PFIC”) for U.S.

federal income tax purposes with respect to a U.S. shareholder if for any taxable year in which such U.S. shareholder

held our common shares, after the application of applicable look-through rules (i) 75 percent or more of our gross

income for the taxable year consists of passive income (including dividends, interest, gains from the sale or exchange

of investment property and rents and royalties other than rents and royalties which are received from unrelated

parties in connection with the active conduct of a trade or business, as deﬁned in applicable Treasury Regulations),

or (ii) at least 50 percent of its assets for the taxable year (averaged over the year and determined based upon value)

produce or are held for the production of passive income. U.S. persons who own shares of a PFIC are subject to a

disadvantageous U.S. federal income tax regime with respect to the income derived by the PFIC, the dividends they

receive from the PFIC, and the gain, if any, they derive from the sale or other disposition of their shares in the PFIC.

While we believe that shares of our stock are not stock of a PFIC for U.S. federal income tax purposes, this conclusion

is based on a factual determination made annually and thus is subject to change. Moreover, shares of our stock may

become stock of a PFIC in future taxable years if there were to be changes in our assets, income or operations.

Tax consequences of our loyalty voting structure are uncertain.

No statutory, judicial or administrative authority directly discusses how the receipt, ownership, or disposition of special

voting shares should be treated for Italian, UK or U.S. tax purposes and as a result, the tax consequences in those

jurisdictions are uncertain.

The fair market value of our special voting shares, which may be relevant to the tax consequences, is a factual

determination and is not governed by any guidance that directly addresses such a situation. Because, among other

things, the special voting shares are not transferable (other than, in very limited circumstances, together with our

associated common shares) and a shareholder will receive amounts in respect of the special voting shares only if

we are liquidated, we believe and intend to take the position that the fair market value of each special voting share is

minimal. However, the relevant tax authorities could assert that the value of the special voting shares as determined by

us is incorrect.

The tax treatment of the loyalty voting structure is unclear and shareholders are urged to consult their tax advisors in

respect of the consequences of acquiring, owning and disposing of special voting shares.

Tax may be required to be withheld from dividend payments.

Although the UK and Dutch competent authorities have ruled that we should be treated as solely resident in the UK for

the purposes of the Netherlands-UK double tax treaty, under Dutch domestic law dividend payments made by us to

Dutch residents are still subject to Dutch dividend withholding tax and we would have no obligation to pay additional

amounts in respect of such payments.

Should Dutch or Italian withholding taxes be imposed on future dividends or distributions with respect to our common

shares, whether such withholding taxes are creditable against a tax liability to which a shareholder is otherwise subject

depends on the laws of such shareholder’s jurisdiction and such shareholder’s particular circumstances. Shareholders

are urged to consult their tax advisors in respect of the consequences of the potential imposition of Dutch and/or

Italian withholding taxes. See “We operate so as to be treated as exclusively resident in the UK for tax purposes, but

the relevant tax authorities may treat us as also being tax resident elsewhere.” in the section Risks Related to Our

Business, Strategy and Operations above.

2018

ANNUAL REPORT

Board Report

Corporate Governance

CORPORATE GOVERNANCE

Introduction

Fiat Chrysler Automobiles N.V. is a public company with limited liability, incorporated and organized under the laws of

the Netherlands, which resulted from the cross-border merger of Fiat S.p.A. with and into Fiat Investments N.V. (“Fiat

Investments”), renamed Fiat Chrysler Automobiles N.V. upon effectiveness of the merger on October 12, 2014 (the “Merger”).

The Company qualiﬁes as a foreign private issuer under the New York Stock Exchange (“NYSE”) listing standards and its

common shares are listed on the NYSE and on the Mercato Telematico Azionario managed by Borsa Italiana S.p.A. (“MTA”).

In accordance with the NYSE Listed Company Manual, the Company is permitted to follow home country practice

with regard to certain corporate governance standards. The Company has adopted, except as discussed below, the

best practice provisions of the revised Dutch corporate governance code issued by the Dutch Corporate Governance

Code Committee, which entered into force on January 1, 2018 (the “Dutch Corporate Governance Code”) and was

applicable as from the ﬁnancial year starting January, 1 2017. The Dutch Corporate Governance Code contains

principles and best practice provisions that regulate relations inter alia between the board of directors of a company

and its committees and its relationship with the general meeting of shareholders.

In this report, the Company addresses its overall corporate governance structure. The Company discloses, and

intends to disclose, any material departure from the best practice provisions of the Dutch Corporate Governance

Code in its current and future annual reports.

Corporate Ofﬁces and Home Member State

The Company is incorporated under the laws of the Netherlands. It has its corporate seat (statutaire zetel) in

Amsterdam, the Netherlands, and the place of effective management of the Company is in the United Kingdom.

The business address of the Board of Directors and the senior managers is 25 St. James’s Street, SW1A1HA London,

United Kingdom.

The Company is registered at the Dutch trade register under number 60372958 and at the Companies House in the

United Kingdom under ﬁle number FC031853.

The Netherlands is FCA’s home member state for the purposes of the EU Transparency Directive (Directive 2004/109/

EC, as amended).

Board of Directors

Pursuant to the Company’s articles of association (the “Articles of Association”), its board of directors (the “Board of

Directors”) may have three or more directors (the “Directors”). At the annual general meeting of shareholders held on April

13, 2018, the number of the Directors was set at twelve to accommodate the appointment of Mr. Abbott as an additional

non-executive director. The current slate of Directors was elected on April 13, 2018, with the exception of Mr. Manley, who

was appointed as a new executive director at the extraordinary general meeting of shareholders held on September 7,

2018, to replace Mr. Marchionne, who passed away on July 25, 2018. The term of ofﬁce of the current Directors will expire

following the Company’s 2019 annual general meeting of shareholders at which time the Company’s shareholders are

expected to re-elect the Directors for a term of approximately one year expiring at the time of the Company’s 2020 annual

general meeting of shareholders. Each Director may be re-appointed at any subsequent general meeting of shareholders.

The Board of Directors as a whole is responsible for the strategy of the Company. The Board of Directors is composed

of two executive Directors (i.e., the Chairman and the Chief Executive Ofﬁcer), having responsibility for the day-to-day

management of the Company and ten non-executive Directors, who do not have such day-to-day responsibility within

the Company or the Group. Pursuant to Article 17 of the Articles of Association, the general authority to represent the

Company shall be vested in the Board of Directors and the Chief Executive Ofﬁcer (“CEO”).

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ANNUAL REPORT

On certain key industrial matters, the CEO is supported by the Group Executive Council (the “GEC”), which is

responsible for executing the decisions of the CEO and Board of Directors and the day-to-day management of

the Company, primarily to the extent it relates to its operational management, including reviewing the operating

performance of the businesses and collaborating on certain operational matters.

Set forth below are the names, year of birth and position of each of the persons currently serving as directors of

FCA. The business address of each person listed below is c/o FCA, 25 St. James’s Street, London SW1A 1HA,

United Kingdom. The term of ofﬁce of the Board of Directors will expire on the next Shareholders’ meeting, currently

scheduled on April 12, 2019.

Name Year of Birth Position

John Elkann 1976 executive director

Michael Manley 1964 executive director

John Abbott 1960 non-executive director

Andrea Agnelli 1975 non-executive director

Tiberto Brandolini d’Adda 1948 non-executive director

Glenn Earle 1958 non-executive director

Valerie A. Mars 1959 non-executive director

Ruth J. Simmons 1945 non-executive director

Ronald L. Thompson 1949 non-executive director

Michelangelo A. Volpi 1966 non-executive director

Patience Wheatcroft 1951 non-executive director

Ermenegildo Zegna 1955 non-executive director

We have determined that the following eight of our twelve Board of Directors members qualify as independent for

purposes of NYSE rules, Rule 10A-3 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and

the Dutch Corporate Governance Code: John Abbott; Glenn Earle; Valerie A. Mars; Ruth J. Simmons; Ronald L.

Thompson; Michelangelo A. Volpi; Patience Wheatcroft and Ermenegildo Zegna. The Board of Directors has also

appointed Mr. Ronald L. Thompson as Senior Non-Executive Director in accordance with Section 2.1.9. of the Dutch

Corporate Governance Code.

Directors are expected to prepare themselves for and to attend all Board of Directors meetings, the annual general

meeting of shareholders and the meetings of the committees on which they serve, with the understanding that, on

occasion, a Director may be unable to attend a meeting.

During 2018, there were 9 meetings of the Board of Directors. The average attendance at those meetings was

approximately 95 percent.

Summary biographies for the current Directors of FCA are included below:

John Elkann (executive director) - John Elkann is Chairman of FCA. He was appointed Chairman of Fiat S.p.A. on

April 21, 2010 where he previously served as Vice Chairman beginning in 2004 and as a board member from 1997

and he became Chairman of FCA on October 12, 2014. Mr. Elkann is also Chairman and Chief Executive Ofﬁcer of

Exor N.V. and Chairman of Giovanni Agnelli B.V.

Born in New York in 1976, Mr. Elkann obtained a scientiﬁc baccalaureate from the Lycée Victor Duruy in Paris, and

graduated in Engineering from Politecnico, the Engineering University of Turin (Italy). While at university, he gained

work experience in various companies of the Group in the UK and Poland (manufacturing) as well as in France (sales

and marketing). He started his professional career in 2001 at General Electric as a member of the Corporate Audit

Staff, with assignments in Asia, the U.S. and Europe. Mr. Elkann is Chairman of Ferrari N.V. and Ferrari S.p.A., Vice

Chairman of GEDI Gruppo Editoriale S.p.A. and a board member of PartnerRe Ltd and of The Economist Group. Mr.

Elkann is a member of the Board of Trustees and of the Nominating Committee of the Museum of Modern Art (MoMA).

He also serves as Chairman of the Giovanni Agnelli Foundation.

2018

ANNUAL REPORT

Michael Manley (executive director) - Born in Edenbridge (UK) in 1964, Michael Manley was appointed Chief

Executive Ofﬁcer of Fiat Chrysler Automobiles N.V. on July 21, 2018. In addition, he also served as ad interim Chief

Operating Ofﬁcer for the EMEA region from July to September 2018 and Chief Operating Ofﬁcer for the NAFTA region

from October 2018 to December 2018. Mr. Manley’s appointment as Executive Director of FCA was formalized in the

extraordinary meeting of shareholders held on September 7, 2018.

Previously, Mr. Manley has served as Head of Jeep brand, Head of Ram brand and Chief Operating Ofﬁcer for the

APAC region. He was also the lead Chrysler Group executive for the international activities of Chrysler outside of

NAFTA, where he was responsible for implementing the co-operation agreements for distribution of Chrysler Group

products through Fiat’s international distribution network.

Prior to those roles, Mr. Manley was Executive Vice President - International Sales and Global Product Planning

Operations. Appointed to this position in December 2008, he was responsible for product planning and all sales

activities outside North America.

Mr. Manley joined DaimlerChrysler in 2000 as Director - Network Development, DaimlerChrysler United Kingdom, Ltd.,

bringing with him extensive experience in the international automobile business at the distributor level.

He holds a Master of Business Administration from Ashridge Management College in Ashridge, England, and a

Bachelor of Science in engineering from Southbank University in London, England.

John Abbott (non-executive director) - Born in Nottingham (UK) in 1960, John Abbott has been Downstream

Director and a member of the Executive Committee of Royal Dutch Shell plc since October 2013. Based in London, he

has Global accountability for, inter alia, manufacturing, chemicals, trading & supply, and marketing.

Mr. Abbott is also a Supervisory Board Member of Raizen, a Shell-Cosan joint venture which owns and operates

sugar, ethanol and fuels sales and marketing operations in Brazil.

Since joining Shell in 1981, he has worked in the UK, Singapore, Thailand, the Netherlands, Canada, and the USA,

predominantly in the areas of Global Manufacturing and Supply, Trading and Distribution. In 1994, he was seconded

to the British Government on a brief assignment to work in the Central Policy and Planning Unit of what was then the

Department of the Environment.

In 2006, Mr. Abbott became Vice President Manufacturing Excellence and Support, based in Houston, Texas (USA).

Two years later, he became Executive Vice President of Shell’s Upstream Americas Heavy Oil business, based in

Calgary, Canada.

In 2012, he was appointed Executive Vice President of Global Manufacturing and led a team of 30,000 employees and

contractors based at around 30 reﬁneries and chemical sites worldwide.

Mr. Abbott is a mentor in the FTSE 100 cross-company mentoring foundation and Executive Director for Shell’s Asian

talent council.

He graduated from Birmingham University, UK, with a ﬁrst-class honors degree in Chemical Engineering. He is a

Fellow of the Institution of Chemical Engineers, as well as a chartered engineer and chartered scientist.

Mr. Abbott was appointed to the Board of Directors on April 13, 2018

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Corporate Governance

2018

ANNUAL REPORT

Andrea Agnelli (non-executive director) - Andrea Agnelli has been Chairman of Juventus Football Club S.p.A. since

May 2010 and is also Chairman of Lamse S.p.A., a holding company of which he is a founding shareholder, since

2007. Born in Turin in 1975, he studied at Oxford (St. Clare’s International College) and Milan (Università Commerciale

Luigi Bocconi). While at university, he gained professional experience both in Italy and abroad, including positions at:

Iveco-Ford in London; Piaggio in Milan; Auchan Hypermarché in Lille; Schroder Salomon Smith Barney in London;

and, ﬁnally, Juventus Football Club S.p.A. in Turin.

Mr. Agnelli began his professional career in 1999 at Ferrari Idea in Lugano, where he was responsible for promoting

and developing the Ferrari brand in non-automotive areas. In November 2000, he moved to Paris and assumed

responsibility for marketing at Uni Invest SA, a Banque San Paolo company specialized in managed investment

products. Mr. Agnelli worked at Philip Morris International in Lausanne from 2001 to 2004, where he initially had

responsibility for marketing and sponsorships and, subsequently, corporate communication. In 2005, Mr. Agnelli

returned to Turin to work in strategic development for IFIL Investments S.p.A. (now Exor N.V.) and he joined the Board

of Directors of IFI S.p.A. (now Exor N.V.) in May 2006. Mr. Agnelli is a non-executive director of Exor N.V.

Mr. Agnelli is a general partner of Giovanni Agnelli B.V. and a member of the advisory board of BlueGem Capital

Partners LLP. Since March 2017 he is the President of “Fondazione del Piemonte per l’Oncologia”. He has also been

a member of the European Club Association’s executive board since 2012 and Chairman since 2017. From 2014 to

2017, he has served as a board member of the Serie A National League of Professionals and as board member of the

Foundation for the General Mutuality in Professional Team Sports. In September 2015, he was appointed to the UEFA

Executive Committee as an ECA representative.

Mr. Agnelli was appointed to the Board of Directors of Fiat S.p.A. on May30, 2004 and became a member of the

Board of Directors on October 12, 2014.

Tiberto Brandolini d’Adda (non-executive director) - Born in Lausanne (Switzerland) in 1948, Tiberto Brandolini

d’Adda is a graduate in commercial law from the University of Parma. From 1972 to 1974, Mr. Brandolini d’Adda

gained his initial work experience in the international department of Fiat S.p.A. and then at Lazard Bank in London. In

1975, he was appointed assistant to the Director General for Enterprise Policy at the European Economic Commission

in Brussels. He joined Iﬁnt in 1976 as General Manager for France. In 1985, he was appointed General Manager for

Europe and then, in 1993, Managing Director of Exor Group (formerly Iﬁnt) where he also served as Vice Chairman

from 2003 until 2007. He has extensive international experience as a main Board Director of several companies,

including: Le Continent, Bolloré Investissement, Société Foncière Lyonnaise, Saﬁc-Alcan and Chateau Margaux.

Mr. Brandolini d’Adda served as Director and then, from 1997 to 2003, as Chairman of the conseil de surveillance of

Club Mediterranée. He served as Vice Chairman of Exor S.p.A. (now Exor N.V.), formed through the merger between

IFI and IFIL Investments, from 2009 to May 2015. He was Chairman of Exor S.A. (Luxembourg) from 2007 until

September 2017. In May 2004, he was appointed Chairman of the conseil de surveillance of Worms & Cie, where

he had served as Deputy Chairman since 2000. In May 2005, he became Chairman and Chief Executive Ofﬁcer of

Sequana Capital (formerly Worms & Cie), then Chairman of the Board of Sequana from 2007 until 2013. He has been

a member of the Board of Vittoria Assicurazioni S.p.A. from 2004 until 2010. He has also been a member of the Board

of Société Générale de Surveillance S.A. (SGS) from 2005 to 2013. Mr. Brandolini d’Adda currently serves as an

independent member of the Board of Directors of YAFA S.p.A. In addition, since 2015, he has been an independent

Board member of LumX Asset Management (Suisse) S.A. (formerly Gottex Fund Management Holdings Limited). He is

a Director of Giovanni Agnelli B.V. Mr. Brandolini d’Adda is Ofﬁcier de la Légion d’Honneur.

Mr. Brandolini d’Adda was appointed to the Board of Directors of Fiat S.p.A. on May 30, 2004 and became a member

of the Board of Directors on October 12, 2014.

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Glenn Earle (non-executive director) - Born in Douglas, Isle of Man in 1958, Glenn Earle is the Head of EMEA for

Ardea Partners UK LLP, a private investment banking advisory ﬁrm. He is also a member of the Board of Directors

of Afﬁliated Managers Group, Inc., Deputy Chairman of educational charity Teach First and a Trustee of The Young

Vic. Mr. Earle retired in December 2011 from Goldman Sachs International, where he was most recently a Managing

Director and the Chief Operating Ofﬁcer. Mr. Earle was also Chief Executive of Goldman Sachs International Bank

and his other responsibilities included co-Chairmanship of the ﬁrm’s Global Commitments and Capital Committees

and membership of the Goldman Sachs International Executive Committee. He previously worked at Goldman Sachs

in various roles in New York, Frankfurt and London from 1987, becoming a Partner in 1996. From 1979 to 1985, he

worked in the Latin America department at Grindlays Bank/ANZ in London and New York, leaving as a Vice President.

Mr. Earle is a graduate of Emmanuel College, Cambridge and of Harvard Business School, where he earned a Master

of Business Administration with High Distinction and was a Baker Scholar and Loeb, Rhoades Fellow. His other

activities include membership of The Higher Education Commission and the Advisory Board of the Sutton Trust. His

previous responsibilities include membership of the Board of Trustees of the Goldman Sachs Foundation and of the

Ministerial Task Force for Gifted and Talented Youth, Chairmanship of the Advisory Board of Cambridge University

Judge Business School, Vice Chairman of Rothesay Life Group, Trustee and Director of The Royal National Theatre

and member of the Advisory Committee of Hayﬁn Capital Management LLP.

Mr. Earle was appointed to the Board of Directors of Fiat S.p.A. in June 2014 and became a member of the Board of

Directors on October 12, 2014.

Valerie A. Mars (non-executive director) - Born in New York in 1959. Valerie Mars serves as Senior Vice President &

Head of Corporate Development for Mars, Incorporated, a diversiﬁed food business, operating in over 120 countries

and one of the largest privately held companies in the world. In this position, she focuses on acquisitions, joint

ventures and divestitures for the company. She served on the Mars, Incorporated Audit Committee and Remuneration

Committee and is a member of the board of Royal Canin. In March 2018, Ms. Mars was elected to the board of

Ahlstrom-Munksjo, a Finnish/Swedish listed specialty paper business.

Additionally, Ms. Mars is a member of the Rabobank North America Advisory Board. She served on the board of

Celebrity Inc., a NASDAQ listed company, from 1994 to September 2000. Previously, Ms. Mars was the Director of

Corporate Development for Masterfoods Europe. Her European work experience began in 1996 when she became

General Manager of Masterfoods Czech and Slovak Republics. Prior to joining Mars, Incorporated, Ms. Mars was a

controller with Whitman Heffernan Rhein, a boutique investment company. She began her career with Manufacturers

Hanover Trust Company as a training program participant and rose to Assistant Secretary. Ms. Mars is involved in a

number of community and educational organizations and currently serves on the Board of Conservation International,

where she chairs the Audit Committee. She is also Director Emeritus of The Open Space Institute.

Ms. Mars holds a Bachelor of Arts degree from Yale University and a Master of Business Administration from the

Columbia Business School.

Ms. Mars was appointed to the Board of Directors on October 12, 2014.

Ruth J. Simmons (non-executive director) - Born in Grapeland (Texas, USA) in 1945, Ruth J. Simmons served on

the Board of Directors of FCA US from 2012 to 2014. She was also President of Brown University from 2001 to 2012,

Professor in the Department of Comparative Literature and the Department of African Studies of Brown University

from 2001 to 2014, and currently serves as President of Prairie View A&M University.

Prior to joining Brown University, Ms. Simmons was President of Smith College, where she started the ﬁrst engineering

program at a U.S. women’s college. She also was Vice Provost at Princeton University and Provost at Spelman

College and held various positions of increasing responsibility until becoming Associate Dean of the faculty at

Princeton University. Ms. Simmons was previously Assistant Dean and then Associate Dean at the University of

Southern California. She also held various positions including Acting Director of international programs at the California

State University (Northridge), Assistant Dean at the College of Liberal Arts, Assistant Professor of French at the

University of New Orleans, Admissions Ofﬁcer at Radcliffe College, instructor in French at the George Washington

University and an interpreter-Language Services Division at the U.S. Department of State.

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101

Ms. Simmons also serves on the board of Square Inc.

Ms. Simmons is a graduate of Dillard University in New Orleans, and received her Ph.D. in Romance languages and

literatures from Harvard University. She is a Fellow of the American Academy of Arts and Sciences and a member of

the Council on Foreign Relations.

Ms. Simmons was appointed to the Board of Directors on October 12, 2014.

Ronald L. Thompson (non-executive director) - Born in Detroit (Michigan, USA) in 1949, Ronald L. Thompson

served on the Board of Directors of FCA US from 2009 to 2014. Mr. Thompson is currently chairman of the board of

trustees for Teachers Insurance and Annuity Association (TIAA), a for-proﬁt life insurance company that serves the

retirement and ﬁnancial needs of faculty and employees of colleges and universities, hospitals, cultural institutions and

other nonproﬁt organizations. He also serves on the Board of Trustees for Washington University in St. Louis, Missouri,

on the Board of Trustees of the Medical University of South Carolina Foundation, and as a member of the Advisory

Board of Plymouth Venture Partners Fund.

Mr. Thompson was previously the Chief Executive Ofﬁcer and Chairman of Midwest Stamping Company of Maumee,

Ohio, a manufacturer of medium and heavy gauge metal components for the automotive market. He sold the

company in late 2005. Mr. Thompson has served on the boards of many different companies including Commerce

Bank of St. Louis, GR Group (U.S.), Illinova Corporation, Interstate Bakeries Corporation, McDonnell Douglas

Corporation, Midwest Stamping Company, Ralston Purina Company and Ryerson Tull, Inc. He was also a member

of the Board of Directors of the National Association of Manufacturers. He was Chairman and Chief Executive Ofﬁcer

at GR Group, General Manager at Puget Sound Pet Supply Company and Chairman and Chief Executive Ofﬁcer

at Evaluation Technologies. Mr. Thompson has served on the faculties of Old Dominion University, Virginia State

University and the University of Michigan.

Mr. Thompson holds a Ph.D. and a Master of Science in Agricultural Economics from Michigan State University and a

Bachelor of Business Administration from the University of Michigan.

Mr. Thompson was appointed Senior Non-Executive Director on October 12, 2014.

Michelangelo A. Volpi (non-executive director) - Born in Milan (Italy) in 1966, Michelangelo Volpi has been a partner

at Index Ventures since 2009. He is focused on investments in the enterprise software infrastructure and consumer

Internet sectors. Mr. Volpi led the investment by Index Ventures in Pure Storage (PSTG), Cloud.com (CTRX) and

StorSimple (MSFT) and is currently a director of Sonos, Wealthfront, Lookout, Elastic, Conﬂuent, Blue Bottle Coffee,

Slack, and Zuora. Mr. Volpi also served as an independent member of the board of Exor N.V. until May 29, 2018.

Mr. Volpi performed in various executive roles for 13 years at Cisco Systems from 1994. He served as the company’s

Chief Strategy Ofﬁcer, where he was responsible for Cisco’s corporate strategy as well as business development,

strategic alliances, advanced Internet projects, legal services, and government affairs. During this tenure, Mr. Volpi was

instrumental in the creation of the company’s acquisition and investment strategies, as Cisco acquired more than 70

companies during his tenure. He then became Senior Vice President & General Manager of the Routing and Service

Provider Technology Group, where he led Cisco’s business for the Service Provider market, and was also responsible

for all of Cisco’s routing products. Mr. Volpi began his career as a product development engineer at Hewlett Packard’s

Optoelectronics Division. Prior to Index, he was the CEO of Joost - an innovator in the ﬁeld of premium video services

delivered over the Internet.

Mr. Volpi has a B.S. in Mechanical Engineering and an M.S. in Manufacturing Systems Engineering from Stanford

University, and an M.B.A. from the Stanford Graduate School of Business. He is a trustee of The Castilleja School in

Palo Alto, CA and was a trustee of the Stanford Business School Trust until 2017.

Mr. Volpi was appointed to the Board of Directors on April 14, 2017.

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Patience Wheatcroft (non-executive director) - Born in Chesterﬁeld (United Kingdom) in 1951, Patience Wheatcroft

is a British national and graduate in law from the University of Birmingham. She is also a member of the House of

Lords since 2011 and a ﬁnancial commentator and journalist. Ms. Wheatcroft currently serves as Non-executive

Director of the wealth management company St. James’s Place PLC. Ms.Wheatcroft has a broad range of

experience in the media and corporate world with past positions at the Wall Street Journal Europe, where she was

Editor-in-Chief, The Sunday Telegraph, The Times, Mail on Sunday, as well as serving as Non-executive Director of

Barclays Group PLC and Shaftesbury PLC.

Ms. Wheatcroft served on the Board of Trustees of the British Museum, until 2018.

Ms. Wheatcroft was appointed to the Board of Directors of Fiat S.p.A. in April 2012 and became a member of the

Board of Directors on October 12, 2014.

Ermenegildo Zegna (non-executive director) - Born in Turin (Italy) in 1955, Ermenegildo Zegna has been Chief

Executive Ofﬁcer of the Ermenegildo Zegna Group since 1997, having served on the board since 1989. Previously,

he held senior executive positions within the Zegna Group including in the U.S., after a retail experience at

Bloomingdale’s, New York. He is also a member of the boards of Tom Ford International, Camera Nazionale della

Moda Italiana, the Council for the United States and Italy, and from 2018 of the newly acquired American luxury brand

Thom Browne. In 2011, he was nominated Cavaliere del Lavoro by the President of the Italian Republic.

A graduate in economics from the University of London, Mr. Zegna also studied at the Harvard Business School.

Mr. Zegna was appointed to the Board of Directors on October 12, 2014.

Composition of the Board of Directors

Pursuant to Dutch law, as from the ﬁnancial year starting January 1, 2017, FCA should strive to achieve a minimum

of 30% male and 30% female representation on its Board of Directors and should explain in its annual report if these

criteria are not met. Three of our current twelve Directors are female and therefore female board members represent

less than 30% of the total board as is required by Dutch law. The Company appreciates that a diversity of views and

expertise is needed for a good understanding of current affairs and longer-term risks and opportunities related to the

Company’s business and therefore adopted a Diversity Policy on December 20, 2017, as well as a Proﬁle for Non-

Executive Directors. The Diversity Policy stipulates, among other things, a target that “at least 30% of the seats of

the Board of Directors are occupied by women and at least 30% by men and that as soon as reasonably possible

the composition of the Board of Directors shall meet this target”. The Company will continue to take this target into

account in the appointment and nomination of executive and non-executive Directors. Nevertheless, the Company

believes that the current Board of Directors has the diversity of experience, expertise and backgrounds, and the

appropriate independence and judgment to fulﬁll its responsibilities and execute its duties appropriately.

Amount and Composition of the Remuneration of the Board of Directors

Details of the remuneration of the Board of Directors and its committees are set forth within the section

“REMUNERATION REPORT” included elsewhere within this report.

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103

Directors’ Share Ownership

The table below shows the number of FCA common shares owned by members of the Board of Directors as at

February22, 2019:

Directors Owning FCA Common Shares Shares Percent of Class

John Elkann 133,000 —%

Michael Manley 345,362 —%

John Abbott — —%

Andrea Agnelli 36,102 —%

Tiberto Brandolini d’Adda 25,973 —%

Glenn Earle 34,136 —%

Valerie Mars 25,973 —%

Ruth J. Simmons 50,881 —%

Ronald L. Thompson 25,973 —%

Michelangelo Volpi — —%

Patience Wheatcroft 25,973 —%

Ermenegildo Zegna 29,008 —%

No members of senior management beneﬁcially own 1% or more of the Company’s common shares.

Board Practices and Committees

Board Regulations

On December 20, 2017, the Board of Directors adopted its current regulations, that deal with matters that concern the

Board of Directors and its committees internally.

The regulations contain provisions concerning the manner in which meetings of the Board of Directors are called

and held, including the decision-making process. The regulations provide that meetings may be held by telephone

conference or video-conference, provided that all participating Directors can follow the proceedings and participate in

real-time discussion of the items on the agenda.

The Board of Directors can only adopt valid resolutions when the majority of the Directors in ofﬁce are present at the

meeting or be represented thereat.

A Director may only be represented by another Director authorized in writing.

A Director may not act as a proxy for more than one other Director.

All resolutions shall be adopted by the favorable vote of the majority of the Directors present or represented at the

meeting, provided that the regulations contain speciﬁc provisions in this respect. Each Director shall have one vote.

The Board of Directors shall be authorized to adopt resolutions without convening a meeting if all Directors shall have

expressed their opinions in writing, unless one or more Directors shall object in writing against the resolution being

adopted in this way prior to the adoption of the resolution.

The regulations are available on the Company’s website.

Committees

On October 13, 2014, the Board of Directors appointed the following internal committees: (i) an Audit Committee; (ii)

a Governance and Sustainability Committee; and (iii) a Compensation Committee, with such appointments becoming

effective as of the Merger effective date.

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The Audit Committee

On December 20, 2017, the Board of Directors adopted the current charter of the Audit Committee. The Audit

Committee is responsible for assisting and advising the Board of Directors’ oversight of, inter alia: (i) the integrity of the

Company’s ﬁnancial statements, including any published interim reports; (ii) the Company’s policy on tax planning;

(iii) the Company’s ﬁnancing; (iv) the Company’s applications of information and communication technology; (v)

the systems of internal controls that management and the Board of Directors have established; (vi) the Company’s

compliance with legal and regulatory requirements; (vii) the Company’s compliance with recommendations and

observations of internal and independent auditors; (viii) the Company’s policies and procedures for addressing certain

actual or perceived conﬂicts of interest; (ix) the independent auditors’ qualiﬁcations, independence, remuneration

and any non-audit services for the Company; (x) the performance of the Company’s internal auditors and of the

independent auditors; (xi) risk management guidelines and policies; and (xii) the implementation and effectiveness of

the Company’s ethics and compliance program.

The Audit Committee currently consists of Mr. Glenn Earle (Chairman), Mr. Thompson, Ms. Wheatcroft and Ms. Mars.

The Audit Committee is elected by the Board of Directors and is comprised of at least three non-executive Directors.

Audit Committee members are also required (i) not to have any material relationship with the Company or to serve

as auditors or accountants for the Company; (ii) to be “independent”, for purposes of NYSE rules, Rule 10A-3 of the

Exchange Act and the Dutch Corporate Governance Code; and (iii) to be “ﬁnancially literate” and have “accounting

or selected ﬁnancial management expertise” (as determined by the Board of Directors). At least one member of the

Audit Committee shall be a “ﬁnancial expert” as deﬁned by the Sarbanes-Oxley Act and the rules of the U.S. Securities

and Exchange Commission and section 2(3) of the Decree on the Establishment of an audit committee. No Audit

Committee member may serve on more than four audit committees for other public companies, absent a waiver from

the Board of Directors which must be disclosed in the Company’s annual report. Unless decided otherwise by the

Audit Committee, the independent auditors of the Company, the Chief Financial Ofﬁcer and the Head of Internal Audit

attend its meetings while the Chief Executive Ofﬁcer is entitled to attend meetings of the Audit Committee unless the

Audit Committee determines otherwise and shall attend the meetings of the Audit Committee if the Audit Committee

so requires. The Audit Committee shall meet with the independent auditor at least once per year outside the presence

of the executive directors and management.

Our board of directors has determined that Glenn Earle and Ronald Thompson are “audit committee ﬁnancial experts”.

Mr. Earle and Mr. Thompson are independent directors under NYSE standards.

During 2018, 8 meetings of the Audit Committee were held. The average attendance of its members at those meetings

was 100 percent. The Committee reviewed the Group ﬁnancial results on a quarterly basis with the assistance of

the Group Chief Financial Ofﬁcer and other Company’s ofﬁcers mainly from ﬁnance and legal departments, focusing

on main business drivers in addition to key accounting and reporting matters. Independent Auditors attended all the

meetings providing regular information to the Committee on their activity with speciﬁc focus on the areas of major audit

risks such as the evaluation of assets and liabilities requiring management judgment. The Committee received updates

on legal and compliance matters, with the General Counsel attending the Committee meetings. Internal Audit activity

was reviewed on a regular basis with the Head of the Internal Audit attending all the meetings and discussing with

the Committee the main ﬁndings and remediating actions. Internal control over ﬁnancial reporting was part of these

reviews as well. In line with the policy adopted by the Group, the Committee was regularly involved in the review and

approval of transactions entered into with related parties.

The Compensation Committee

On December 20, 2017, the Board of Directors adopted the current charter of the Compensation Committee. The

Compensation Committee is responsible for, inter alia, assisting and advising the Board of Directors in: (i) determining

executive compensation consistent with the Company’s remuneration policy; (ii) reviewing and approving the

remuneration structure for the executive Directors; (iii) administering equity incentive plans and deferred compensation

beneﬁt plans; (iv) discussing with management the Company’s policies and practices related to compensation and

issuing recommendations thereon; and (v) to prepare the remuneration report.

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The Compensation Committee currently consists of Mr. Zegna (Chairman), Ms. Mars and Mr. Volpi. The Compensation

Committee is elected by the Board of Directors and is comprised of at least three non-executive Directors, of which at

most one of them may not be independent under Dutch Corporate Governance Code. Unless decided otherwise by the

Compensation Committee, the Head of Human Resources of the Company attends its meetings.

During 2018, the Compensation Committee met 4 times with 100 percent attendance of its members at those

meetings. The Compensation Committee reviewed the implementation of the Remuneration Policy and the

Remuneration Report. Further details of the activities of the Compensation Committee are included in the

REMUNERATION REPORT section included elsewhere in this report.

The Governance and Sustainability Committee

On December 20, 2017, the Board of Directors adopted the current charter of the Governance and Sustainability

Committee. The Governance and Sustainability Committee is responsible for, inter alia, assisting and advising the Board of

Directors with: (i) the identiﬁcation of the criteria, professional and personal qualiﬁcations for candidates to serve as Directors;

(ii) periodic assessment of the size and composition of the Board of Directors; (iii) periodic assessment of the performance

of individual Directors and reporting on this to the Board of Directors; (iv) proposals for appointment of executive and

non-executive Directors; (v) supervision of the selection criteria and appointment procedure for senior management; (vi)

monitoring and evaluating reports on the Group’s sustainable development policies and practices, management standards,

strategy, performance and governance globally; and (vii) reviewing, assessing and making recommendations as to strategic

guidelines for sustainability-related issues, and reviewing the annual Sustainability Report.

The Governance and Sustainability Committee currently consists of Mr. Elkann (Chairman), Ms. Wheatcroft and Ms.

Simmons. The Governance and Sustainability Committee is elected by the Board of Directors and is comprised of

at least three Directors. More than half of its members shall be independent under the Dutch Corporate Governance

Code and at most one of the members may be an executive Director.

During 2018, the Governance and Sustainability Committee met once with 100 percent attendance of its members

at that meeting. The Committee reviewed the Board of Director’s and Committee’s assessments, the sustainability

achievements and objectives and the recommendations for Directors’ election.

Indemniﬁcation of Directors

Under Dutch law, indemniﬁcation provisions may be included in a company’s articles of association. Under its Articles

of Association, FCA is required to indemnify any and all of its Directors, ofﬁcers, former Directors, former ofﬁcers and

any person who may have served at its request as a Director or ofﬁcer of another company in which it owns shares or

of which it is a creditor, against any and all expenses actually and necessarily incurred by any of them in connection

with the defense of any action, suit or proceeding in which they, or any of them, are made parties, or a party, by

reason of being or having been a Director or ofﬁcer of the Company, or of such other company, except in relation

to matters as to which any such person shall be adjudged in such action, suit or proceeding to be liable for gross

negligence or willful misconduct in the performance of duty. Such indemniﬁcation shall not be deemed exclusive of any

other rights to which those indemniﬁed may be entitled otherwise.

Conﬂict of Interest

A Director shall not participate in discussions and the decision-making of the Board of Directors with respect to a

matter in relation to which he or she has a direct or indirect personal interest that is in conﬂict with the interests of the

Company and the business associated with the Company (“Conﬂict of Interest”), which shall be determined outside

the presence of the Director concerned. All transactions where there is a Conﬂict of Interest must be concluded on

terms that are customary in the branch concerned and approved by the Board of Directors. In addition, the Board of

Directors as a whole may, on an ad hoc basis, resolve that there is such a strong appearance of a Conﬂict of Interest

of an individual Director in relation to a speciﬁc matter that it is deemed in the best interest of a proper decision making

process that such individual Director be excused from participation in the decision making process with respect to

such matter even though such Director may not have an actual Conﬂict of Interest.

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At least annually, each Director shall assess in good faith whether (i) he or she is independent under (a) best

practice provision 2.1.8. of the Dutch Corporate Governance Code, (b) the requirements of Rule 10A-3 under the

Exchange Act, and (c) Section 303A of the NYSE Listed Company Manual; and (ii) he or she has a Conﬂict of Interest

in connection with any transactions between the Company and a signiﬁcant shareholder or related party of the

Company, including afﬁliates of a signiﬁcant shareholder (such conﬂict, a “Related-Party Conﬂict”), it being understood

that currently Exor N.V. would be considered a signiﬁcant shareholder.

The Directors shall inform the Board of Directors through the Senior Non-executive Director or the Secretary of the

Board of Directors as to all material information regarding any circumstances or relationships that may impact their

characterization as “independent” or impact the assessment of their interests, including by responding promptly to the

annual Directors and Ofﬁcers (“D&O”) questionnaires circulated by or on behalf of the Secretary that are designed to

elicit relevant information regarding business and other relationships.

Based on each Director’s assessment described above, the Board of Directors shall make a determination at

least annually regarding such Director’s independence and such Director’s Related-Party Conﬂict. These annual

determinations shall be conclusive, absent a change in circumstances from those disclosed to the Board of Directors

that necessitates a change in such determination.

Senior Management

The Group’s management is led by FCA’s Chief Executive Ofﬁcer who is supported by a Group Executive Council

(“GEC”). From an operational perspective, each of our reportable segments are led by Chief Operating Ofﬁcers

(“COO”), who are accountable for the proﬁt or loss of the segment and management of segment resources,

including industrial and commercial activities. These are supported centrally by corporate functions, including a Chief

Financial Ofﬁcer and General Counsel. With the exception of the General Counsel, each of these members of senior

management are members of the GEC.

The regional COOs and leaders of the key corporate functions are:

Michael Manley as Chief Executive Ofﬁcer;

Pietro Gorlier as Chief Operating Ofﬁcer EMEA and Global Head of Parts & Service (MOPAR);

Antonio Filosa as Chief Operating Ofﬁcer LATAM;

Mark Stewart as Chief Operating Ofﬁcer NAFTA;

Daphne Zheng as Chief Operating Ofﬁcer of China;

Paul Alcala as Chief Operating Ofﬁcer APAC (excluding China);

Harald Wester as Chief Operating Ofﬁcer Maserati;

Richard K. Palmer as Chief Financial Ofﬁcer; and

Giorgio Fossati as Corporate General Counsel.

Summary biographies for these individuals are included below. For the biography of Mr. Manley, see above.

Pietro Gorlier - Pietro Gorlier was named Chief Operating Ofﬁcer (COO) of the EMEA region in October 2018. He has

been a member of the GEC and Global Head of Parts & Service (MOPAR) since September 2011. Mr. Gorlier has held

other key roles for the Group including being appointed COO of Components in June 2015 and President and Chief

Executive Ofﬁcer - MOPAR Brand Service, Parts and Customer Care, Chrysler Group LLC, in June 2009.

He joined the Chrysler Group from Fiat Group Automobiles S.p.A. and CNH Global N.V., where he previously served

as Head of the Network and Owned Dealerships organization. Mr. Gorlier joined the Fiat Group in 1989 as a Market

Analyst in Iveco and held various positions in Logistics, After Sales, and Customer Care before joining Fiat Group

Automobiles in 2006 in Network Development. He is a graduate from the University of Turin where he studied

economics and business. Mr. Gorlier was born in Turin, Italy in 1962.

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Antonio Filosa - Antonio Filosa was named Chief Operating Ofﬁcer of the LATAM region and a member of the GEC in

March 2018. Previously, Mr. Filosa served as the Head of Argentina as well as the Head of Alfa Romeo and Maserati

brands for the Latin America region, positions he held since 2016 and 2018, respectively.

Prior to those roles, he was responsible for all Purchasing activities in the LATAM region. Mr. Filosa has held a series

of positions with increasing responsibility within the Group including serving as plant manager of the Betim facility. He

joined the Group in 1999. Mr. Filosa holds a master’s degree in engineering from Politecnico di Milano (Italy). Mr. Filosa

was born in Castellammare di Stabia, Italy in 1973.

Mark Stewart - Mark Stewart was appointed Chief Operating Ofﬁcer for the NAFTA region and named a member of

the Group Executive Council (GEC) on December 6, 2018. Previously, Mr. Stewart was Vice President of Operations

for Amazon since 2017. He was the lead executive for customer fulﬁllment across 200 operations facilities in

North America. In this position, he was also responsible for overseeing operations, procurement, construction,

and engineering with teams dedicated to pursuing automation, artiﬁcial intelligence and advanced robotics and

conveyance. Prior to that, Mr. Stewart was Executive Vice President and Chief Operating Ofﬁcer for ZF TRW

Automotive from 2015. He also held a number of positions with increasing responsibility at TRW Automotive, Inc., from

2006. He spent the ﬁrst years of his career in manufacturing with TRW Inc., and later Tower Automotive, Inc. where

he served as Director of Operations and Executive Vice President. Mr. Stewart has been based in the U.S., Belgium,

Germany, and China with a variety of experiences in production, quality, and engineering. He holds a Bachelor of

Engineering from Vanderbilt University and a Master of Business Administration from the University of Tennessee. Mr.

Stewart was born in Madison (Alabama, USA), in 1967.

Daphne Zheng - Daphne Zheng was appointed Chief Operating Ofﬁcer China and member of the GEC in

January 2017. Ms. Zheng most recently served as the Managing Director of the Sales Joint Venture in China with

Guangzhou Automotive Group Co., Ltd., and previously has held senior positions in Sales and Marketing with FCA

in China since 2008.

Prior to that appointment, she served as Vice President at Honeywell China in 2007 and Global Vice President at

Onstar in the United States in 2005. Ms. Zheng began her career in 1993 as a journalist at China Daily and later joined

GM China serving as the Director of Public Relations. She holds a Master of Business Administration degree from

Rutgers University and a bachelor’s degree in journalism from Shanghai International Studies University. Ms. Zheng

was born in Shanghai, China in 1970.

Paul Alcala - Paul Alcala was appointed Chief Operating Ofﬁcer APAC (excluding China) and member of the GEC

in January 2017. He most recently served as the Head of China Developments and the Vice Chairman for the

Manufacturing and Sales Joint Ventures in China with Guangzhou Automotive Group Co., Ltd. Prior to this, he

was Head of Aftersales for Maserati, Director of Customer Care and Call Centers for FCA US as well as Director of

International Service and Parts at FCA US. Mr. Alcala also served as General Manager of Beijing Jeep Corp. and Chief

Executive of Chrysler de Venezuela. He was also Director of Manufacturing and Chief Financial Ofﬁcer of Chrysler

de Venezuela. Mr. Alcala joined the former Chrysler Corporation in 1987 and held a series of positions of increasing

responsibility in the U.S., Europe, Latin America and Asia Paciﬁc.

Mr. Alcala holds a Master of Business Administration from Duke University and a Bachelor of Business from the

University of Michigan. Mr. Alcala was born in Royal Oak, Michigan, USA in 1961.

Harald Wester - Harald Wester was appointed Chief Operating Ofﬁcer Maserati in October 2018. He has also been a

member of the Group Executive Council (GEC) and Chief Technical Ofﬁcer since September 2011. Previously, he was

Head of Alfa Romeo and Maserati (until May 2016) and Abarth (until 2013). Mr. Wester was appointed Chief Technical

Ofﬁcer for Fiat Group in September 2007. In addition to this role, in August 2008 he was appointed Chief Executive

Ofﬁcer of Maserati S.p.A., in January 2009 Chief Executive Ofﬁcer of Abarth & C. S.p.A., and in January 2010 Chief

Executive Ofﬁcer of Alfa Romeo Automobiles.

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Mr. Wester started his professional career at Volkswagen AG in Wolfsburg, where he was General Manager of the

Vehicle Research and New Concepts department from 1991 to 1995. Later that year, he joined Audi AG in Ingolstadt

where he became Program Manager for the A2 models and Special Vehicles, a position that he held until January

1999. Subsequently, he joined Ferrari S.p.A. at Maranello as Director of Product Development, where he remained

until January 2002. Mr. Wester was then hired by Magna Steyr AG, Magna AG (Graz, Vienna) as Group President

Engineering and Chief Technical Ofﬁcer (Research, Development and Technologies). In 2004, he joined the Fiat Group

where he took on the role of Chief Technical Ofﬁcer of Fiat Group Automobiles.

He obtained a Masters in Mechanical Engineering from Technical University of Braunschweig in Braunschweig,

Germany. Mr. Wester was born in Linz am Rhein, Germany in 1958.

Richard K. Palmer - Richard K. Palmer was appointed Chief Financial Ofﬁcer and a member of the GEC in September

2011. He was also named Head of Business Development in July 2018. Previously he served as Chief Operating

Ofﬁcer Systems and Castings. In his current role, Mr. Palmer is responsible for all ﬁnancial activities of the Group

including control, treasury and tax. Mr. Palmer was Chief Financial Ofﬁcer of FCA US from June 2009 until 2017. Mr.

Palmer joined FCA US from the former Fiat Group Automobiles, where he held the position of Chief Financial Ofﬁcer

beginning in December 2006. In 2003, he joined the Group as Chief Financial Ofﬁcer of Comau, and in 2005, moved

to Iveco in the same role.

Prior to that appointment, he was Finance Manager for several business units at General Electric Oil and Gas.

Mr. Palmer spent the ﬁrst years of his career in audit with Pricewaterhouse and later with United Technologies

Corporation. Mr. Palmer served as a member of the Board of Directors of R.R. Donnelley & Sons Company from 2013

to September 2016. Since October 1, 2016, Mr. Palmer has served as member of the Board of Directors of LSC

Communications, Inc., which was spun off from R.R. Donnelly and Sons Company, on that date.

Mr.Palmer is a Chartered Accountant and member of ICAEW (UK) and holds a Bachelor of Science degree in

Microbiology from the University of Warwick (UK). Mr. Palmer was born in Keynsham, England in 1966.

Giorgio Fossati - Giorgio Fossati was appointed Corporate General Counsel in November 2014. He is also General

Counsel - EMEA. Previously Mr. Fossati was General Counsel of Fiat, a position to which he was appointed in 2011.

Previously he had been General Counsel of Fiat Auto since 2002, following other positions of increasing responsibility

within the Fiat Legal department. Prior to that, Mr. Fossati worked in positions of increasing responsibility in the legal

department at Iveco S.p.A.

Mr. Fossati earned his master’s degree in law from the University of Turin School of Law. Mr. Fossati was born in

Orbassano, Italy in 1961.

Articles of Association and Information on FCA Shares

The following is a summary of material information relating to FCA common shares, including summaries of certain

provisions of the Articles of Association, the terms and conditions in respect of FCA special voting shares (the “Terms

and Conditions of Special Voting Shares”) and the applicable Dutch law provisions in effect at the date of this report.

The summaries of the Articles of Association and the Terms and Conditions of Special Voting Shares as set forth in

this report are qualiﬁed in their entirety by reference to the full text of the Articles of Association and the Terms and

Conditions of Special Voting Shares.

Share Capital

The authorized share capital of FCA is forty million Euro (€40,000,000), divided into two billion (2,000,000,000)

common shares, nominal value of one Euro cent (€0.01) per share and two billion (2,000,000,000) special voting

shares, nominal value of one Euro cent (€0.01) per share.

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On October 29, 2014, the Board of Directors of FCA resolved to authorize the issuance of up to a maximum of

90,000,000 FCA common shares under the framework equity incentive plan which had been adopted before the closing

of the Merger. Any issuance of shares thereunder in the period from 2014 to 2018 was subject to the satisfaction of

certain performance and retention requirements. Any issuances to directors was subject to shareholder approval. During

2018 a total of 10,527,873 FCA common shares were issued under the framework equity incentive plan.

At December 31, 2014, there were 1,250,000 FCA common shares reserved for issuance under the FCA Non-

Executive Directors’ Compensation Plan in the following 5 years. During 2015, a total of 83,172 FCA common

shares were issued at fair market value, being equal to the average of the highest and lowest sale price of an FCA

common share during normal trading hours on the NYSE on the last trading day of the applicable plan year quarter.

During 2016, a total of 163,333 FCA common shares were issued at fair market value. During 2017, a total of 54,855

common shares were issued at fair market value. No FCA common shares were issued during 2018 following the

amendment of the remuneration policy for the Board of Directors, as adopted by the General Meeting of Shareholders

held on April, 14, 2017, which introduced cash payments for Non-Executive Directors.

FCA common shares are registered shares represented by an entry in the share register of FCA. The Board of

Directors may determine that, for the purpose of trading and transfer of shares on a foreign stock exchange, share

certiﬁcates shall be issued in such a form as shall comply with the requirements of such a foreign stock exchange. A

FCA’s behalf by the Transfer Agent, which serves as branch registrar and transfer agent.

Beneﬁcial interests in FCA common shares that are traded on the NYSE are held through the book-entry system

provided by The Depository Trust Company (“DTC”) and are registered in FCA’s register of shareholders in the name

of Cede & Co., as DTC’s nominee. Beneﬁcial interests in FCA common shares traded on the MTA are held through

Monte Titoli S.p.A., the Italian central clearing and settlement system, as a participant in DTC.

Additional information on FCA’s equity is contained in Note 26, Equity, to the Consolidated Financial Statements

included elsewhere in this report.

Directors

Set forth below is a summary of the material provisions of the Articles of Association relating to our Directors. This

summary does not restate the Articles of Association in their entirety.

FCA’s Directors serve on the Board of Directors for a term of approximately one year, with that term ending on the day

that the ﬁrst annual general meeting of shareholders is held in the following calendar year. FCA’s shareholders appoint

the directors of the Board of Directors at a general meeting. Each Director may be reappointed for an unlimited

number of terms. The general meeting of shareholders determines whether a Director is an executive director or a

non-executive director.

FCA has a policy in respect of the remuneration of the members of the Board of Directors. With due observation

of the remuneration policy, the Board of Directors may determine the remuneration for directors in respect of the

performance of their duties. The Board of Directors must submit plans to award shares or the right to subscribe for

shares to the general meeting of shareholders for its approval.

FCA shall not grant the Directors any personal loans or guarantees.

Additional information on the Board of Directors is contained in the Report of the Non-Executive Directors included

elsewhere in this report.

No Liability to Further Capital Calls

All of the outstanding FCA common shares and special voting shares are fully paid and non-assessable.

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Discriminating Provisions

There are no provisions of the Articles of Association that discriminate against a shareholder because of its ownership

of a substantial number of shares.

Rights of Pre-Emption

Under Dutch law and the Articles of Association, each FCA shareholder has a right of pre-emption in proportion to

the aggregate nominal value of its shareholding upon the issuance of new FCA common shares, or the granting of

rights to subscribe for FCA common shares. Exceptions to this right of pre-emption include the issuance of new FCA

common shares, or the granting of rights to subscribe for common shares: (i) to employees of FCA or another member

of its Group pursuant to an equity incentive plan of FCA; (ii) against payment in kind (contribution other than in cash)

and (iii) to persons exercising a previously granted right to subscribe for FCA common shares.

In the event of an issuance of special voting shares, shareholders shall not have any right of pre-emption.

The general meeting of shareholders may resolve to limit or exclude the rights of pre-emption upon an issuance of FCA

common shares, which resolution requires approval of at least two-thirds of the votes cast, if less than half of the issued

share capital is represented at the general meeting of shareholders. The Articles of Association, or the general meeting of

shareholders, may also designate the Board of Directors to resolve to limit or exclude the rights of pre-emption in relation

to the issuance of FCA common shares. Pursuant to Dutch law, the designation by the general meeting of shareholders

may be granted to the Board of Directors for a speciﬁed period of time of not more than ﬁve years and only if the Board

of Directors has also been designated or is simultaneously designated the authority to resolve to issue FCA common

shares. The Board of Directors is designated in the Articles of Association as the competent body to exclude or limit

rights of pre-emption for an initial period of ﬁve years from October 12, 2014 which may be extended by the general

meeting of shareholders with additional periods up to a maximum of ﬁve years per period.

Repurchase of Shares

Upon agreement with the relevant FCA shareholder, FCA may acquire its own shares at any time for no consideration

(om niet), or, subject to certain provisions of Dutch law and the Articles of Association, for consideration if: (i) FCA’s

shareholders’ equity less the payment required to make the acquisition does not fall below the sum of called-up and

paid-in share capital and any statutory reserves; (ii) FCA would thereafter not hold a pledge over FCA common shares,

or together with its subsidiaries, hold FCA common shares with an aggregate nominal value exceeding 50 percent of

the FCA’s issued share capital; and (iii) the Board of Directors has been authorized to do so by the general meeting of

shareholders.

The acquisition of fully paid-up shares by FCA other than for no consideration (om niet) requires authorization by the

general meeting of shareholders. Such authorization may be granted for a period not exceeding 18 months and shall

specify the number of shares, the manner in which the shares may be acquired and the price range within which shares

may be acquired. The authorization is not required for the acquisition of shares for employees of FCA, or another member

of its Group, under a scheme applicable to such employees and no authorization is required for repurchase of shares

acquired in certain other limited circumstances in which the acquisition takes place by operation of law, such as pursuant

to mergers or demergers. Such shares must be ofﬁcially listed on the price list of an exchange.

At a general meeting of shareholders, the shareholders may resolve to designate the Board of Directors as the

competent body to resolve on FCA acquiring any fully paid up FCA common shares other than for no consideration

(om niet) for a period of up to 18 months.

FCA may, jointly with its subsidiaries, hold FCA shares in its own capital exceeding one-tenth of its issued capital for

no more than three years after acquisition of such FCA shares for no consideration (om niet) or in certain other limited

circumstances in which the acquisition takes place by operation of law, such as pursuant to mergers or demergers.

Any FCA shares held by FCA in excess of the amount permitted shall transfer to all members of the Board of Directors

jointly at the end of the last day of such a three-year period. Each member of the Board of Directors shall be jointly

and severally liable to compensate FCA for the value of the FCA shares at such a time, with interest payable at the

statutory rate thereon. The term FCA shares as used in this paragraph shall include depositary receipts for shares and

shares in respect of which FCA holds a right of pledge.

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No votes may be cast at a general meeting of shareholders on the FCA shares held by FCA or its subsidiaries. In

addition, no voting rights may be cast at a general meeting of shareholders in respect of FCA shares for which

depositary receipts have been issued that are owned by FCA. Nonetheless, the holders of a right of usufruct or pledge

in respect of shares held by FCA and its subsidiaries in FCA’s share capital are not excluded from the right to vote on

such shares if the right of usufruct or pledge was granted prior to the time such shares were acquired by FCA or its

subsidiaries. Neither FCA nor any of its subsidiaries may cast votes in respect of a share on which it or its subsidiaries

holds a right of usufruct or pledge. No right of pledge may be established on special voting shares and the voting

rights attributable to special voting shares may not be assigned to a usufructuary.

Reduction of Share Capital

Shareholders at a general meeting have the power to cancel shares acquired by FCA or to reduce the nominal value

of shares. A resolution to reduce the share capital requires a majority of at least two-thirds of the votes cast at the

general meeting of shareholders if less than one-half of the issued capital is present or represented at the meeting.

If more than one-half of the issued share capital is present or represented at the general meeting of shareholders, a

simple majority of the votes cast is required. Any proposal for a cancellation or reduction of nominal value is subject to

general requirements of Dutch law with respect to reductions of share capital.

Transfer of Shares

In accordance with the provisions of Dutch law, pursuant to Article 12 of the Articles of Association, the transfer of

FCA shares or the creation of a right in rem thereon requires a deed intended for that purpose and, save when the

company is a party, written acknowledgment by the Company of the transfer.

The transfer of FCA common shares that have not been entered into a book-entry system will be effected in

accordance with Article 12 of the Articles of Association.

Common shares that have been entered into the DTC book-entry system will be registered in the name of Cede & Co.

as nominee for DTC and transfers of beneﬁcial ownership of shares held through DTC will be effected by electronic

transfer made by DTC participants. Article 12 of the Articles of Association does not apply to the trading of such FCA

common shares on a regulated market or the equivalent thereof.

Transfers of shares held outside of DTC (including Monte Titoli S.p.A. as a participant in DTC) or another direct

registration system maintained by Computershare US, FCA’s transfer agent in New York, or the Transfer Agent, and

not represented by certiﬁcates are effected by a stock transfer instrument and require the written acknowledgment

by FCA. Transfer of registered certiﬁcates is effected by presenting and surrendering the certiﬁcates to the Transfer

Agent. A valid transfer requires the registered certiﬁcates to be properly endorsed for transfer as provided for in the

certiﬁcates and accompanied by proper instruments of transfer and stock transfer tax stamps for, or funds to pay, any

applicable stock transfer taxes.

FCA common shares are freely transferable. As described below, special voting shares are generally not transferable.

At any time, a holder of FCA common shares that are registered in the Loyalty Register (i.e. Electing Common Shares or

Qualifying Common Shares) wishing to transfer such FCA common shares other than in limited speciﬁed circumstances

(i.e., transfers to afﬁliates or to relatives through succession, donation or other transfers) must ﬁrst request a de-registration

of such shares from the Loyalty Register and, if held outside the Regular Trading System, transfer such common shares

back into the Regular Trading System. After de-registration from the Loyalty Register, such FCA common shares no longer

qualify as Electing Common Shares or Qualifying Common Shares and, as a result, the holder of such FCA common shares

is required to offer and transfer the special voting shares associated with such FCA common shares that were previously

Qualifying Common Shares to FCA for no consideration (om niet) as described in detail in “Loyalty Voting Structure-Terms

and Conditions of the Special Voting Shares-Withdrawal of Special Voting Shares”.

Exchange Controls

Under Dutch law, there are no foreign exchange control restrictions on investments in, or payments on, FCA common

shares. There are no special restrictions in the Articles of Association or Dutch law that limit the right of shareholders

who are not citizens or residents of the Netherlands to hold FCA common shares or vote.

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Annual Accounts and Independent Auditor

FCA’s ﬁnancial year is the calendar year. Pursuant to FCA’s deed of incorporation, the ﬁrst ﬁnancial year of FCA ended

on December 31, 2014. Within four months after the end of each ﬁnancial year, the Board of Directors will prepare

and publish the annual accounts, which must be accompanied by an annual report and an auditor’s report, and make

those available for inspection at FCA’s registered ofﬁce. All members of the Board of Directors are required to sign the

annual accounts and in case the signature of any member is missing, the reason for this must be stated. The annual

accounts are to be adopted by the general meeting of shareholders at the annual general meeting, at which meeting

the members of the Board of Directors will be discharged from liability for performance of their duties with respect to any

matter disclosed in the annual accounts for the relevant ﬁnancial year insofar this appears from the annual accounts. The

annual accounts, the annual report and independent auditor’s report are made available through FCA’s website to the

shareholders for review as from the day of the notice convening the annual general meeting of shareholders.

Payment of Dividends

Information on the payment of dividends is contained in the section “OTHER INFORMATION” elsewhere in this report.

Amendments to the Articles of Association, including Variation of Rights

A resolution of the general meeting of shareholders to amend the Articles of Association or to wind up FCA may be

approved only if proposed by the Board of Directors and approved by a vote of a majority of at least two-thirds of the votes

cast if less than one-half of the issued share capital is present or represented at such a general meeting of shareholders.

The rights of shareholders may be changed only by amending the Articles of Association in compliance with Dutch law.

Dissolution and Liquidation

The general meeting of shareholders may resolve to dissolve FCA upon a proposal of the Board of Directors thereto.

A majority of at least two-thirds of the votes cast shall be required if less than one-half of the issued capital is present

or represented at the meeting. In the event of dissolution, FCA will be liquidated in accordance with Dutch law and

the Articles of Association and the liquidation shall be arranged by the members of the Board of Directors, unless

the general meeting of shareholders appoints other liquidators. During liquidation, the provisions of the Articles of

Association will remain in force as long as possible.

If FCA is dissolved and liquidated, whatever remains of FCA’s equity after all its debts have been discharged shall ﬁrst

be applied to distribute the aggregate balance of share premium reserves and other reserves (other than the special

dividend reserve), to holders of FCA common shares in proportion to the aggregate nominal value of FCA common

shares held by each holder; secondly, from any balance remaining, an amount equal to the aggregate amount of

the nominal value of FCA common shares will be distributed to the holders of FCA common shares in proportion to

the aggregate nominal value of FCA common shares held by each of them; thirdly, from any balance remaining, an

amount equal to the aggregate amount of the special voting shares dividend reserve will be distributed to the holders

of special voting shares in proportion to the aggregate nominal value of the special voting shares held by each of them;

fourthly, from any balance remaining, the aggregate amount of the nominal value of the special voting shares will be

distributed to the holders of special voting shares in proportion to the aggregate nominal value of the special voting

shares held by each of them; and, lastly, any balance remaining will be distributed to the holders of FCA common

shares in proportion to the aggregate nominal value of FCA common shares held by each of them.

Liability of Directors

Under Dutch law, the management of a company with a one-tier board structure like FCA is a joint undertaking and each

member of the Board of Directors can be held jointly and severally liable to FCA for damages in the event of improper or

negligent performance of their duties. Furthermore, members of the Board of Directors can be held liable to third parties

based on tort, pursuant to certain provisions of the Dutch Civil Code. All Directors are jointly and severally liable for failure

of one or more co-Directors. An individual Director is only exempted from liability if he or she proves that he or she cannot

be held seriously culpable for the mismanagement and that he or she has not been negligent in seeking to prevent the

consequences of the mismanagement. In this regard a Director may, however, refer to the allocation of tasks between

the Directors. In certain circumstances, Directors may incur additional speciﬁc civil and criminal liabilities.

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Election and Removal of Directors

FCA’s Articles of Association provide that FCA’s Board of Directors shall be composed of three or more members.

Directors are appointed by a simple majority of the votes validly cast at a general meeting of shareholders. The general

meeting of shareholders may at any time suspend or dismiss any Director.

Loyalty Voting Structure

The Company implemented a loyalty voting structure, pursuant to which the former shareholders of Fiat S.p.A. were

able to elect to receive one special voting share with a nominal value of €0.01 per share for each common share

they were entitled to receive in the Merger, provided that they fulﬁlled the requirements described in the terms and

conditions of the special voting shares. Such shareholders had their common shares registered in a separate register

(the “Loyalty Register”) of the Company’s shareholders register. Following this registration, a corresponding number of

special voting shares were allocated to the above-mentioned Shareholders. By signing an election form, the execution

of which was necessary to elect to receive special voting shares, shareholders also agreed to be bound by the terms

and conditions thereof, including the transfer restrictions described below.

Following the completion of the Merger, shareholders may at any time elect to participate in the loyalty voting structure

by requesting that the Company registers all or some of their common shares in the Loyalty Register. If these common

shares have been registered in the Loyalty Register (and thus blocked from trading in the regular trading system) for

an uninterrupted period of three years in the name of the same shareholder, such shares become eligible to receive

special voting shares (the “Qualifying Common Shares”) and the relevant shareholder will be entitled to receive

one special voting share for each such Qualifying Common Share. If, at any time, such common shares are de-

registered from the Loyalty Register for whatever reason, the relevant shareholder shall lose its entitlement to hold a

corresponding number of special voting shares.

A holder of Qualifying Common Shares may at any time request the de-registration of some or all such shares from

the Loyalty Register, which will allow such shareholder to freely trade its common shares. From the moment of such

a request, the holder of Qualifying Common Shares shall be considered to have waived his or her rights to cast any

votes associated with such Qualifying Common Shares. Upon the de-registration from the Loyalty Register, the

relevant shares will therefore cease to be Qualifying Common Shares. Any de-registration request would automatically

trigger a mandatory transfer requirement pursuant to which the special voting shares will be acquired by the Company

for no consideration (om niet) in accordance with the terms and conditions of the special voting shares.

The Company’s common shares are freely transferable. However, any transfer or disposal of the Company’s common

shares with which special voting shares are associated would trigger the de-registration of such common shares from

the Loyalty Register and the transfer of all relevant special voting shares to the Company. Special voting shares are not

admitted to listing and are transferable only in very limited circumstances. In particular, no shareholder shall, directly or

indirectly: (a) sell, dispose of or transfer any special voting share or otherwise grant any right or interest therein; or (b)

create or permit to exist any pledge, lien, ﬁxed or ﬂoating charge or other encumbrance over any special voting share

or any interest in any special voting share.

The purpose of the loyalty voting structure is to grant long-term shareholders an extra voting right by means of

granting a special voting share (shareholders holding special voting shares are entitled to exercise one vote for each

special voting share held and one vote for each common share held), without entitling such shareholders to any

economic rights, other than those pertaining to the common shares. However, under Dutch law, the special voting

shares cannot be totally excluded from economic entitlements. As a result, pursuant to the Articles of Association,

holders of special voting shares are entitled to a minimum dividend, which is allocated to a separate special dividend

reserve (the “Special Dividend Reserve”). A distribution from the Special Dividend Reserve or the (partial) release of the

Special Dividend Reserve, will require a prior proposal from the Board of Directors and a subsequent resolution of the

meeting of holders of special voting shares. The power to vote upon the distribution from the Special Dividend Reserve

is the only power that is granted to that meeting, which can only be convened by the Board of Directors as it deems

necessary. The special voting shares do not have any other economic entitlement.

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Section 10 of the terms and conditions of the special voting shares includes liquidated damages provisions intended

to discourage any attempt by holders to violate the terms thereof. These liquidated damages provisions may be

enforced by the Company by means of a legal action brought by the Company in the courts of the Netherlands. In

particular, a violation of the provisions of the above-mentioned terms and conditions concerning the transfer of special

voting shares may lead to the imposition of liquidated damages.

Pursuant to Section 12 of the terms and conditions of the special voting shares, any amendment to the terms and

conditions (other than merely technical, non-material amendments) may only be made with the approval of the

shareholders at a general meeting of FCA shareholders.

Terms and Conditions of the Special Voting Shares

The terms and conditions of the special voting shares apply to the issuance, allocation, acquisition, holding, repurchase

and transfer of special voting shares in the share capital of FCA and to certain aspects of Electing Common Shares,

Qualifying Common Shares and FCA common shares which are, or will be, registered in the Loyalty Register.

Application for Special Voting Shares

An FCA shareholder may at any time elect to participate in the loyalty voting structure by requesting that FCA register

all or some of the number of FCA common shares held by such an FCA shareholder in the Loyalty Register. Such an

election shall be effective and registration in the Loyalty Register shall occur as of the end of the calendar month during

which the election is made. If such FCA common shares (i.e. Electing Common Shares) have been registered in the

Loyalty Register (and are thus blocked from trading in the Regular Trading System) for an uninterrupted period of three

years in the name of the same shareholder, the holder of such FCA common shares will be entitled to receive one FCA

special voting share for each such FCA common share that has been registered. If at any moment in time such FCA

common shares are de-registered from the Loyalty Register for whatever reason, the relevant shareholder loses its

entitlement to hold a corresponding number of FCA special voting shares.

Withdrawal of Special Voting Shares

As described above, a holder of Qualifying Common Shares or Electing Common Shares may request that some or

all of its Qualifying Common Shares or Electing Common Shares be de-registered from the Loyalty Register and, if

held outside the Regular Trading System, transfer such shares back to the Regular Trading System, which will allow

such a shareholder to freely trade its FCA common shares, as described below. From the moment of such a request,

the holder of Qualifying Common Shares shall be considered to have waived his rights to cast any votes associated

with the FCA special voting shares which were issued and allocated in respect of such Qualifying Common Shares.

Any such request would automatically trigger a mandatory transfer requirement pursuant to which the FCA special

voting shares will be offered and transferred to FCA for no consideration (om niet) in accordance with the Articles of

Association and the terms and conditions of the special voting shares. FCA may continue to hold the special voting

shares as treasury stock, but will not be entitled to vote through any such treasury stock. Alternatively, FCA may

withdraw and cancel the special voting shares, as a result of which the nominal value of such shares will be allocated

to the special capital reserves of FCA. Consequently, the loyalty voting feature relating to the relevant Qualifying

Common Shares being deregistered from the Loyalty Register will terminate. No shareholder required to transfer

special voting shares, pursuant to the terms and conditions, shall be entitled to any consideration for such special

voting shares and each shareholder expressly waives any rights in that respect as a condition to participation in the

loyalty voting structure.

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Change of Control

A Qualifying Shareholder or a shareholder with common shares registered in the Loyalty Register must promptly

notify the Company in the event of a change of control and must make a de-registration request with respect to his

or her common shares registered in the Loyalty Register. The de-registration request leads to a withdrawal of the

special voting shares as described above. A change of control is deﬁned in Article 1.1. of the Articles of Association as

including any direct or indirect transfer carried out by a shareholder that is not an individual (natuurlijk persoon) through

one or a series of related transactions as a result of which (i) a majority of the voting rights of such a shareholder; (ii) the

de facto ability to direct the casting of a majority of the votes exercisable at general meetings of FCA shareholders of

such a shareholder; and/or (iii) the ability to appoint or remove a majority of the directors, executive directors or board

members or executive ofﬁcers of such a shareholder or to direct the casting of a majority or more of the voting rights at

meetings of the board of directors, governing body or executive committee of such a shareholder has been transferred

to a new owner. No change of control shall be deemed to have occurred if (a) the transfer of ownership and/or control

is an intragroup transfer under the same parent company; (b) the transfer of ownership and/or control is the result of

the succession or the liquidation of assets between spouses or the inheritance, inter vivo donation or other transfer

to a spouse or a relative up to and including the fourth degree; or (c) the fair market value of the Qualifying Common

Shares held by such a shareholder represents less than twenty percent (20%) of the total assets of the Transferred

Group at the time of the transfer and the Qualifying Common Shares held by such a shareholder, in the sole judgment

of the Company, are not otherwise material to the Transferred Group or the change of control transaction.

Article 1.1 of the Articles of Association deﬁnes “Transferred Group” as comprising the relevant shareholder together

with its afﬁliates, if any, over which control was transferred as part of the same change of control transaction, as

deﬁned in the above-mentioned Article of the Articles of Association.

General Meeting of Shareholders and Voting Rights

General Meetings

At least one general meeting of FCA shareholders shall be held every year, which shall be held within six months after

the close of the ﬁnancial year. The purpose of the annual general meeting of shareholders is to discuss, inter alia, the

annual report, the adoption of the annual accounts, allocation of proﬁts (including the proposal to distribute dividends),

release of members of the Board of Directors from liability for their management and supervision, and other proposals

brought up for discussion by the Board of Directors.

Furthermore, general meetings of FCA shareholders shall be held in the case referred to in Section 2:108a of the Dutch

Civil Code as often as the Board of Directors, the Chairman or the Chief Executive Ofﬁcer deem it necessary to hold them

or as otherwise required by Dutch law, without prejudice to what has been provided in the next paragraph hereof.

Shareholders solely or jointly representing at least ten percent (10%) of the issued share capital may request in writing,

stating the matters to be dealt with, that the Board of Directors call a general meeting of FCA shareholders.

If the Board of Directors fails to call a meeting, then such shareholders may, on their application, be authorized by the

interim provisions judge of the court (voorzieningenrechter van de rechtbank) to convene a general meeting of FCA

shareholders. The interim provisions judge (voorzieningenrechter van de rechtbank) shall reject the application if he or

she is not satisﬁed that the applicants have previously requested in writing, stating the exact subjects to be discussed,

that the Board of Directors convene a general meeting of FCA shareholders.

General meetings of FCA shareholders shall be held in Amsterdam or Haarlemmermeer (Schiphol Airport), the

Netherlands, and shall be called by the Board of Directors, the Chairman or the Chief Executive Ofﬁcer, in such

manner as is required to comply with the law and the applicable stock exchange regulations, not later than on the

forty-second day prior to the day of the meeting. All convocations of general meetings of FCA shareholders and all

announcements, notiﬁcations and communications to shareholders shall be made by means of an announcement

on the Company’s corporate website and such an announcement shall remain accessible until the relevant general

meeting of FCA shareholders.

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Any communication to be addressed to the general meeting of FCA shareholders by virtue of Dutch law or the Articles

of Association may be either included in the notice referred to in the preceding sentence or, to the extent provided for

in such notice, on the Company’s corporate website and/or in a document made available for inspection at the ofﬁce

of the Company and such other place(s) as the Board of Directors shall determine. Convocations of general meetings

of FCA shareholders may be sent to shareholders through the use of an electronic means of communication to the

address provided by such shareholders to the Company for this purpose. The notice shall state the place, date and

hour of the meeting and the agenda of the meeting as well as the other data required by law. An item proposed in

writing by such a number of shareholders who, under Dutch law, are entitled to make such proposal, shall be included

in the notice or shall be announced in a manner similar to the announcement of the notice, provided that the Company

has received the relevant request, including the reasons for putting the relevant item on the agenda, no later than the

sixtieth day before the day of the meeting.

Convocation, Agenda, Minutes and Attendance

The agenda of the annual general meeting of FCA shareholders shall contain, inter alia, the following items:

a) adoption of the annual accounts;

b) the implementation of the remuneration policy;

c) the policy of the Company on additions to reserves and on dividends, if any;

d) granting of discharge to the Directors in respect of the performance of their duties in the relevant ﬁnancial year;

e) the appointment of Directors;

f) if applicable, the proposal to pay a dividend;

g) if applicable, discussion of any substantial change in the corporate governance structure of the Company; and

h) any matters decided upon by the person(s) convening the meeting and any matters placed on the agenda with

due observance of applicable Dutch law.

The Board of Directors shall provide the general meeting of FCA shareholders with all requested information, unless

this would be contrary to an overriding interest of the Company. If the Board of Directors invokes an overriding

interest, it must give reasons.

When convening a general meeting of FCA shareholders, the Board of Directors shall determine that, for the purpose

of Article 19 and Article 20 of the Articles of Association, persons with the right to vote or attend meetings shall

be considered those persons who have these rights at the twenty-eighth day prior to the day of the meeting (the

“Record Date”) and are registered as such in a register to be designated by the Board of Directors for such purpose,

irrespective of whether they will have these rights at the date of the meeting. In addition to the Record Date, the notice

of the meeting shall further state the manner in which shareholders and other parties with meeting rights may have

themselves registered and the manner in which those rights can be exercised.

The general meeting of FCA shareholders shall be presided over by the Chairman or, in his absence, by the person

chosen by the Board of Directors to act as chairman for such a meeting. One of the persons present designated for

that purpose by the chairman of the meeting shall act as secretary and take minutes of the business transacted.

The minutes shall be conﬁrmed by the chairman and secretary of the meeting and signed by them in witness thereof.

The minutes of the general meeting of FCA shareholders shall be made available, on request, to shareholders no later

than three months after the end of the meeting, after which shareholders shall have the opportunity to react to the

minutes in the following three months. The minutes shall then be adopted in the manner as described in the preceding

paragraph. If an ofﬁcial notarial record is made of the business transacted at the meeting then minutes need not be

drawn up and it shall sufﬁce that the ofﬁcial notarial record be signed by the notary.

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As a prerequisite to attending the meeting and, to the extent applicable, exercising voting rights, the shareholders

entitled to attend the meeting shall be obliged to inform the Board of Directors in writing within the time frame

mentioned in the convening notice. At the latest, this notice must be received by the Board of Directors on the day

mentioned in the convening notice. Shareholders and those permitted by Dutch law to attend the general meetings

of FCA shareholders may cause themselves to be represented at any meeting by a proxy duly authorized in writing,

provided they notify the Company in writing of their wish to be represented at such time and place as shall be stated

in the notice of the meetings. For the avoidance of doubt, such attorney is also authorized in writing if the proxy is

documented electronically. The Board of Directors may determine further rules concerning the deposit of the powers

of attorney; these shall be mentioned in the notice of the meeting. The chairman of the meeting shall decide on the

admittance to the meeting of persons other than those who are entitled to attend.

For each general meeting of FCA shareholders, the Board of Directors may decide that shareholders shall be

entitled to attend, address and exercise voting rights at such a meeting through the use of electronic means of

communication, provided that shareholders who participate in the meeting are capable of being identiﬁed through

the electronic means of communication and have direct cognizance of the discussions at the meeting and the

exercising of voting rights (if applicable). The Board of Directors may set requirements for the use of electronic means

of communication and state these in the convening notice. Furthermore, the Board of Directors may, for each general

meeting of FCA shareholders, decide that votes cast by the use of electronic means of communication prior to the

meeting and received by the Board of Directors shall be considered to be votes cast at the meeting. Such votes may

not be cast prior to the Record Date. Whether the provision of the foregoing sentence applies and the procedure for

exercising the rights referred to in that sentence shall be stated in the notice.

Prior to being allowed admittance to a meeting, a shareholder and each person entitled to attend the meeting, or its

attorney, shall sign an attendance list, while stating his or her name and, to the extent applicable, the number of votes

to which he or she is entitled. Each shareholder and other person attending a meeting by the use of electronic means

of communication and identiﬁed in accordance with the above shall be registered on the attendance list by the Board

of Directors. In the event that it concerns an attorney of a shareholder or another person entitled to attend the meeting,

the name(s) of the person(s) on whose behalf the attorney is acting, shall also be stated. The chairman of the meeting

may decide that the attendance list must also be signed by other persons present at the meeting.

The chairman of the meeting may determine the time during which shareholders and others entitled to attend the

general meeting of FCA shareholders may speak, if he considers this desirable, with a view to the orderly conduct of

the meeting as well as other procedures that the chairman considers desirable for the efﬁcient and orderly conduct of

the business of the meeting.

FCA is exempt from the proxy rules under the U.S. Securities Exchange Act of 1934, as amended. The chairman of

the meeting shall decide on the admittance to the meeting of persons other than those who are entitled to attend.

Voting Rights at General Meetings

Every share (whether common or special voting) shall confer the right to cast one vote at a general meeting of

shareholders. Shares in respect of which Dutch law determines that no votes may be cast shall be disregarded for the

purposes of determining the proportion of shareholders voting, present or represented or the proportion of the share

capital present or represented. All resolutions shall be passed with an absolute majority of the votes validly cast unless

otherwise speciﬁed in the Articles of Association. Blank votes shall not be counted as votes cast.

All votes shall be cast in writing or electronically. The chairman of the meeting may, however, determine that voting

by raising hands or in another manner shall be permitted. Voting by acclamation shall be permitted if none of the

shareholders present or represented objects. No voting rights shall be exercised in the general meeting of FCA

shareholders for shares owned by the Company or by a subsidiary of the Company. However, pledgees and

usufructuaries of shares owned by the Company and its subsidiaries shall not be excluded from exercising their voting

rights if the right of pledge or usufruct was created before the shares were owned by the Company or a subsidiary.

Neither the Company nor any of its subsidiaries may exercise voting rights for shares in respect of which it holds a right

of pledge or usufruct.

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Without prejudice to the Articles of Association, the Company shall determine for each resolution passed:

a) the number of shares on which valid votes have been cast;

b) the percentage that the number of shares as referred to under (a) represents in the issued share capital;

c) the aggregate number of votes validly cast; and

d) the aggregate number of votes cast in favor of and against a resolution, as well as the number of abstentions.

Shareholders’ Votes on Certain Transactions

Any important change in the identity or character of FCA must be approved by the general meeting of shareholders,

including (i)the transfer to a third party of the business of FCA or practically the entire business of FCA; (ii)the entry

into or breaking off of any long-term cooperation of FCA or a subsidiary with another legal entity or company or as a

fully liable partner of a general partnership or limited partnership, where such entry into or breaking off is of far-reaching

importance to FCA; and (iii)the acquisition or disposal by FCA or a subsidiary of an interest in the capital of a company

with a value of at least one-third of FCA’s assets according to the Consolidated Statement of Financial Position with

explanatory notes included in the last adopted annual accounts of FCA.

Issuance of shares

The general meeting of FCA shareholders, or alternatively the Board of Directors if it has been designated to do so

at the general meeting of FCA shareholders, shall have authority to resolve on any issuance of shares and rights to

subscribe for shares. The general meeting of FCA shareholders shall, for as long as any such designation of the Board

of Directors for this purpose is in force, no longer have authority to decide on the issuance of shares and rights to

subscribe for shares.

For a period of ﬁve years from October 12, 2014, the Board of Directors has been irrevocably authorized to issue shares

and rights to subscribe for shares up to the maximum aggregate amount of shares as provided for in the Company’s

authorized share capital as set out in Article 4.1 of the Articles of Association, as amended from time to time.

The general meeting of FCA shareholders, or the Board of Directors if so designated in accordance with the Articles of

Association, shall decide on the price and the further terms and conditions of issuance, with due observance of what

has been provided in relation thereto in Dutch law and the Articles of Association.

If the Board of Directors is designated to have authority to decide on the issuance of shares or rights to subscribe for

shares, such a designation shall specify the class of shares and the maximum number of shares or rights to subscribe

for shares that can be issued under such a designation. When making such designation the duration thereof, which

shall not be for more than ﬁve years, shall be resolved upon at the same time. The designation may be extended from

time to time for periods not exceeding ﬁve years. The designation may not be withdrawn unless otherwise provided in

the resolution in which the designation is made.

Payment for shares shall be made in cash unless another form of consideration has been agreed. Payment in a

currency other than euro may only be made with the consent of the Company.

The Board of Directors has also been designated as the authorized body to limit or exclude the rights of pre-emption

of shareholders in connection with the authority of the Board of Directors to issue common shares and grant rights to

subscribe for common shares as referred to above. Refer to the Rights of Pre-Emption section elsewhere in this report.

In the event of an issuance of common shares every holder of common shares shall have a right of pre-emption with

regard to the common shares or rights to subscribe for common shares to be issued in proportion to the aggregate

nominal value of his common shares, provided however that no such right of pre-emption shall exist in respect of

shares or rights to subscribe for common shares to be issued to employees of the Company or of a group company

pursuant to any option plan of the Company.

A shareholder shall have no right of pre-emption for shares that are issued against a non-cash contribution.

In the event of an issuance of special voting shares to qualifying shareholders, shareholders shall not have any right of

pre-emption.

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The general meeting of FCA shareholders or the Board of Directors, as the case may be, shall decide when passing

the resolution to issue shares or rights to subscribe for shares in which manner the shares shall be issued and, to the

extent that rights of pre-emption apply, within what period those rights may be exercised.

Disclosure of Holdings under Dutch Law

As a result of the listing of the FCA common shares on the MTA, chapter 5.3 of the Dutch Financial Supervision Act

(“AFS”) applies, pursuant to which any person who, directly or indirectly, acquires or disposes of an actual or potential

capital interest and/or actual or potential voting rights in FCA must promptly give written notice to the AFM of such

acquisition or disposal by means of a standard form if, as a result of such acquisition or disposal, the percentage of

capital interest and/or voting rights held by such person reaches, exceeds or falls below the following thresholds: 3

percent, 5 percent, 10 percent, 15 percent, 20 percent, 25 percent, 30 percent, 40 percent, 50 percent, 60 percent,

75 percent and 95 percent.

For the purpose of calculating the percentage of capital interest or voting rights, the following interests must, inter

alia, be taken into account: (i)shares and/or voting rights directly held (or acquired or disposed of) by any person;

(ii)shares and/or voting rights held (or, acquired or disposed of) by such person’s controlled entities or by a third party

for such person’s account; (iii)voting rights held (or acquired or disposed of) by a third party with whom such person

has concluded an oral or written voting agreement; (iv)voting rights acquired pursuant to an agreement providing for a

temporary transfer of voting rights in consideration for a payment; and (v)shares which such person, or any controlled

entity or third party referred to above, may acquire pursuant to any option or other right to acquire shares.

As a consequence of the above, special voting shares must be added to FCA common shares for the purposes of the

above thresholds.

Controlled entities (within the meaning of the AFS) do not themselves have notiﬁcation obligations under the AFS as

their direct and indirect interests are attributed to their (ultimate) parent. If a person who has a three percent or larger

interest in FCA’s share capital or voting rights ceases to be a controlled entity it must immediately notify the AFM and

all notiﬁcation obligations under the AFS will become applicable to such former controlled entity.

Special rules apply to the attribution of shares and/or voting rights which are part of the property of a partnership

or other form of joint ownership. A holder of a pledge or right of usufruct in respect of shares can also be subject

to notiﬁcation obligations if such person has, or can acquire, the right to vote on the shares. The acquisition of

(conditional) voting rights by a pledgee or beneﬁcial owner may also trigger notiﬁcation obligations as if the pledgee or

beneﬁcial owner were the legal holder of the shares and/or voting rights.

Furthermore, when calculating the percentage of capital interest, a person is also considered to be in possession

of shares if (i)such person holds a ﬁnancial instrument the value of which is (in part) determined by the value of the

shares or any distributions associated therewith and which does not entitle such person to acquire any shares; (ii)such

person may be obliged to purchase shares on the basis of an option; or (iii)such person has concluded another

contract whereby such person acquires an economic interest comparable to that of holding a share.

If a person’s capital interest and/or voting rights reaches, exceeds or falls below the above-mentioned thresholds as

a result of a change in FCA’s issued and outstanding share capital or voting rights, such person is required to make a

notiﬁcation not later than on the fourth trading day after the AFM has published FCA’s notiﬁcation as described below.

Following the implementation of Directive 2013/50/EU into the AFS, every holder of three percent or more of the

issued and outstanding share capital or voting rights whose interest has changed compared to his most recent

notiﬁcation and which holder knows, or should know, that pursuant to this change his interest reaches or crosses

a threshold as a result of certain acts (as described above and including the exchange of a ﬁnancial instrument or

a contract pursuant to which the holder is deemed to have issued and outstanding shares or voting rights at his

disposal), must notify the AFM of this change.

FCA is required to notify the AFM promptly of any change of one percent or more in its issued and outstanding share

capital or voting rights since a previous notiﬁcation. Other changes in FCA’s issued and outstanding share capital or

voting rights must be notiﬁed to the AFM within eight days after the end of the quarter in which the change occurred.

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In addition to the above described notiﬁcation obligations pertaining to capital interest or voting rights, pursuant to

Regulation (EU) No 236/2012, as amended, notiﬁcation must be made of any net short position of 0.2 percent in the

issued share capital of FCA, and of every subsequent 0.1 percent above this threshold. Notiﬁcations starting at 0.5

percent and every subsequent 0.1 percent above this threshold will be made public via the short selling register of the

AFM. Furthermore, gross short positions shall be notiﬁed in the event that a threshold is reached, exceeded or fallen

below. With regard to gross short positions, the same disclosure thresholds as for holders of capital interests and/or

voting rights apply.

Furthermore, each member of the Board of Directors must notify the AFM:

within two weeks after his/her appointment of the number of shares he/she holds and the number of votes he/she is

entitled to cast in respect of FCA’s issued and outstanding share capital; and

subsequently of each change in the number of shares he/she holds and of each change in the number of votes he/she

is entitled to cast in respect of FCA’s issued and outstanding share capital, immediately after the relevant change.

The AFM keeps a public register of all notiﬁcations made pursuant to these disclosure obligations and publishes any

notiﬁcation received which can be accessed via www.afm.nl. The notiﬁcations referred to in this paragraph should be

made in writing by means of a standard form or electronically through the notiﬁcation system of the AFM.

Non-compliance with these disclosure obligations is an economic offense and may lead to criminal prosecution.

The AFM may impose administrative penalties for non-compliance and the publication thereof. In addition, a civil

court can impose measures against any person who fails to notify or incorrectly notiﬁes the AFM of matters required

to be notiﬁed. A claim requiring that such measures be imposed may be instituted by FCA and/or by one or more

shareholders who alone or together with others represent at least three percent of the issued and outstanding share

capital of FCA or are able to exercise at least three percent of the voting rights. The measures that the civil court may

impose include:

an order requiring appropriate disclosure;

suspension of the right to exercise the voting rights for a period of up to three years as determined by the court;

voiding a resolution adopted by the general meeting of shareholders, if the court determines that the resolution

would not have been adopted but for the exercise of the voting rights of the person with a duty to disclose, or

suspension of a resolution adopted by the general meeting of shareholders until the court makes a decision about

such voiding; and

an order to refrain, during a period of up to ﬁve years as determined by the court, from acquiring shares and/or

voting rights in FCA.

Shareholders are advised to consult with their own legal advisers to determine whether the disclosure obligations

apply to them.

Mandatory Bid Requirement

Under Dutch law, any person who, acting alone or in concert with others, directly or indirectly acquires 30 percent or

more of FCA’s voting rights will be obliged to launch a public offer for all outstanding shares in FCA’s share capital. An

exception is made for shareholders who, whether alone or acting in concert with others, had an interest of at least 30

percent of FCA’s voting rights before the shares were ﬁrst listed on the MTA and who still maintained such an interest

after such ﬁrst listing. Immediately after the ﬁrst listing of FCA common shares on the MTA, Exor N.V. held more than 30

percent of FCA’s voting rights. Therefore, Exor N.V.’s interest in FCA was grandfathered and the exception that applies

to it will continue to apply to it for as long as its holding of shares represents over 30 percent of FCA’s voting rights.

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Dutch Financial Reporting Supervision Act

On the basis of the Dutch Financial Reporting Supervision Act (Wet toezicht financiële verslaggeving, or the “FRSA”),

the AFM supervises the application of ﬁnancial reporting standards by, amongst others, companies whose corporate

seat is in the Netherlands and whose securities are listed on a regulated Dutch or foreign stock exchange.

Pursuant to the FRSA, the AFM has an independent right to (i) request an explanation from FCA regarding its

application of the applicable ﬁnancial reporting standards and (ii) recommend to us the making available of further

explanations. If we do not comply with such a request or recommendation, the AFM may request that the Enterprise

Chamber order us to (i) make available further explanations as recommended by the AFM; (ii) provide an explanation

of the way we have applied the applicable ﬁnancial reporting standards to our ﬁnancial reports; or (iii) prepare our

ﬁnancial reports in accordance with the Enterprise Chamber’s instructions.

Compulsory Acquisition

Pursuant to article 2:92a of the Dutch Civil Code, a shareholder who, for its own account, holds at least 95 percent

of the issued share capital of FCA may institute proceedings against the other shareholders jointly for the transfer of

their shares to it. The proceedings are held before the Dutch Enterprise Chamber and can be instituted by means

of a writ of summons served upon each of the minority shareholders in accordance with the provisions of the Dutch

Code of Civil Procedure. The Enterprise Chamber may grant the claim for the squeeze-out in relation to all minority

shareholders and will determine the price to be paid for the shares, if necessary after appointment of one to three

expert(s) who will offer an opinion to the Enterprise Chamber on the value to be paid for the shares of the minority

shareholders. Once the order to transfer becomes ﬁnal before the Enterprise Chamber, the person acquiring the

shares must give written notice of the date and place of payment and the price to the holders of the shares to be

acquired whose addresses are known to it. Unless the addresses of all of them are known to it, it must also publish

the same in a Dutch daily newspaper with a national circulation. A shareholder can only appeal against the judgment

of the Enterprise Chamber before the Dutch Supreme Court.

In addition, pursuant to article 2:359c of the Dutch Civil Code, following a public offer, a holder of at least 95 percent of

the issued share capital and of voting rights of FCA has the right to require the minority shareholders to sell their shares

to it. Any such request must be ﬁled with the Enterprise Chamber within three months after the end of the acceptance

period of the public offer. Conversely, pursuant to article 2:359d of the Dutch Civil Code each minority shareholder

has the right to require the holder of at least 95 percent of the issued share capital and the voting rights of FCA to

purchase its shares in such a case. The minority shareholder must ﬁle such a claim with the Enterprise Chamber within

three months after the end of the acceptance period of the public offer.

Disclosure of Trades in Listed Securities

Pursuant to the AFS and the Market Abuse Regulation (EU) No 596/2014, each of the members of the Board of Directors

and any other person discharging managerial responsibilities within FCA and who in that capacity is authorized to make

decisions affecting the future developments and business prospects of FCA and has regular access to inside information

relating, directly or indirectly, to FCA (each, an “Insider”) must notify the AFM of all transactions, conducted or carried

out for his/her own account, relating to FCA common shares, special voting shares or ﬁnancial instruments, the value of

which is (in part) determined by the value of FCA common shares or special voting shares.

In addition, persons who are closely associated with members of the Board of Directors or any of the other Insiders

must notify the AFM of all transactions conducted for their own account relating to FCA’s shares or ﬁnancial

instruments, the value of which is (in part) determined by the value of FCA’s shares. The Market Abuse Regulation

designates the following categories of persons: (i)the spouse or any partner considered by applicable law as

equivalent to the spouse; (ii)dependent children; (iii)other relatives who have shared the same household for at least

one year at the relevant transaction date; and (iv)any legal person, trust or partnership, among other things, whose

managerial responsibilities are discharged by a member of the Board of Directors or any other Insider or by a person

referred to under (i), (ii)or (iii)above.

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The AFM must be notiﬁed forthwith of transactions, effected in either FCA’s shares or ﬁnancial instruments, the value

of which is (in part) determined by the value of FCA’s shares following the transaction date by means of a standard

form. Notiﬁcations under the Market Abuse Regulation may however be postponed until the date that the value of

the transactions carried out on a person’s own account, together with the transactions carried out by the persons

associated with that person, reaches or exceeds the amount of €5,000 in the calendar year in question. The AFM

keeps a public register of all notiﬁcations made pursuant to the AFS and the Market Abuse Regulation.

Non-compliance with these reporting obligations could lead to criminal penalties, administrative ﬁnes and cease-and-

desist orders (and the publication thereof), imprisonment or other sanctions.

Shareholder Disclosure and Reporting Obligations under U.S. Law

Holders of FCA shares are subject to certain U.S. reporting requirements under the Exchange Act for shareholders

owning more than 5 percent of any class of equity securities registered pursuant to Section12 of the Exchange

Act. Among the reporting requirements are disclosure obligations intended to keep investors aware of signiﬁcant

accumulations of shares that may lead to a change of control of an issuer.

If FCA were to fail to qualify as a foreign private issuer in the future, Section16(a) of the Exchange Act would require

FCA’s directors and executive ofﬁcers, and persons who own more than ten percent of a registered class of FCA’s

equity securities, to ﬁle reports of ownership of, and transactions in, FCA’s equity securities with the SEC. Such

directors, executive ofﬁcers and ten percent stockholders would also be required to furnish FCA with copies of all

Section16 reports they ﬁle.

Disclosure Requirements under Italian law and European Union law

Further disclosure requirements shall apply to FCA under Italian law by virtue of the listing of FCA’s shares on the MTA.

Summarized below are the most signiﬁcant requirements to be complied with by FCA in connection with the admission

to listing of FCA common shares on the MTA. The breach of the obligations described below may result in the application

of ﬁnes and criminal penalties (including, for instance, those provided for insider trading and market manipulation).

In particular, the following main disclosure obligations shall apply to FCA:

the Legislative Decree no. 58/1998, or the Italian Financial Act effective as of the date of this report: article 92

(equal treatment principle), article 114-bis (to the extent applicable to Dutch companies, information concerning the

allocation of ﬁnancial instruments to corporate ofﬁcers, employees and collaborators), article 115 (information to be

disclosed to CONSOB) and article 180 and the following (relating to insider trading and market manipulation);

the applicable law concerning market abuse and, in particular, Regulation (UE) 596/2014 (the “MAR Regulation”)

and its implementing measures: article 7 (Inside information), article 17 (Public disclosure of inside information) and

article 18 (Insider lists) as well as the implementing regulations.

In addition to the above, the applicable provisions set forth under the market rules (including those relating to the

timing for the payment of dividends) shall apply to FCA.

It remains understood that the foregoing is based on the current legal framework and, therefore, it may vary following

any potential regulatory intervention by the concerned Member States and competent authorities.

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Disclosure of Inside Information - Article 17 of the MAR Regulation

Pursuant to the MAR Regulation, FCA shall disclose to the public, without delay, any inside information which: (i)is of

a precise nature; (ii)has not been made public; (iii)relates directly to FCA or FCA’s common shares; and (iv)if it were

made public, would be likely to have a signiﬁcant effect on the prices of FCA’s common shares or on the price of

related derivative ﬁnancial instruments (the “Inside Information”). In this regard:

“information shall be deemed to be of a precise nature” if: (a)it indicates a set of circumstances which exists

or which may reasonably be expected to come into existence, or an event which has occurred, or which may

reasonably be expected to occur and (b)it is speciﬁc enough to enable a conclusion to be drawn as to the possible

effect of that set of circumstances or event on the prices of the ﬁnancial instruments (i.e., FCA’s common shares) or

the related derivative ﬁnancial instrument. In this respect in the case of a protracted process that is intended to bring

about, or that results in, particular circumstances or a particular event, those future circumstances or that future

event, and also the intermediate steps of that process which are connected with bringing about or resulting in those

future circumstances or that future event, may be deemed to be precise information;

“information which, if it were made public, would be likely to have a significant effect on the prices of financial

instruments, derivative financial instruments” shall mean information a reasonable investor would be likely to use as

part of the basis of his or her investment decisions.

An intermediate step in a protracted process shall be deemed to be Inside Information if, by itself, it satisﬁes the criteria

of Inside Information as referred to above.

The above disclosure requirement shall be complied with through the publication of a press release by FCA, in

accordance with the modalities set forth under the MAR Regulation and Dutch and Italian law, disclosing to the public

the relevant Inside Information.

Under speciﬁc circumstances, CONSOB may at any time request: (a)FCA to disclose to the public speciﬁc information

or documentation where deemed appropriate or necessary or alternatively (b)to be provided with speciﬁc information or

documentation. For this purpose, CONSOB has wide powers to, among other things, carry out inspections or request

information to the members of the managing board, the members of the supervisory board or to the external auditor.

FCA shall publish and transmit to CONSOB any information disseminated in any non EU-countries where FCA’s

common shares are listed (i.e., the U.S.), if this information is signiﬁcant for the purposes of the evaluation of FCA’s

common shares listed on the MTA.

FCA may, on its own responsibility, delay disclosure to the public of Inside Information provided that all of the following

conditions are met: (a) immediate disclosure is likely to prejudice the legitimate interests of FCA; (b) delay of disclosure

is not likely to mislead the public; (c) FCA is able to ensure the conﬁdentiality of that information.

In the case of a protracted process that occurs in stages and that is intended to bring about, or that results in, a

particular circumstance or a particular event, FCA may on its own responsibility delay the public disclosure of Inside

Information relating to this process, subject to points (a), (b) and (c) above.

Insiders’ Register - Article 18 of the MAR Regulation

FCA, as well as persons acting on its behalf or on its account, shall draw up and keep regularly updated, a list of all

persons who have access to Inside Information and who are working for them under a contract of employment, or

otherwise performing tasks through which they have access to Inside Information, such as advisers, accountants or

credit rating agencies (the “insider list”).

FCA or any person acting on its behalf or on its account, shall take all reasonable steps to ensure that any person on

the insider list acknowledges in writing the legal and regulatory duties entailed and is aware of the sanctions applicable

to insider dealing and unlawful disclosure of inside information.

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Public Tender Offers

Certain rules provided for under Italian law with respect to both voluntary and mandatory public tender offers shall

apply to any offer launched for FCA’s common shares. In particular, among other things, the provisions concerning

the tender offer price, the content of the offer document and the disclosure of the tender offer will be subject to the

supervision by CONSOB and Italian law.

FCA Policies

Code of Conduct

The Company and all its subsidiaries refer to the principles contained in the FCA code of conduct (the “Code of

Conduct”) approved by the Board of Directors on April 29, 2015 and updated in January 2017.

The Code applies to all board members and ofﬁcers of FCA and its subsidiaries, as well as full-time and part-time

employees of FCA and any of its subsidiaries. The Code of Conduct also applies to all temporary, contract and all

other individuals and companies that act on behalf of FCA, wherever they are located in the world.

The Code of Conduct represents a set of values recognized, adhered to and promoted by the Group which

understands that conduct based on the principles of diligence, integrity and fairness is an important driver of social

and economic development.

The Code of Conduct is a pillar of the integrity system which regulates the decision-making processes and operating

approach of the Group and its employees in the interests of stakeholders. The Code of Conduct ampliﬁes aspects of

conduct related to the economic, social and environmental dimensions, underscoring the importance of dialog with

stakeholders. Explicit reference is made to the UN’s Universal Declaration on Human Rights, the principal Conventions

of the International Labor Organisation (“ILO”), the OECD Guidelines for Multinational Enterprises, the U.S. Foreign

Corrupt Practices Act (“FCPA”) and United Kingdom Bribery Act (“UKBA”). The Code of Conduct is supplemented

by Practices aimed to provide speciﬁc guidance to all workforce members on how to effectively apply the Principles

under the Code of Conduct in relation to various topics such as: the Environment, Health and Safety, Anti-corruption,

Suppliers, Respect of Human Rights, Conﬂicts of Interest, Data Privacy, Information Assets Protection, Antitrust

and Export controls. Moreover FCA has recently published on the FCA Websiteanupdated version of the Company

Sustainability Guidelines to cover speciﬁc business matters detailing FCA’s accountability and commitmentto a

culture of responsibilityand integrity.

FCA endeavors to ensure that the Code of Conduct is regarded as a best practice of business conduct and observed

by those third parties with whom it maintains business relationships of a lasting nature such as suppliers, dealers,

advisors and agents. In fact, Group contracts worldwide include speciﬁc clauses relating to recognition and adherence

to the principles underlying the Code of Conduct, as well as compliance with local regulations, particularly those

related to corruption, money-laundering, terrorism and other crimes constituting liability for legal persons.

The Company closely monitors the effectiveness of and compliance with the Code of Conduct. Violations of the Code

of Conduct are essentially determined through, among others: periodic activities carried out by Internal Audit of the

Group according to the annual Audit Plan, approved by the FCA Audit Committee and the CEO,that is based on a

group risk assessment process; allegations received in accordance with the “Ethics Helpline process”; and checks

forming part of the standard operating procedures. Internal Audit investigates violations of the Code of Conduct also

through speciﬁc Business Ethics Audits (“BEA”).On a regular basis the Chief Audit Executive (CAE) informs the Chief

Executive Ofﬁcer and theAudit Committeeon the major ﬁndings.For all Code of Conduct violations, the disciplinary

measures taken are commensurate with the seriousness of the case and comply with local legislation.

The Code of Conduct, including further information on its effectiveness and compliance, is available on the Governance

section of the Group’s website at https://www.fcagroup.com/en-US/group/governance/code_of_conduct/.

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Insider Trading Policy

On October 10, 2014, Fiat Investments’ board of directors adopted an insider trading policy, setting forth guidelines and

recommendations to all Directors, ofﬁcers and employees of the Group with respect to transactions in the Company’s

securities. This policy, which also applies to immediate family members and members of the households of persons

covered by the policy, is designed to prevent insider trading or allegations of insider trading, and to protect the Company’s

integrity and ethical conduct. This policy was amended by the Board of Directors of FCA on July 28, 2016 following the new

applicable law concerning market abuse and, in particular, the MAR Regulation and its implementing regulations.

Sustainability Practices

The Group is committed to operating in an environmentally and socially-responsible manner. For a full description

of sustainability governance, guidelines, targets and results, refer to the section NON-FINANCIAL INFORMATION

elsewhere in this report.

Diversity Policy

On December 20, 2017, the Board of Directors adopted a diversity policy for the Board of Directors (the “Diversity

Policy”), as the Company believes that diversity in the composition of the Board of Directors in terms of age, gender,

expertise, work background and nationality is an important means of promoting debate, balanced decision-making

and independent actions of the Board of Directors. For further information, refer to the section Composition of the

Board of Directors included elsewhere in this report.

The Company applies the following aspects of diversity to the Board of Directors: age, gender, expertise, work

and personal background and nationality. The Company considers each of these aspects key drivers to support

the above-mentioned goals and to achieve sufﬁcient diversity of views and the expertise needed for a proper

understanding of current affairs and longer-term risks and opportunities related to the Company’s business. The

Board of Directors and its Governance and Sustainability Committee consider such factors when evaluating nominees

for election to the Board of Directors and during the annual performance assessment process.

Concrete targets that the Company aims to achieve, with an overriding emphasis based on merit, within the next

several years, are that (a) at least 30% of the seats of the Board of Directors are occupied by women and at least 30%

by men; (b) the nationality of the members of the Board of Directors shall be reasonably consistent with the geographic

spread of FCA’s business in such manner that no nationality shall count for more than 60% of the members of the

Board of Directors; and (c) the age of the members of the Board of Directors should be more diverse by having one or

more members of the Board of Directors aged under 50 at the day of their nomination; provided that in the selection of

a candidate on the basis of the deﬁned diversity criteria, rules and generally accepted principles of non-discrimination

(on grounds such as ethnic origin, race, disability or sexual orientation) will be taken into account.

To ensure its correct implementation, the Diversity Policy has been considered in the adoption of a proﬁle for non-executive

Directors and will be taken into account in the nomination of executive Directors, as well as in nominating and recommending

non-executive Directors. In the 2018 ﬁnancial year, the targets relating to nationality and age have been realized.

Compliance with Dutch Corporate Governance Code

The Dutch Corporate Governance Code contains principles and best practice provisions that regulate relations between

the board and the shareholders (including the general meeting of shareholders). The Dutch Corporate Governance Code

is divided into ﬁve chapters which address the following topics: (i) long-term value creation; (ii) effective management and

supervision; (iii) remuneration; (iv) the general meeting; and (v) one-tier governance structure.

Dutch companies whose shares are listed on a regulated stock exchange or comparable system, such as the NYSE

or the MTA, are required under Dutch law to disclose in their annual reports whether or not they apply the provisions

of the Dutch Corporate Governance Code and, in the event that they do not apply a certain provision, to explain the

reasons why they have chosen to deviate.

FCA acknowledges the importance of good corporate governance and supports the best practice provisions of the

Dutch Corporate Governance Code.

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The Dutch Corporate Governance Code was revised in December 2016 and the revised Dutch Corporate Governance

Code became effective on January 1, 2018, being applicable retrospectively from the 2017 ﬁnancial year. Consequently,

FCA has reported in 2018 regarding its application of the revised Dutch Corporate Governance Code over the 2017

ﬁnancial year.

While the Company endorses the principles and best practice provisions of the Dutch Corporate Governance Code,

its current corporate governance structure applies the following best practice provisions as follows:

We deviate from the Dutch Corporate Governance Code’s general best practice provision regarding the maximum

of one non-executive director afﬁliated with a shareholder holding ten percent or more of the shares in the company.

We believe this is appropriate in light of the position of Exor N.V. as our reference shareholder.

The Company does not have a retirement schedule as referred to in best practice provision 2.2.4. of the Dutch

Corporate Governance Code, because, pursuant to the Articles of Association, the term of ofﬁce of Directors is

approximately one year, with such a period expiring on the day the ﬁrst annual general meeting of FCA shareholders

is held in the following calendar year. This approach is in line with the general practice for companies listed in the

U.S. As the Company is listed at NYSE, the Company also relies on certain US governance policies, one of which is

the reappointment of our Directors at each annual general meeting of FCA shareholders.

The Board has not appointed a Vice-chairman in the sense of best practice provision 2.3.7 of the Dutch Corporate

Governance Code. The Board has however appointed a Chairman of the Company and one of the non-executive

directors as “voorzitter” of the Board of Directors (referred to as the “Senior Non-executive Director”). The Board

Regulations provide that in the absence of the Senior Non-executive Director, any other non-executive director

chosen by a majority of the directors present at a meeting shall preside at meetings of the Board of Directors.

In addition, the Chairman of the Company acts as contact for individual directors regarding the functioning of

the Senior Non-executive Director and any conﬂict of interest, or potential conﬂict of interest, of the Senior Non-

executive Director can be reported to the Chairman. We believe that this is sufﬁcient to ensure that the functions

assigned to the vice-chairman by the Dutch Corporate Governance Code are properly discharged.

Pursuant to best practice provision 4.1.8 of the Dutch Corporate Governance Code, every executive and non-

executive Director nominated for appointment should attend the general meeting at which votes will be cast on his

or her nomination. Since, pursuant to the Articles of Association, the term of ofﬁce of Directors is approximately

one year, with such a period expiring on the day the ﬁrst annual general meeting of FCA shareholders is held in the

following calendar year, all members of the Board of Directors are nominated for (re)appointment each year. By

publishing the relevant biographical details and curriculum vitae of each nominee for (re)appointment, the Company

ensures that the Company’s general meeting of shareholders is well informed in respect of the nominees for (re)

appointment and, in practice, only the executive Directors will therefore be present at the general meeting.

Mr. John Elkann, being an executive Director, has a position on the Governance and Sustainability Committee to

which best practice provision 5.1.4 of the Dutch Corporate Governance Code applies. The position of Mr. Elkann

as executive Director in this committee inter alia follows from the duties of the governance and sustainability

committee, which are more extensive than the duties of a selection and appointment committee and include duties

that warrant participation of an executive Director in the view of the Company.

Differences between Dutch Corporate Governance Practices and NYSE Listing Standards

The discussion below summarizes the signiﬁcant differences between our corporate governance practices and the

NYSE standards applicable to U.S. companies, as well as certain ways in which our governance practices (see above

section Compliance with Dutch Corporate Governance Code) deviate from those suggested in the Dutch Corporate

Governance Code.

The NYSE requires that when an audit committee member of a U.S. domestic listed company serves on four or

more audit committees of public companies, the listed company should disclose (either on its website or in its

annual proxy statement or annual report ﬁled with the SEC) that the board of directors has determined that this

simultaneous service would not impair the director’s service to the listed company. Dutch law does not require the

Company to make such a determination.

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The Audit Committee is elected by the Board of Directors and is comprised of at least three non-executive

Directors. Audit Committee members are also required (i) not to have any material relationship with the Company or

to serve as auditors or accountants for the Company; (ii) to be “independent” for the purposes of NYSE rules, Rule

10A-3 of the Exchange Act and the Dutch Corporate Governance Code; and (iii) to be “ﬁnancially literate” and have

“accounting or selected ﬁnancial management expertise” (as determined by the Board of Directors). Furthermore,

the Audit Committee may not be chaired by the Chairperson of the Board or by a former executive of the Company.

Currently, the Audit Committee consists of Mr. Earle (Chairman), Mr. Thompson, Ms. Wheatcroft and Ms. Mars.

In contrast to NYSE rules applicable to U.S. companies which require that external auditors be appointed by the

Audit Committee, the general rule under Dutch law is that external auditors are appointed at a general meeting of

shareholders. In accordance with the requirements of Dutch law, the appointment and removal of our independent

registered public accounting ﬁrm must be resolved upon at a general meeting of shareholders. Our Audit

Committee is responsible for the recommendation to the shareholders of the appointment and compensation of the

independent registered public accounting ﬁrm and oversees and evaluates the work of our independent registered

public accounting ﬁrm.

NYSE rules require a U.S. listed company to have a compensation committee and a nominating/corporate

governance committee composed entirely of independent directors. As a foreign private issuer, we do not have

to comply with this requirement, however the Dutch Corporate Governance Code also requires us to have a

Compensation Committee and a selection and appointment committee (which we call our Governance and

Sustainability Committee). Our Compensation Committee Charter states that a maximum of one member of the

Compensation Committee may be non-independent according to the Dutch Corporate Governance Code. All the

current members of the Compensation Committee are independent under both the NYSE rules and the Dutch

Corporate Governance Code.

Under NYSE listing standards, shareholders of U.S. companies must be given the opportunity to vote on all equity

compensation plans and to approve material revisions to those plans, with the limited exceptions set forth in the

NYSE rules. As a foreign private issuer, we are permitted to follow our home country laws regarding shareholder

approval of compensation plans, and under Dutch law such approval from shareholders is not required for equity

compensation plans for employees other than the members of the Board of Directors, and to the extent the

authority to grant equity rights has been delegated at a general meeting of shareholders to the Board of Directors.

For equity compensation plans for members of the Board of Directors and/or in the event that the authority to issue

shares and/or rights to subscribe for shares has not been delegated to the Board of Directors, approval at a general

meeting of shareholders is required.

While NYSE rules do not require listed companies to have shareholders approve or declare dividends, the Dutch

Corporate Governance Code requires that a dividend distribution be a separate agenda item at a general meeting

of shareholders in which the annual accounts are adopted. In our case, Article 23 of our Articles of Association

provides that annual dividends must be resolved upon at a general meeting of shareholders. However, interim

dividend distributions can be resolved upon by the Board of Directors, subject to meeting certain criteria listed in

Article 23 of our Articles of Association.

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Report of the Non-Executive Directors

Introduction

This is the report of the non-executive Directors of the Company over the 2018 ﬁnancial year as referred to in best

practice provision 5.1.5 of the Dutch Corporate Governance Code.

It is the responsibility of the non-executive Directors to supervise the policies carried out by the executive Directors

and the general affairs of the Company and its afﬁliated enterprise, including the implementation of the strategy of

the Company regarding long-term value creation. In so doing, the non-executive Directors act solely in the interest of

the Company. With a view to maintaining supervision on the Company, the non-executive Directors regularly discuss

FCA’s long-term business plans, the implementation of such plans and the risks associated with such plans with the

executive Directors.

According to the Articles of Association, the Board of Directors is a single board and consists of three or more

members, comprising both members having responsibility for the day-to-day management of FCA (executive

Directors) and members not having such day-to-day responsibility (non-executive Directors). The tasks of the

executive and non-executive Directors in a one-tier board such as the Company’s Board of Directors may be allocated

under or pursuant to the Articles of Association, provided that the general meeting of shareholders has stipulated

whether such Director is appointed as executive or as non-executive Director and furthermore provided that the task

to supervise the performance by the Directors of their duties can only be performed by the non-executive Directors.

Regardless of an allocation of tasks, all Directors remain collectively responsible for the proper management and

strategy of the Company (including supervision thereof in case of non-executive Directors).

Details of the current composition of the Board of Directors (including the non-executive Directors) and its committees

are set forth in the section “Board of Directors” above.

Supervision by the non-executive Directors

The non-executive Directors supervise the policies carried out by the executive Directors and the general affairs of the

Company and its afﬁliated enterprises. In so doing, the non-executive Directors have also focused on the effectiveness

of the Company’s internal risk management and control systems, the integrity and quality of the ﬁnancial reporting and

FCA’s long-term business plans, the implementation of such plans and the associated risks.

The non-executive Directors also determine the remuneration of the executive directors and nominate candidates for

the Director appointments. Furthermore, the Board of Directors may allocate certain speciﬁc responsibilities to one

or more individual directors or to a committee comprised of eligible Directors of the Company and subsidiaries of the

Company. In this respect, the Board of Directors has allocated certain speciﬁc responsibilities to the Audit Committee,

the Compensation Committee and the Governance and Sustainability Committee. Further details on the manner in which

these committees have carried out their duties, are set forth in the sections “The Audit Committee”, “The Compensation

Committee” and “The Governance and Sustainability Committee”, within “Board Practices and Committees” above.

The non-executive Directors supervised the adoption and implementation of the strategies and policies by the Group,

reviewed this annual report, including the Remuneration Report and the Group’s ﬁnancial results, received updates on

legal and compliance matters and they have been regularly involved in the review and approval of transactions entered

into with related parties. The non-executive Directors have also reviewed the reports of the Board of Directors and its

committees, the sustainability achievement and objectives and the recommendations for the appointment of Directors.

Board Report

Corporate Governance

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ANNUAL REPORT

129

During 2018, there were 9 meetings of the Board of Directors. Portions of these meetings took place without the

executive Directors being present. The average attendance at those meetings was approximately 95 percent. An

overview of the attendance of the individual Directors per meeting of the Board of Directors and its committees set out

against the total number of such meetings is set out below:

Name

Meeting Board of

Directors Audit Committee

Governance and

Sustainability Committee

Compensation

Committee

John Elkann 9/9 - 1/1 -

Sergio Marchionne 3/4

Michael Manley

(1)

4/4 - - -

Ronald L. Thompson 9/9 8/8 - -

Andrea Agnelli 8/9 - - -

Tiberto Brandolini d’Adda 9/9 - - -

Glenn Earle 9/9 8/8 - -

Valerie A. Mars 9/9 8/8 - 4/4

Ruth J. Simmons 8/9 - 1/1 -

Michelangelo A. Volpi 7/9 - - 4/4

Patience Wheatcroft 9/9 8/8 1/1 -

Ermenegildo Zegna 9/9 - - 4/4

John Abbott

(2)

7/7 - - -

(1)

Mr. Michael Manley was appointed as executive director at the extraordinary meeting of shareholders held on Friday, September 7, 2018.

(2)

Mr. John Abbott was appointed as non-executive director at the general meeting of shareholders held on Friday, April 13, 2018.

During these meetings, the key topics discussed were, amongst others: the Group’s strategy and 2018-2022

business plan, the Group’s ﬁnancial results and reporting, investments, acquisitions and divestitures, executive

compensation, product plan and technological developments, risk management, legal and compliance matters,

sustainability, human resources, implementation of the Remuneration Policy, and the Remuneration Report. In

addition, during many meetings and also in the absence of the executive directors and with the advice of external

consultants, the Board focused extensively on the succession plan for the CEO’s position due to Mr. Marchionne’s

intention to leave the Company at the beginning of 2019.

Independence of the non-executive Directors

The non-executive Directors are required by Dutch law to act solely in the interest of the Company. The Dutch

Corporate Governance Code stipulates the corporate governance rules relating to the independence of non-executive

Directors and requires under most circumstances that a majority of the non-executive Directors be “independent.”

We have determined that eight of our twelve Board members qualify as independent for purposes of NYSE rules, Rule

10A-3 of the Exchange Act, and the Dutch Corporate Governance Code.

Mr. Thompson, the Senior Non-Executive Director and “voorzitter” of the Board of Directors, is independent under

the Dutch Corporate Governance Code in accordance with best practice provision 2.1.9 of the Dutch Corporate

Governance Code.

Whilst FCA acknowledges that it is not in compliance with best practice provision 2.1.7 (iii) of the Dutch Corporate

Governance Code on the basis that more than one of its non-executive directors are afﬁliated with FCA’s largest

shareholder, Exor N.V. and notwithstanding the foregoing regarding the non-independent directors, FCA is of the

opinion that it otherwise meets the independence requirements set forth in best practice provision 2.1.10 of the Dutch

Corporate Governance Code.

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ANNUAL REPORT

Evaluation by the non-executive Directors

The non-executive Directors are responsible for supervising the Board of Directors and its committees, as well as the

individual executive and non-executive Directors, and are assisted by the Governance and Sustainability Committee in

this respect.

In accordance with the Governance and Sustainability Committee Charter, the Governance and Sustainability

Committee assists and advises the Board of Directors with respect to periodic assessment of the performance of

individual Directors. In this respect, the Governance and Sustainability Committee has, amongst others, the duties and

responsibilities to review annually the Board of Directors’ performance and the performance of its committees and to

review each Director’s continuation on the Board of Directors at appropriate regular intervals as determined by the

Governance and Sustainability Committee.

In 2018, the Governance and Sustainability Committee focused on the periodic assessment of the performance of the

Board of Directors, its committees and the individual Directors during the meeting held on February 19. During that

meeting, the Governance and Sustainability Committee dealt also with the directors’ nomination process and focused

on the assessment of Directors’ qualiﬁcations, the size and composition of the Board of Directors and the committees,

and the recommendations for Directors’ election.

The non-executive Directors have been regularly informed by each committee as referred to in best practice provision

2.3.5 of the Dutch Corporate Governance Code and the conclusions of those committees were taken into account

when drafting this report of the non-executive Directors.

The non-executive Directors were able to review and evaluate the performance of the Audit Committee, the

Governance and Sustainability Committee and the Compensation Committee. No need to amend the size or

composition of the Audit Committee, the Governance and Sustainability Committee and the Compensation

Committee, nor any reason to amend their charters was identiﬁed. Further details on the manner in which these

committees have carried out their duties, are set forth in the sections “The Audit Committee”, “The Compensation

Committee” and “The Governance and Sustainability Committee”, within “Board Practices and Committees” above.

On the basis of the preparations by the Governance and Sustainability Committee, the non-executive Directors were

able to review the Board of Director’s assessments, the individual Directors’ assessments and the recommendation

for Directors’ election. The Board of Directors concluded that each of the Directors continues to demonstrate

commitment to its respective role in the Company.

Also, pursuant to the Compensation Committee Charter, the Compensation Committee implements and oversees the

Remuneration Policy as it applies to non-executive Directors, executive Directors and senior ofﬁcers reporting directly

to the executive Directors. The Compensation Committee administers all the equity incentive plans and the deferred

compensation beneﬁts plans. On the basis of the assessments performed, the non-executive Directors determine the

remuneration of the executive directors and nominate candidates for the Director appointments.

The non-executive Directors have supervised the performance of the Audit Committee, the Compensation Committee

and the Governance and Sustainability Committee.

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131

Responsibilities in Respect to the Annual Report

The Board of Directors is responsible for preparing the Annual Report, inclusive of the Consolidated and Company

Financial Statements and Report on Operations, in accordance with Dutch law and International Financial Reporting

Standards as issued by the International Accounting Standards Board and as adopted by the European Union (EU-IFRS).

In accordance with Section 5:25c, paragraph 2 of the Dutch Financial Supervision Act, the Board of Directors states

that, to the best of its knowledge, the Financial Statements prepared in accordance with applicable accounting

standards provide a true and fair view of the assets, liabilities, ﬁnancial position and proﬁt or loss for the year of the

Company and its subsidiaries and that the Report on Operations provides a true and a fair view of the performance

of the business during the ﬁnancial year and the position at balance sheet date of the Company and its subsidiaries,

developments during the year, together with a description of the principal risks and uncertainties that the Company

and the Group face.

February22, 2019

The Board of Directors

John Elkann

Michael Manley

John Abbott

Andrea Agnelli

Tiberto Brandolini d’Adda

Glenn Earle

Valerie A. Mars

Ruth J. Simmons

Ronald L. Thompson

Michelangelo A. Volpi

Patience Wheatcroft

Ermenegildo Zegna

132

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ANNUAL REPORT

Remuneration Report

Remuneration of the Members of the Board of Directors and the Group Executive Council of FCA

The quality of our leadership and their commitment to the Company are fundamental to our success. FCA’s

remuneration principles support our business strategy and growth objectives in a diverse and evolving global

market. Our remuneration policies are designed to competitively reward the achievement of long-term sustainable

performance and to attract, motivate and retain highly qualiﬁed executives who are committed to performing their

roles in the long-term interest of our shareholders. Given the changing international standards regarding responsible

and sound remuneration, a variety of factors are taken into consideration when evaluating compensation, such as the

complexity of functions, the scope of responsibilities, the alignment of risks and rewards, national and international

legislation and the long-term objectives of the Company and its shareholders.

Remuneration Policy for Executive Directors

The compensation for our executive directors is determined by the Board of Directors based on recommendations

from the Compensation Committee of the Board of Directors (the “Compensation Committee”) and in accordance with

the Company’s Remuneration Policy for Executive Directors (the “Remuneration Policy”). The current Remuneration

Policy was approved by the shareholders of Fiat Chrysler Automobiles N.V. at the 2017 annual general meeting of FCA

shareholders and is reviewed annually by the Compensation Committee. Our Remuneration Policy is available in full on

the Company’s website at www.fcagroup.com.

The Compensation Committee reviews the Remuneration Policy and its implementation. The Compensation

Committee concluded that there were no reasons to recommend adjustments to the Remuneration Policy at the

2019 annual general meeting of FCA shareholders with regard to its executive directors. This report describes

the Company’s compensation principles and structure for the executive directors and summarizes the signiﬁcant

compensation decisions made by the Compensation Committee in 2018.

Change in Executive Directors in 2018

On July 21, 2018, Michael Manley assumed the role of CEO, due to the unfortunate passing of our former CEO

Sergio Marchionne. Mr. Manley’s appointment to the Board was approved by shareholders at the September 7,

2018 Extraordinary General Meeting. Pursuant to Mr. Marchionne’s employment agreement no bonus will be paid for

performance year 2018 and one remaining pro-rated long-term incentive award of 1,561,165 units will vest in 2019 if

performance vesting conditions are conﬁrmed as satisﬁed by the Compensation Committee. (At the average January

2019 stock price of$16.10per unit, the estimated value of these units would be $25,134,756).Other payments will

be made consistent with obligations set forth in Mr. Marchionne’s employment agreement, including his post mandate

beneﬁt of 5 x base compensation.

Financial Year 2018 - Select Business Highlights

A key tenet of FCA’s Remuneration Policy is pay for performance. The Group had a record year despite unexpected

challenges in 2018. The following table highlights some of the key achievements during the year:

Record results of Adjusted EBIT at€7.3 billion and Adjusted net proﬁt at€5.0 billion (including Magneti Marelli);

Net industrial cash of€1.9 billion at December 2018, up €4.3 billion over prior year reﬂecting improved Industrial

free cash ﬂows; and

Record global sales for Jeep and Ram brands, up 14% and 5% year over year, respectively.

Notwithstanding the record results, the Group did not achieve all of its performance goals set out in the Group’s

guidance, which is reﬂected in the remuneration discussed below.

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133

Remuneration Principles

The guiding principle of our Remuneration Policy is to provide a compensation structure that allows FCA to attract

and retain the most highly qualiﬁed executive talent and to motivate such executives to achieve business and ﬁnancial

goals that create value for shareholders in a manner consistent with our core business and leadership values. FCA’s

compensation philosophy, as set forth in the Remuneration Policy, aims to provide compensation to its executive

directors as outlined below.

Alignment with FCA’s strategy Compensation is strongly linked to the achievement of the Group’s publicly disclosed

performance targets.

Pay for performance Compensation must reinforce our performance-driven culture and principles of meritocracy. As

such, the majority of pay is linked directly to the Group’s performance through both short and

long-term variable pay instruments.

Competitiveness Compensation should be competitive against the comparable market and set in a manner to

attract, retain and motivate expert leaders and highly qualiﬁed executives.

Long-term shareholder value creation Targets triggering any variable compensation payment should align with the interest of

shareholders.

Compliance Our compensation policies and plans are designed to comply with applicable laws and corporate

governance requirements.

Risk prudence The compensation structure should avoid incentives that encourage unnecessary or excessive

risks that could threaten the Company’s value.

Compensation Peer Group

In 2016, our Compensation Committee assessed the suitability of our potential peer companies, which are companies

operating in similar industries with whom we are most likely to compete for executive level talent, and restructured the

composition of our peer group to the 26 companies listed below. For 2018, this same compensation peer group was

utilized to evaluate relative pay level alignment with Company performance.

The Compensation Committee strives to identify a peer group that best reﬂects all aspects of FCA’s business and

considers public listing, industry practices, geographic reach, and revenue proximity, with market capitalization

considered as a secondary characteristic. Our peer group represents a blend of both U.S. and European companies

in recognition of the relevant talent market for our executives. In addition to including U.S. and European automobile

manufacturers, our peer group includes U.S. and European companies that have signiﬁcant manufacturing and/

or engineering operations and a global market presence. The list is divided between 14 U.S. and 12 European

companies, similar to the composition of our senior executive team.

Peer Group Companies

Airbus Group Daimler AG Johnsons Controls Inc. The 3M Company

ArcelorMittal SA Deere & Company Lockheed Martin Corporation ThyssenKrupp AG

Bayer AG Ford Motor Company Northrop Grumman Corporation United Technologies Corporation

BMW Group AG General Dynamics Corporation PSA Peugeot Citroen Volkswagen AG

The Boeing Company General Electric Company Raytheon Company The Volvo Group

Caterpillar Inc. General Motors Company Renault SA

Continental AG Honeywell International Inc. Siemens AG

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Board Report

Corporate Governance

Summary Overview of Remuneration Elements

The executive directors’ remuneration is simple and transparent in design, and consists of the following key elements:

Element Description 2018 Application

Annual base

salary

• Market competitive ﬁxed cash compensation

• Reviewed annually, considering market environment and peer

group

Annual base salary as follows:

• Chairman: U.S. $2.0 million

• CEO: U.S. $1.6 million

Short-term

incentive (“STI”

or “Bonus”)

(1)

• Performance metrics determined annually

• CEO target STI payout: 150 percent of base salary

• CEO maximum STI payout: 300 percent of base salary

• STI payout in cash based on annual targets and achievement of

metrics

• Chairman: not eligible for STI

Three equally weighted metrics:

• Adjusted EBIT

• Adjusted net proﬁt

• Net industrial cash

Actual payout

• CEO: 34.0% of target STI

• Payout incentive zone: linear between minimum

and target and linear between target and maximum

Long-term

incentive

(“LTI”)

(1)

• One plan: 2014-2018 Long Term Incentive program

• Two components for our CEO

- 75% performance share units

- 25% restricted share units

• Performance criteria comprised of two equally weighted metrics,

relative Total Shareholder Return (“TSR”) and Adjusted net proﬁt

• Maximum payout: 125 percent of the target number of

performance share units granted

• Chairman: not eligible for LTI

• CEO: LTI award of 180,364 units granted for CEO

service during the period July 21, 2018 - December

31, 2018

Pension and

retirement

savings

• CEO participates in a deﬁned contribution plan for U.S. based

salaried employees and has a supplemental retirement beneﬁt

• Chairman participates in a post mandate beneﬁt of 5 times base

salary

• CEO: Supplemental retirement beneﬁt: three times

annual base salary

• Chairman: Effective January 1, 2019 waived post

mandate beneﬁt

Other beneﬁts • Executive directors may receive typical beneﬁts such as

severance, company cars, medical insurance, accident and

disability insurance, tax preparation, ﬁnancial counseling and tax

equalization

• CEO severance: 1 times base linked to non-

compete restriction

• Chairman severance: currently 2 times base salary

based on legacy agreements, however based

on his views of his current compensation, the

Chairman has expressed his desire to reduce his

severance beneﬁt to one times base salary. In

2019, the Company will update written agreements

with the Chairman for Board approval to formally

incorporate this change

(1)

For 2018, the Chairman received fixed compensation only and was not eligible for any variable compensation.

2018 Remuneration of Executive Directors

Our executive compensation program is designed to align the interests of our executive directors with those of our

shareholders. It is designed to reward our executive directors based on the achievement of sustained ﬁnancial and

operating performance as well as demonstrated leadership. We aim to attract, engage, and retain high-performing

executives who help us achieve immediate and future success and maintain our position as an industry leader. We

support a shared, one-company mindset of performance and accountability to deliver on business objectives.

Executive Directors’ Target Direct Compensation Mix

The Group has a written agreement with the Chairman, memorializing agreed terms and conditions of his service

with the Company. In 2018, no changes were made to any of the compensation elements set forth above for the

Chairman. The Chairman was not eligible for any form of variable compensation.

Effective January 1, 2019, and based on the Chairman’s views of his current compensation, the Board approved

a new prospective compensation program for the Chairman. This compensation framework consists of both

base compensation and long-term variable pay. For 2019, 75 percent of our Chairman’s compensation is at-risk

performance based compensation.

2018

ANNUAL REPORT

135

In September 2018, the Group approved an amended employment agreement for the newly appointed CEO, which

sets forth base salary, short-term variable pay and long-term variable pay. The compensation terms were established

after reviewing external benchmarks and evaluating internal equity, and were supported by our external compensation

consultant. For the performance based pay elements, the combination of the annual incentive and the long term

incentive imposes 89% of targeted pay at risk. The CEO’s targeted annual compensation of $14.0 million consists of:

Base salary: $1.6 million

Target bonus: $2.4 million

Target equity fair market value at grant: $10.0 million of which 75% is performance based and 25% is retention

based

This is illustrated in the weighting of the CEO Target Pay Mix table below:

Elements of Compensation Salary 11% Annual Incentive 17% Long-Term Incentives 72%

Fixed vs. Variable Fixed 11% Variable 89%

The material terms of the Chairman’s and the current CEO’s respective agreements in effect for 2018 are described

below in greater detail.

Executive Directors Realized Compensation

Realized compensation is the amount that our executive directors actually received in 2018. Realized compensation

includes actual base salary earned, actual annual bonus, and the value of any equity awards that vested during the

year. In 2018, our Chairman’s realized cash compensation was €1,693,545, consisting of only base salary (consistent

with prior years, our Chairman did not receive any variable compensation in 2018). Our current CEO’s realized

cash compensation was €600,442 consisting of base salary only as our current CEO did not receive any variable

compensation in 2018 attributable to his role as CEO.

Realized compensation differs from the total compensation set forth in the Directors’ Compensation table later in

this report.

Internal Pay Ratios

During 2018, the Company externally benchmarked the executive directors’ pay and continued to monitor Dutch

Corporate Governance Code with the support of Netherlands outside counsel and noted there were no updates to

Dutch pay ratio guidance.

U.S. peers began disclosing pay ratios in 2018 per SEC guidelines, providing limited comparative context as none of

our 12 European peer group companies disclosed a CEO pay ratio.

In light of the above, FCA reviewed our CEO pay ratio relative to 17 Fortune 200 companies who have a similar

employee geographic proﬁle (with more than approximately 75%of their employees outside of the United States).

FCA ranked below the median of 403:1 according to our external compensation consultant. The ratio of our CEO’s

total annual target compensation of€12,642,204 (base salary, bonus, long term equity award and change in pension

balance) to that of our median employee’s annual total compensation of€33,353 (base salary, variable compensation,

overtime and change in pension balance) is estimated to be 379:1.

In light of the partial year earnings realized by the CEO we deemed annual target compensation, including base salary

and short and long term incentive, to be the most appropriate comparison for 2018 pay.

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Corporate Governance

Base Salary

The base salary for our Chairman has remained unchanged for ﬁve consecutive years (2014, 2015, 2016, 2017 and

2018). Effective January 1, 2019, the annual base salary for our Chairman will be reduced from U.S. $2.0 million to

U.S. $1.0 million. Effective July 21, 2018, the date of our new CEO’s appointment, his annual base salary is U.S.$1.6

million. The Company does not guarantee annual base pay increases for executive directors and their agreements do

not contemplate automatic base salary increases. Base salary is the only ﬁxed component of our executive directors’

total cash compensation and is intended to provide market-competitive pay to attract and retain well-qualiﬁed senior

executives and expert leaders. Base salary is based on the individual’s skills, scope of job responsibilities, experience

and competitive market data. The base salaries of our executive directors are evaluated together with other

components of compensation to ensure that they are in line with our overall compensation philosophy and are aligned

with performance.

Variable Components

FCA’s CEO is eligible to receive short-term variable compensation, subject to the achievement of pre-established,

operating and ﬁnancial performance targets. The variable components of the CEO’s remuneration, both short and

long-term, are linked to predetermined, measurable objectives which serve to motivate strong performance and

shareholder returns and are approved by the non-executive directors. The non-executive directors believe that placing

signiﬁcantly more weight on the long-term component is appropriate for the CEO position because it focuses efforts

on the Company’s long-term objectives.

As speciﬁed by Dutch Corporate Governance Code, scenario analyses are carried out annually to examine the

relationship between the performance criteria chosen and the possible outcomes for the variable remuneration of our

CEO. When such analyses were completed for the 2018 ﬁnancial year, the Company found a strong link between

remuneration and performance and concluded that the chosen performance criteria are appropriate under both the

short-term and long-term incentive components of total remuneration in support of the Company’s strategic objectives.

Short-Term Variable Incentive

The primary objective of the short-term variable incentive is to motivate achievement of the business priorities for the

current year. The CEO’s short-term variable incentive is based solely on annual ﬁnancial objectives proposed by the

Compensation Committee and approved by the non-executive directors each year. The short-term variable incentive

program applies rigorous performance measures to ensure a link between annual payout and Company performance.

Our Methodology for Determining Annual Bonus Awards

Base Salary Target Bonus %

Company

Performance

Factor

BONUS

EARNED

Reﬂects market

Reﬂects performance

vs. objectives based

on actual results

achieved

x x =

2018

ANNUAL REPORT

137

With regard to the determination of the CEO’s annual performance bonus, the Compensation Committee:

approves the objectives and maximum allowable bonus;

selects the metrics and weighting of objectives;

sets the stretch objectives;

reviews the performance delivered for each operating metric to determine the appropriate overall measurement of

achievement of the objectives; and

approves the ﬁnal bonus determination.

The target incentive for the annual bonus program is 150% of base salary for the CEO. To earn any incentive, the

threshold performance must be at least 90% of the speciﬁc target established. To earn the maximum payout of 200% of

target, actual results must be achieved at 150% of the target performance, or greater, for all the performance metrics.

The Compensation Committee established the annual ﬁnancial performance goals based on the Company’s

2018 ﬁnancial plan presented to the Board of Directors. In addition the Compensation Committee considered the

Company’s performance relative to the business plan and input from the external compensation consultant to ensure

the goals are linked to long-term shareholder value creation. The 2018 bonus plan goals were set with challenging

hurdles, and are in line with the Group’s initial external guidance and our ﬁve-year business plan, as set forth below.

2018 Performance Metrics

(1)

Weight Threshold (€ millions) Target (€ millions) Maximum (€ millions)

Adjusted EBIT 1/3 7,830 8,700 13,050

Adjusted net proﬁt 1/3 4,500 5,000 7,500

Net industrial cash 1/3 3,600 4,000 6,000

(1)

Refer to FINANCIAL OVERVIEW - Non-GAAP Financial Measures for additional detail and definitions of these performance metrics; 2018

Performance Metrics include the results of Magneti Marelli.

Discussion of 2018 Results

The Compensation Committee reviews the results and achievements and presents the results to the non-executive

Directors, typically in the ﬁrst quarter of each year in connection with the completion of the year-end earnings release.

In 2018 the Adjusted net proﬁt metric was achieved, while Adjusted EBIT and Net Industrial Cash fell below the 90%

threshold, providing for an overall company performance factor of 34.0%

CEO Bonus Calculation

Actual Results

Financial Goals Threshold (90%) Target (100%) Maximum (150%) Metric Weight

Weighted

Company

Performance

Factor

Adjusted EBIT 33.3% 0.0%

Adjusted Net Proﬁt 33.3% 34.0%

Net Industrial Cash 33.3% 0.0%

Overall Company Performance Factor 34.0%

The Compensation Committee determined that the current CEO earned an annual bonus of $367,000 for 2018 related

to his CEO service from July 21, 2018 through December 31, 2018 based on the achievement of the pre-established

metrics set forth above. The Chairman was not eligible for any form of short-term variable compensation in 2018.

7,830 8,700 13,050

4,500 5,000 7,500

3,600 4,000 6,000

7,284

5,047

1,872

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ANNUAL REPORT

Board Report

Long-Term Incentives

Long-term incentive compensation is a critical component of our Executive Directors’ compensation structure. This

compensation component is designed to:

align the interests of our Executive Directors and other key contributors with the interests of our shareholders;

motivate the attainment of Company performance goals and reward sustained shareholder value creation; and

serve as an important attraction and long-term retention tool that management and the Compensation Committee

use to strengthen loyalty to the Company.

Cyclical, Long-Term Nature of Our Business. Market demand for automobiles and light commercial vehicles is cyclical

and product life cycles are long, and thus so is the nature of FCA’s business. As long-term incentive compensation

is one of the key mechanisms to motivate and reward managers, the Company has structured this component to

consider the long-term, cyclical nature of the business.

2014-2018 Long-Term Equity Incentive Plan

With the aim to attract, motivate and retain Executive Directors for the long-term, to reward Executive Directors based on

our future performance as reﬂected by the market price of FCA shares, and to foster a long-term link between Executive

Directors’ interests and the interests of the Company and its shareholders, the Compensation Committee establishedthe

2014-2018 long-term incentive program (“2014-2018 LTIP”). This plan is consistent with the Company’s business plan

presented to Capital Markets in May 2014, which was subsequently updated to reﬂect changes in the Company’s capital

structure.In this way, Executive Directors’ payouts are tied and aligned with the interests of shareholders.

The performance based awards vesting under the LTI program are conditional on meeting two independent metrics,

Adjusted net proﬁt and Relative TSR, which are weighted equally at target. Each metric has threshold and target

performance levels such that performance below threshold results in no awards being earned. The payout opportunity

is based on the Company’s relative TSR ranking against the companies in the peer group as shown in the table

below. Accordingly, the CEO may earn between 0 percent and 125 percent of the target number of awards granted.

The Adjusted net proﬁt component payout begins at 80 percent of target achievement and has a maximum payout

at 100 percent of target. The Relative TSR component has partial vesting if the Company is ranked seventh or better

among an industry speciﬁc peer group of eleven, including the Company, and a maximum payout of 150 percent, if

the Company is ranked ﬁrst among the eleven companies. The awards have three vesting opportunities, the ﬁrst after

2014-2016 results, the second after 2014-2017 results, and the third after the full 2014-2018 results. FCA achieved

100 percent Adjusted net proﬁt payout and had a ranking of number one for each of the three vesting opportunities.

Adjusted Net Proﬁt Payout Scale TSR Payout Scale

% Achieved Payout % of Target FCA Rank Payout % of Target

80.0% 50.0% 1 150.0%

85.0% 62.5% 2 133.3%

90.0% 75.0% 3 125.0%

95.0% 87.5% 4 100.0%

100.0% 100.0% 5 83.3%

6 66.7%

7 50.0%

8-11 0.0%

Listed below is the Relative TSR peer group:

2014-2018 Performance Cycle Relative TSR Metric Peers

Volkswagen AG Toyota Motor Corporation Daimler AG General Motors Company

Ford Motor Company Honda Motor Co. Ltd. BMW Group The Hyundai Motor Company

PSA Peugeot Citroen Renault SA

Corporate Governance

2018

ANNUAL REPORT

139

2019-2021 Long-Term Equity Incentive Plan

In December 2018, the Compensation Committee approved a new 2019-2021 Long-Term Equity Incentive Plan

structure that better aligns with market practice. This new plan is consistent with the Company’s business plan

presented to Capital Markets in June 2018. Issuance of shares under the new plan is subject to shareholder approval

at the 2019 Annual General Meeting (AGM).

CEO’s Long-Term Incentive Equity Awards

Our CEO received a new one-time grant consisting of 135,273 performance share units and 45,091 restricted share

units under the 2014-2018 LTI program for his CEO service during the period July 21, 2018 - December 31, 2018.

The design and award level for the one-time grant covering the remainder of the ﬁve-year performance period was

based on market competitive analysis provided by the Compensation Committee’s external compensation consultant.

The performance share units and the restricted share units can convert into shares of the Company in 2019, subject

to speciﬁc vesting conditions. The actual payout that the CEO may realize on the performance share units depends

on the achievement of critical operation and relative stock performance targets established by the Compensation

Committee for the 2014-2018 performance period. The Compensation Committee will assess the satisfaction of these

performance targets in 2019. The maximum opportunity for the ﬁnal vesting of this new equity award linked to his CEO

service is 214,182 units.

Pension and Retirement Savings

Based on legacy arrangements which were developed to assist in incentivizing the Chairman during an extremely

challenging period, certain retirement beneﬁts were provided. FCA’s Chairman had retirement savings beneﬁts in an

aggregate amount equal to ﬁve times his last annual base compensation. In 2018 based on the Chairman’s views of

his pension and retirement savings beneﬁt, he offered to remove this beneﬁt from his current compensation framework

effective January 1, 2019. The Board approved the removal of this beneﬁt for the Chairman.

The CEO participates in a deﬁned contribution plan similar to other U.S. based salaried employees and a supplemental

retirement beneﬁt plan. In consideration of his CEO service, the supplemental retirement beneﬁt plan provides a

retirement savings beneﬁt in an aggregate amount equal to 3 times his annual base salary. This beneﬁt requires

ﬁve years of CEO service for 100% vesting and 3 years of service for 50% vesting (with straight-line interpolation in

between 0 and 3 years of service and for greater than 3 years of service and less than 5 years of service). In 2018, a

cost of €0.3 million was recognized in connection with these retirement savings beneﬁt plans.

Non-compete Restrictions and Severance

In connection with our CEO’s written agreement approved in 2018, he agreed to a non-compete restriction under

which he committed not to directly or indirectly work for or associate with any business that competes with the

Company for one year after termination of his services. In addition, under the agreement, if the Company terminates

his services for reasons other than for cause (as deﬁned) or if he terminates his services for good reason (as deﬁned),

the Company will pay the CEO an amount equal to the sum of one times the sum of his annual base salary, for the last

ﬁscal year prior to termination of his services, if within twenty-four months following a change of control (as deﬁned),

the CEO’s services are involuntarily terminated by the Company (other than for cause), or are terminated by the CEO

for good reason, the CEO is entitled to receive the severance and accelerated vesting of awards under the EIP. If the

CEO leaves the Company then pursuant to his agreement, he may not work for a competitor for one year after the

termination date. The CEO will not be entitled to the severance if he is terminated for cause.

Currently, in connection with our Chairman’s legacy written employment agreement, if the Company terminates his

services for reasons other than for cause (as deﬁned) or if he terminates his services for good reason (as deﬁned), the

Company will pay the Chairman an amount equal to two times his annual base salary, using the base salary as in effect

for the last ﬁscal year prior to termination of services. Based on his views of his current compensation, the Chairman

has expressed his desire to reduce his severance beneﬁt to one times base salary. In 2019, the Company will update

written agreements with the Chairman for Board approval to formally incorporate this change.

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Other Benefits

We offer customary perquisites to our CEO and Chairman. The executive directors may also be entitled to usual

and customary fringe beneﬁts such as personal use of aircraft, company car and driver, personal/home security,

medical insurance, accident and disability insurance, tax preparation, ﬁnancial counseling and tax equalization. The

Remuneration Policy also enables the Compensation Committee to grant other beneﬁts to the executive directors in

particular circumstances.

Tax Equalization

Action Taken Rationale

Tax equalization for executive directors Maintain respective home country taxation on all income for services, in the event

of incremental taxes

The executive directors, by nature of their role in our geographically diverse company,may be subject to tax on

their income for services in multiple countries.Given the executive directors are subject to tax on their worldwide

income in their respective home countries,the Company studied the prevalent practice for handling incremental tax

costs incurred by globally mobile executives.Based on that analysis, the Board decided to tax equalize all of the

employment earnings, including equity income, to the executive directors’ respective home country effective tax rate, if

incremental taxes over their home country tax rate would arise.

Stock Ownership

Our Board recognizes the critical role that executive stock ownership has in aligning the interests of management with

those of shareholders. While the Company did not maintain a formal stock ownership policy, the current CEO’s stock

holdings, when viewed as a multiple of his 2018 base salary, was signiﬁcantly greater than common market practice

of six times base salary. The company has taken under advisement a stock ownership and retention policy which is

planned for implementation in 2019.

Recoupment of Incentive Compensation (Claw back Policy)

The Company is dedicated to maintaining and enhancing a culture focused on integrity and accountability.

Employment agreements with members of management, including its executive ofﬁcers, and also the EIP, allow the

Company to recover, or “claw back”, incentive compensation, including the ability to retroactively adjust if any cash

or equity incentive award is predicated upon achieving ﬁnancial results and the ﬁnancial results were subject to an

accounting restatement. In addition, the CEO and each of the Company’s executive ofﬁcers will repay net amounts

received for their 2016, 2017 and 2018 annual bonuses, restricted share units and performance share units if, during

the two years after payment, (i) FCA restates its ﬁnancial statements for any vesting or performance period covered by

the compensation (a “covered period”), (ii) “cause”, as deﬁned in executive’s employment agreement, existed during a

covered period, or (iii) the executive engaged in certain conduct that has been materially injurious to the Company.

Corporate Governance

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Equity Incentive Plan - Long Term Incentive Program

2014 - 2016 2014 - 2017 2014 - 2018 2017, 2018 and 2019 Vesting

Performance Periods

Awards subject to reduction/cancellation/recovery

based on claw back policy

, 2

and 3

tranche equity awards based on 2014 – 2016,

2014 – 2017 and 2014 - 2018 performance achieved, respectively

Award in share of common stock

Annual Bonus Plan

2016, 2017 and 2018 2016, 2017 and 2018 Claw back

Annual Performance Periods Awards subject to reduction/cancellation/recovery

Results based on performance in 2016, 2017 and 2018 Awards in cash in ﬁrst quarter of 2017, 2018 and 2019

Insider Trading Policy

The Company maintains an insider trading policy applicable to all directors, employees, members of the households

and immediate family members (including spouse and children) of persons listed and other unrelated persons, if

they are supported by the persons listed. The insider trading policy provides that the aforementioned individuals

may not buy, sell or engage in other transactions in the Company’s stock while in possession of material non-public

information; buy or sell securities of other companies while in possession of material non-public information about

those companies they become aware of as a result of business dealings between the Company and those companies;

disclose material non-public information to any unauthorized persons outside of the Company; or engage in hedging

transactions through the use of certain derivatives, such as put and call options involving the Company’s securities.

The insider trading policy also restricts trading to deﬁned window periods which follow the Company’s quarterly

earnings releases.

Prohibition on Short Sales (Anti-hedging)

To ensure alignment with shareholders’ interest and to further strengthen our compensation risk management policies

and practice, the Company’s insider trading policy prohibits all individuals to whom the policy applies from engaging in

a short sale of the Company’s or its subsidiaries’ securities and derivatives (such as options, puts, calls, or warrants).

Remuneration for Non-Executive Directors

Remuneration of non-executive directors is set forth in the Remuneration Policy. The current remuneration for the non-

executive directors is shown in the table below.

Non-Executive Director Compensation U.S.$

Annual cash retainer 200,000

Additional retainer for Audit Committee member 10,000

Additional retainer for Audit Committee Chair 20,000

Additional retainer for Compensation/Governance Committee member 5,000

Additional retainer for Compensation/Governance Committee Chair 15,000

Additional retainer for Lead Independent Director 25,000

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At the 2017 annual general meeting of FCA shareholders, the Company’s shareholders approved amendments to

the Remuneration Policy to introduce the principle that non-executive directors are paid in cash. Pursuant to the

amendment, implemented shortly after the 2017 annual general meeting of shareholders, non-executive directors are

to be paid in cash, and no longer have the option to elect to receive their annual retainer fee, committee membership,

and committee chair fee payments in the form of common shares. Remuneration of non-executive directors is ﬁxed

and not dependent on the Group’s ﬁnancial results. Non-executive directors are not eligible for variable compensation

and do not participate in any incentive plans. Non-executive directors are also entitled to certain automobile

perquisites, which are subject to taxes for the imputed income on the purchase or lease of Company vehicles.

Directors’ Compensation

The following table summarizes the remuneration paid or awarded to the members of the Board of Directors for the

year ended December31, 2018.

Directors of FCA

Ofﬁce

held

In ofﬁce

from/to

Annual fee

(cash)

(€)

Annual

incentive

(equity)

(1)

(€)

Annual

incentive

(bonus)

(2)

(€)

Other

compensation

(€)

Pension

& similar

beneﬁts

(7)

(€) Total (€)

ELKANN John Philipp Chairman

01/01/2018 -

12/31/2018 1,693,545 — — 875,944

(3)

549,000 3,118,489

MARCHIONNE Sergio

Former

CEO

01/01/2018 -

07/20/2018 1,975,803 284,671 — 4,369,176

(4)

4,336,905 10,966,555

MANLEY Michael CEO

07/21/2018 -

12/31/2018 600,442 1,687,075 310,766 89,817

(5)

292,329 2,980,429

ABBOTT John Director

04/13/2018 -

12/31/2018 84,677 — — — — 84,677

AGNELLI Andrea Director

01/01/2018 -

12/31/2018 169,355 — — — — 169,355

BRANDOLINI D’ADDA Tiberto Director

01/01/2018 -

12/31/2018 169,355 — — 1,074 — 170,429

EARLE Glenn Director

01/01/2018 -

12/31/2018 186,290 — — 18,392

(6)

— 204,682

MARS Valerie Director

01/01/2018 -

12/31/2018 182,056 — — 8,044

(6)

— 190,100

SIMMONS Ruth J. Director

01/01/2018 -

12/31/2018 173,588 — — 6,917

(6)

— 180,505

THOMPSON Ronald L. Director

01/01/2018 -

12/31/2018 198,992 — — 6,917

(6)

— 205,909

VOLPI Michelangelo A. Director

01/01/2018 -

12/31/2018 173,588 — — — 173,588

WHEATCROFT Patience Director

01/01/2018 -

12/31/2018 182,056 — — 11,819

(6)

— 193,875

ZEGNA Ermenegildo Director

01/01/2018 -

12/31/2018 182,056 — — 9,186

(6)

— 191,242

Total 5,971,803 1,971,746 310,766 5,397,286 5,178,234 18,829,835

(1)

For the former CEO, for the year ended December 31, 2018 the Company recognized a net share-based compensation expense of €284,671.

This expense includes €4.3 million of prior period expense that has been reversed in 2018 as a result of the forfeiture of 683,583 units in

accordance with the Special Equity Vesting Terms included in the formers CEO’s employment agreement. The CEO received a one-time grant

for his CEO service during the period July 21, 2018 - December 31, 2018, the Company recognized a share-based compensation expense of

€1,687,075 relating to this grant.

(2)

The annual incentive represents the bonus earned for performance year 2018 which will be paid in 2019.

(3)

The stated amount includes the use of transport and insurance premiums.

(4)

The stated amount includes insurance premiums, tax preparation and tax equalization.

(5)

The stated amount includes the use of transport and financial counseling.

(6)

The stated amount refers to certain automobile perquisites, which are subject to taxes for the imputed income on the purchase or lease of

Company vehicles

(7)

The amounts reflect pension, retirement and similar benefits set aside or accrued for Directors for the year ended December 31, 2018.

Board Report

Corporate Governance

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143

Share Plans Granted to Directors

The following table gives an overview of the share plans held by the former Chief Executive Ofﬁcer.

Name / Plan Grant Date Vesting Date

Number

of shares

under

award at

January 1,

2018

Fair Value

on Grant

Date

(1)

Granted

Vested

Number of

shares under

award at

December

31, 2018

Marchionne / FCA LTI awards

(1)(2),(3)

04/16/2015 2017 / 2018 / 2019 4,472,800 U.S.$14.84 — 2,805,935 1,561,165

Manley/ FCA LTI awards 09/27/2018 2019 — U.S.$16.61 180,364 — 180,364

(1)

In January, 2018, the Compensation Committee in accordance with the terms of the LTI plan, adjusted the equity awards to make holders of the

Company’s LTI awards whole for the diminution in value of an FCA share resulting from the distribution of the ordinary shares in GEDI Gruppo

Editoriale S.p.A. (GEDI). For LTI awards, the actual value of units received will depend on the Company’s performance as described above. Fair

value is calculated by multiplying the per unit value of the award by the number of units corresponding in the most probable outcome of the

performance conditions as of the grant date. The per unit is based on the Company’s stock on the grant date, adjusted to reflect the relative

TSR modifiers using a Monte Carlo simulation that includes multiple inputs such as stock price, performance period, volatility and dividend yield.

Event

Number of shares

under award Conversion Factor

Fair Value on

award date

Dilution

Adjustment

Number of

adjusted shares

GEDI 4,472,800 1.003733 U.S.$9.52 16,696 4,489,496

(2)

Shares Vested represents the maximum opportunity for the second vesting of the CEO’s equity award.

(3)

The target number of units to be delivered in the 2019 vest will be 1,561,165 outstanding units at December 31, 2018. This amount has been

calculated in accordance with the Special Equity Vesting Terms included in the formers CEO’s employment agreement. The award will remain

subject in all respects to the achievement of applicable performance goals.

Executive Ofﬁcers’ Compensation

Refer to Note 24, Related party transactions, within the Consolidated Financial Statements included elsewhere in this

report for detail on the aggregate compensation expense for executives with strategic responsibilities.

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Introduction

FCA recognizes that our environmental and social activities affect not only our aspiration to grow the business but

also our commitment to positively affect our world. Due to the complexity of the automotive industry’s value chain and

product offering, FCA impacts a large number and wide variety of stakeholders. We aim to create value through our

relationships and connections with customers, employees, dealers, suppliers and communities, among others.

Emerging trends, evolving consumer attitudes and regulatory requirements inﬂuence not only which products and

services we develop, but also how we develop them. FCA incorporates the concept of a circular economy into

its business approach, focusing on reducing waste in every link in the value chain from vehicle design through

production, distribution, use and eventual reuse of materials.

Our efforts to achieve progress toward the business plan objectives reﬂect our commitment to create long-term value

responsibly, with full recognition of the broader role the Company plays.

To achieve our objectives, the Group targets:

a governance model based on transparency and integrity;

safe and sustainable products;

a competitive product offering and innovative mobility solutions;

effective communication with consumers;

constructive management and professional development of employees;

safe working conditions and respect for human rights;

mutually beneﬁcial relationships with business partners and local communities; and

responsible management of manufacturing and non-manufacturing processes to reduce impacts on the

environment.

Sustainability Governance

Several entities within the Group, primarily those referred to below, help direct a disciplined approach to sustainability

management.

The Board of Directors, composed of both executive and non-executive members, is responsible for the management

and strategic direction of the Group in view of long-term value creation. The Board’s Governance and Sustainability

Committee evaluates proposals related to strategic sustainability initiatives, advises the full Board as necessary, and

reviews the annual Sustainability Report. For a full description of the Committee’s responsibilities, refer to the section

CORPORATE GOVERNANCE elsewhere in this report.

The Chief Executive Ofﬁcer (“CEO”) is supported by the Group Executive Council (“GEC”), a group led by the CEO

and composed of senior leadership from regional operations, brands, industrial processes, and support/corporate

functions. The GEC approves operating guidelines and plays a vital role in ensuring that sustainability efforts are

aligned with economic and business objectives.

The Chief Audit, Sustainability and ComplianceOfﬁcer is also a member of the GEC and coordinates the activities of

the Sustainability Team. The Sustainability Team, with members located in Italy, Brazil, China and the U.S., facilitates

the process of continuous improvement, contributing indirectly to risk management, cost optimization, stakeholder

engagement and effective communication to stakeholders of its commitments and results.

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Integrity of Business Conduct

The foundation of FCA’s governance model is the Code of Conduct and a collection of supporting statements that

reﬂect our commitment to a culture dedicated to integrity, responsibility and ethical behavior.

For further information about our Code of Conduct, refer to the CORPORATE GOVERNANCE section elsewhere in this

report.

The FCA integrity system is comprised of these primary elements:

Principles that capture the Company commitment to important values in business and personal conduct;

Practices that are the basic rules that must guide our daily behaviors required to achieve our overarching Principles;

Procedures that further articulate the Company’s speciﬁc operational approach to achieving compliance and that

may have speciﬁc application limited to certain geographical regions and/or businesses as appropriate; and

Statements, including Guidelines, that cover speciﬁc issues to emphasize the Company’s accountability and

commitment to a culture of responsibility, integrity and ethical behavior. These cover, among others, matters related

to human rights, competition, sustainability for suppliers, environmental management and Conﬂict Minerals.

FCA disseminates the Principles established in the Code of Conduct to employees. Employees are provided training

about ethics and compliance, with particular focus on the Code of Conduct, anti-corruption, corporate governance

and human rights, including non-discrimination. Further, FCA employees may also seek advice concerning the

application and interpretation of the FCA Code of Conduct by contacting their immediate supervisor, Human

Resources representatives, the Legal Department and the Ethics Helpline.

Unless local law provides otherwise, employees must report violations of law, regulation or Company policy of which

they become aware, including but not limited to, issues involving vehicle safety, vehicle emissions, ﬁnancial reporting,

or reports to governmental authorities. Any failure in reporting such violations could place the Company at risk, and

may be the subject of disciplinary action.

To allow the reporting of concerns and ensure the protection of individuals raising a concern, the previous channels of

the whistleblowing management system were consolidated in 2015 into the FCA Ethics Helpline. The Ethics Helpline

offers a worldwide, common and independent intake channel via telephone (38 dedicated numbers in 22 languages)

and web to report any concerns of alleged situations, events, or actions that may be inconsistent with the Code of

Conduct. It is managed by an independent provider, available 24 hours a day, seven days a week. FCA has chosen

this reporting channel to meet compliance needs and maintain a continuous reporting environment.

In 2018, a new module was created within the FCA Ethics Helpline to assist the workforce in the management of

conﬂicts of interest or other potential conﬂicts.

In addition, the FCA Ethics Helpline also allows employees, suppliers, dealers, consumers and other stakeholders to

request advice about the application of the Code of Conduct (for example, to verify deﬁnitions of terms or restrictions

under the Code).

Anti-Corruption and Bribery

Included in FCA’s Code of Conduct are, among others, rules related to anti-bribery, anti-corruption, anti-competitive

behavior and conﬂicts of interest.

FCA is committed to the highest standards of integrity, honesty and fairness in all internal and external affairs and will

not tolerate any kind of bribery.

The Group’s policy is that no one - director, ofﬁcer, or other employee, agent or representative - shall, directly or

indirectly, give, offer, request, promise, authorize, solicit or accept bribes or any other perquisite in connection with

their work for the Company. A violation of anti-bribery and anti-corruption laws is a serious offense for both companies

and individuals, which can result in signiﬁcant ﬁnes, reputational damage and imprisonment of individuals.

The policy requires that each FCA company that contracts with third parties shall adopt all appropriate measures to

ensure that sufﬁcient background checks and other appropriate due diligence procedures have been performed with

respect to third parties under consideration, prior to ﬁnalizing any agreement among parties.

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Alleged violations are reported through the same channels as other types of potential violations, including the FCA

Ethics Helpline website and telephone contact list available on our corporate website.

Human Rights

FCA’s commitments include efforts directed to the prevention of adverse human rights conditions.

The Group requires the adoption of internationally recognized principles for the respect and support of fundamental

human rights in every geographic area where FCA companies operate. FCA promotes these principles within its

sphere of inﬂuence, expecting its suppliers, contractors and other business partners, with whom it does business, to

adhere to these principles.

The Company is committed to adopting, maintaining and improving systems and processes designed to eliminate

slavery and human trafﬁcking from our supply chains or in any part of our business. In 2018, Practices were added

under the Code of Conduct and communicated to further address these concerns, including “Protecting Our

Workforce” and “Child and Forced Labor Prohibited”.

The FCA Human Rights Guidelines, publicly available, are consistent with the spirit and intent of the United Nations

Universal Declaration of Human Rights, the United Nations Guiding Principles on Business and Human Rights (“Ruggie

Framework”), the United Nations Sustainable Development Goals, the OECD Guidelines for Multinational Companies,

the Declaration on Fundamental Principles and Rights at Work of the International Labour Organization (“ILO”), and the

Modern Slavery Act 2015.

The Human Rights Guidelines cover the rights we seek to ensure for, and with, our major stakeholders:

Employees: FCA prohibits the use of child and forced labor. We seek to provide a diverse and inclusive workplace,

free from discrimination and harassment. We recognize and respect workforce members’ freedom of association

and are committed to providing employment conditions that are competitive and compliant with all applicable

employment, wage and working hour laws. FCA conducts all of its worldwide operations with the highest regard for

the health and safety of its workforce in accordance with applicable laws and is dedicated to continuously improving

health and safety measures to help ensure that the potential for injury in the workplace is minimized.

Customers: FCA is committed to offering safe, reliable, high-quality vehicles to our customers.

Communities: FCA is committed to socially responsible engagement with the communities where we have

operations.

Business partners and suppliers: FCA expects our suppliers, contractors and other business partners with whom

we do business, to adhere to our human rights standards. They are also required to comply with all occupational

health and safety related rules and regulations, and to adopt measures and standards that contribute to an overall

improvement in occupational health and safety performance throughout the value chain. For more information, refer

to the Supply Chain section included elsewhere in this report.

Our due diligence processes include actions intended to safeguard against human rights abuses in any part of our

business and in our supply chain.

As part of our initiative to internally identify and mitigate any related risks, the following tools have been developed:

an annual survey aimed at detecting any case of child and forced labor at worldwide FCA companies, including

those located in countries that have not ratiﬁed International Labour Organization Conventions on these issues.

In 2018, no incidents of child labor or forced and compulsory labor were reported in any of the companies

mapped; and

a Human Rights survey performed by the Internal Audit department as part of the standard internal audit process,

in order to cover due diligence requirements of the Ruggie Framework. Checks are also performed in those

countries with a high risk based on the yearly Audit Plan. FCA strengthened the checklist risk items related to

child labor and young workers, forced labor, non-discrimination, conditions of employment, security and supply

chain management. The human rights self-assessment compliance checklist was performed by individual legal

entities and reviewed by FCA’s Internal Audit and Compliance organization, with a coverage of 74% of the FCA

workforce worldwide.

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We regularly monitor risks related to human rights in our supply chain through two main monitoring tools:

the FCA Supplier Sustainability Self-Assessment (“SSSA”) covering labor practice, human rights, ethics, diversity,

and health and safety aspects, among others; and

on-site audits conducted at high-risk supplier plants by either internal Supplier Quality Engineers or third-party

auditors.

Alleged human rights violations are reported through the same channels as other types of potential violations,

including the FCA Ethics Helpline website and telephone contact list available on our corporate website.

Materiality Analysis and Risks

Each year, FCA conducts an analysis of sustainability-related topics which may be considered material to the

Company. “Material” in this sense differs from the ﬁnancial deﬁnition, and represents information determined to be of

interest to internal and external stakeholders due to its economic, environmental or social impact. Material aspects

include the most important factors that relate to, and have an impact on, FCA’s ability to create long-term value for its

stakeholders.

The evaluation of material aspects involves consideration of factors such as stakeholder input, business plan targets,

corporate values, industry trends, information of interest for investors, societal standards and expectations.

In addition, key global risks that have been identiﬁed through FCA’s risk management framework are also examined

for their relevance to the Company’s sustainability proﬁle and impact. These risks encompass a broad array of topics,

including regulatory compliance, product portfolio, product quality and customer satisfaction, supply chain, talent

management, and technology development.

For more information regarding the key global focus risks identiﬁed by FCA and control measures taken, refer to the

section RISK MANAGEMENT elsewhere in this report.

Gathering stakeholder input to determine materiality is an ongoing process. As a global enterprise with a complex,

intricately connected value chain, FCA engages with a wide range of stakeholders, including employees, customers,

suppliers, dealers, institutions, investors, trade unions, associations and local communities.

The Group annually conducts surveys and stakeholder engagement activities focused on sustainability topics. FCA

has a target to expand and innovate the sustainability dialogue with stakeholders, in the belief that these activities are

an essential part of a robust sustainability program. They help us to better identify risks and opportunities, as well as

to align our objectives to social, technological and regulatory changes around the globe. In each of the regions where

FCA operates, these stakeholder initiatives are adapted to locally relevant topics and needs.

The conclusions from our analysis of the various factors, together with the results from our stakeholder engagement

activities and survey, are presented on the Materiality Diagram, which charts the relative importance of issues for both

internal and external stakeholders.

This materiality assessment is used to help prioritize issues in our sustainability-focused reporting as well as to set

targets to address the material aspects that have been identiﬁed.

As a result, FCA has long-term sustainability-focused targets covering priority areas such as quality and safety of

vehicles; environmentally responsible products, plants and processes; corporate governance; a healthy, safe and

inclusive work environment; and constructive relationships with local communities and business partners. These areas

were conﬁrmed during the 2018 assessment as relevant for internal and external stakeholders in the sustainability

materiality diagram and are also connected to the key risk factors identiﬁed by the risk management framework.

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Environmental Impacts from Operations

FCA’s environmental stewardship endeavors to achieve objectives on two fronts: to reduce its environmental footprint

while also contributing to the Company’s ﬁnancial success through reduced production costs.

FCA’s Environmental Guidelines specify our commitment to address environmental and climate change issues by

aiming to:

reduce energy consumption through more efﬁcient production processes;

limit emissions of greenhouse gases and other pollutants from manufacturing operations, by reducing the amount

of energy we use, implementing innovative technical solutions, and promotion of renewable energy sources;

reduce consumption of fresh water in all areas, especially where its availability is critical to the surrounding

environment and population, increase its reuse and recycling, and minimize emissions of hazardous substances to

water from manufacturing;

foster responsible water consumption as part of the commitment we share with our suppliers;

minimize the use of raw materials by promoting renewable and recycled materials in our production processes;

2018 FCA Materiality Diagram

Product Environment Social

Increasing relevance for external stakeholders

Increasing relevance for internal stakeholders

Engagement

with business partners

Raw materials sourcing

Community engagement

Emissions from logistics

Biodiversity conservation

Recycled and recyclable materials

Waste management

Emissions from operations

Business integrity

Vehicle safety

Vehicle quality

Customer satisfaction

Research and innovation

Vehicle fuel economy

Vehicle CO

emissions

Hybrid, electric systems

Employee health and safety

Employee well-being

and work-life balance

Renewable energy

Water consumption

Energy consumption

Risk management

Human rights

Alternative fuels

Alternative mobility solutions

Employee diversity and equal opportunity

Employee development

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encourage the use of reusable and environmentally friendly packaging and containers in order to increase material

savings and reduce waste;

minimize the generation of waste:

by implementing procedures designed to manage waste throughout our processes; and

by limiting the use of potentially hazardous substances and promoting their substitution wherever possible;

preserve natural habitats and their biodiversity in areas surrounding our sites.

FCA has also adopted Logistics Guidelines that detail the methods we strive to employ in moving millions of parts and

vehicles worldwide each year.

The Group has implemented an Environmental Management System (“EMS”) worldwide, aligned with ISO 14001

standards. The EMS consists of a system of methodologies and processes designed to prevent or reduce the

environmental impact of the Group’s manufacturing activities through, for example, reductions in emissions, water

consumption and waste generation, and conservation of energy and raw materials.

A key contributor to our environmental stewardship is the adoption of the World Class Manufacturing (“WCM”)

program. WCM was ﬁrst adopted more than 10 years ago and has been implemented in nearly all FCA plants

worldwide. WCM is a structured production system that promotes sustainable, systematic improvements aimed to

evaluate and address all types of wastes and losses (including injuries) at our manufacturing operations by applying

methods and standards with rigor, and with the involvement of the entire workforce.

The projects developed within WCM are designed to reduce losses and waste; increase productivity; and improve

quality and safety in a systematic manner, aiming to ultimately reach zero accidents, zero waste, zero breakdowns

and zero inventories. In 2018, about 70,000 WCM-related projects were implemented, including approximately 5,000

speciﬁcally targeted at reducing environmental impacts and natural resource consumption.

Energy Consumption and Emissions

The Group seeks solutions that enable further reductions in greenhouse gas emissions and the use of fossil fuels. Over

time, these solutions have generated signiﬁcant savings in energy-related costs.

Energy consumption in 2018 was about 45 million gigajoules (“GJ”). At mass-market vehicle assembly and stamping

plants, energy consumption per vehicle produced recorded a decrease of about 17 percent compared with 2010

(from 7.4 to 6.1 GJ).

Manufacturing energy consumption

FCA worldwide (million gigajoules) 2018 2017 2016

Total energy consumption 45.3 44.5 43.9

Total CO

emissions from manufacturing processes was 3.6 million tons, which was well below the 2010 level on both

a total and per vehicle produced basis. Emissions of CO

per vehicle produced at mass-market vehicle assembly and

stamping plants decreased about 27 percent in the last eight years, falling from 0.62 tons per vehicle produced in

2010 to 0.45 tons per vehicle produced in 2018. FCA is targeting for 2020 a 32 percent reduction in CO

emissions

per vehicle produced compared with the 2010 baseline.

Manufacturing CO

emissions

FCA worldwide (million tons of CO

) 2018 2017 2016

Total CO

emissions 3.6 3.5 3.6

In 2018, FCA continued to make extensive use of energy from renewable sources. In Brazil, where the majority of our

South American plants are located, electricity originates almost entirely from renewable sources. Energy from renewable

sources used in Group production processes represented about 15 percent of total electricity consumption in 2018.

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Other Manufacturing Emissions

(1)

Estimated emissions of other substances based on direct fuel consumption for energy production slightly increased in 2018

as a result of higher natural gas consumption and the increased production at our foundries. Dust also increased slightly.

(2)

Direct emissions of NO

, SO

and dust

FCA worldwide (thousands of tons) 2018 2017 2016

1.3 1.3 1.2

0.1 0.1 0.1

Dust 0.1 0.1 0.1

(1)

Only emissions related to energy generation which are material and/or applicable for our production processes are reported.

(2)

Also referred to as Particulate Matter.

Water Management

FCA aims to responsibly manage the entire water cycle, starting from water withdrawal from municipal water

suppliers or natural sources; through use and reuse of recycled water for cooling, cleaning and sanitation; and

including discharge, which occurs after passing through a treatment method to eliminate pollutants. FCA has focused

particularly on the adoption of technologies and procedures to increase recycling and reuse of water, and to decrease

the level of pollutants in discharged water. The Group adopted a new risk assessment method in 2016 to evaluate

water stressed areas and conduct scenario analyses to mitigate future climate change impacts in order to identify

those plants located in areas where water is considered a limited resource. In 2018, no plant was located in an area

identiﬁed as at high overall water risk (according to WRI Aqueduct).

Total water withdrawal in 2018 decreased compared with 2017 at 21.7 million cubic meters and was below the 2010

level on both a total and per vehicle produced basis. In 2018, mass-market vehicle assembly and stamping plants

reduced water consumption per vehicle produced by about 38 percent compared with 2010.

Manufacturing water withdrawal

FCA worldwide (million m

) 2018 2017 2016

Total water withdrawal 21.7 21.9 22.3

For 2020, FCA is targeting a 40 percent reduction in water withdrawn per vehicle produced compared with 2010.

Waste Management

To reduce the consumption of raw materials and related environmental impacts, FCA has implemented procedures

to pursue optimal recovery and reuse with minimal waste. We strive to recycle what cannot be reused. If neither reuse

nor recovery is possible, waste is disposed of using the method available that has the least environmental impact, with

landﬁlls only used as a last resort.

As a result of continued improvements in waste management, FCA achieved a 4 percent year-over-year reduction in

total waste generated.

Mass-market vehicle plants, which account for the majority of total waste generated, reduced waste to landﬁll either to

zero or very close to zero.

In mass-market vehicle assembly and stamping plants, the quantity of waste generated per vehicle produced in 2018

decreased by about 62 percent compared with 2010 (from 217 to 83 kg/vehicle produced). The signiﬁcant decrease

from 2016 to 2017 was the result of waste reduction initiatives and the alignment in NAFTA to country-speciﬁc waste

exemptions.

Manufacturing waste generated

FCA worldwide (million tons) 2018 2017 2016

Total waste generated 0.9 0.9 1.3

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Responsible Products

FCA’s approach to responsible vehicle development includes dedication to efﬁcient powertrains, improved

aerodynamics, weight reduction, safety, quality, increased use of renewable materials, and innovative mobility options

that include autonomous technology and connectivity solutions. Economically viable results can best be achieved

by combining, where technologically possible, conventional and alternative technologies, while recognizing and

accommodating the different regulatory requirements of each market. FCA acknowledges the challenges posed by

climate change and has established targets to contribute to the goal of transitioning to a low-carbon future.

For more information regarding the areas of focus of our research efforts, refer to the section Overview of Our

Business-Research and Development elsewhere in this report.

FCA designs, manufactures and sells our vehicles with a focus on compliance with a variety of comprehensive local,

regional and national statutes and regulations, with respect to vehicle emissions, fuel economy, end-of-life vehicle

management and the chemical composition of our parts. The Company strives to reduce CO

emissions and improve

fuel economy in response to the unique regulatory requirements of FCA’s major markets. For more information

regarding regulatory requirements in the various markets, refer to the section - Environmental and Other Regulatory

Matters elsewhere in this report. For a discussion of emissions-related regulatory matters in certain markets, see Note

25, Guarantees granted, commitments and contingent liabilities included within the Consolidated Financial Statements

elsewhere in this report.

In the European Union (“EU”), FCA has set a target to achieve a 40 percent reduction in CO

emissions by 2020

compared with the baseline of 2006 for mass-market cars sold in Europe.

The average CO

emissions of FCA’s mass-market cars was 119.2 g/km in 2017. This represents a 21 percent

decrease compared with 2006 (the benchmark year used in EU regulations to set the 2012-2015 and 2020 targets),

and a 26 percent reduction compared with 2000, which was the ﬁrst year the EU Commission monitored average

emissions. FCA’s CO

emissions data for 2018 is not yet available under the process required by Regulation (EC) No.

443/2009. The NEDC procedure will be maintained as reference for monitoring EU target on average CO

emissions

until 2020.

For the U.S. market, FCA has a target to actively pursue actions in support of the U.S. EPA/NHTSA industry goal and

described the plan for achievement of this objective in the business plan.

FCA has also set a target to achieve at least a ﬁve to 15 percent improvement in fuel economy for major renewals

of FCA US vehicles compared with replaced vehicles/models. This target has been achieved, and in some cases

surpassed, in the years since it was established.

The all-new 2018 Jeep Wrangler achieved an improvement in fuel economy of over 30 percent versus the preceding

model by reducing vehicle energy demand, implementing a 2.0-liter turbocharged variant of the global medium engine

family, and deploying eTorque assist mild hybrid technology. The eTorque system captures braking energy and uses it

to assist the vehicle during launch and in other transient situations to reduce fuel consumption in everyday driving.

At FCA’s Capital Markets Day held on June 1, 2018, FCA revealed the new 2018-2022 business plan, which

presented our expectation to continue reducing CO

emissions through a collection of technologies that will vary by

market, aligning with the vehicle mix, consumer needs and the regulatory framework. The plan anticipates that we

will offer 12 electriﬁed propulsion systems (battery electric, plug-in hybrid electric, full-hybrid and mild-hybrid) in global

architectures spanning the full range of vehicle segments. The plan also anticipates that by 2022, 30 nameplates

will feature one or more of these systems. Speciﬁc applications will align with the attributes of each FCA brand’s

attributes. These vehicles will join the Chrysler Paciﬁca Hybrid, which started production in late 2016.

Autonomous Driving, Connectivity and Mobility

As part of our commitment to offer new services that improve the mobility experience and provide greater access

to affordable solutions, FCA has set a 2020 target to pursue research, advance development and delivery of new

sustainable connectivity and mobility solutions that are economically viable for both FCA and our customers.

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To support this commitment, FCA is pursuing a multi-partner strategy for developing advanced driver assistance

and autonomous driving technologies, working with leaders in their respective industries. We are collaborating with

Waymo, Google’s self-driving technology company, to integrate its self-driving technology into the Chrysler Paciﬁca

Hybrid. We are partnering with BMW for Level 3 autonomy and Aptiv for Level 2+ advanced driver assistance retail

solutions. FCA is also developing a new global standardized connectivity solution to connect the car to the Internet

and a cloud-based FCA-speciﬁc service delivery platform.

We aim to provide our customers with new mobility solutions that ﬁt their changing needs such as the subscription-

based car ownership program announced in 2018. This monthly subscription service is expected to give customers

access to FCA portfolio vehicles and the ability to exchange the vehicle for another FCA brand and model.

This type of solution is in addition to our existing mobility options such as Enjoy. Enjoy is a car-sharing service that

offers a ﬂeet of Fiat 500 and Doblò vehicles to urban drivers in Italy. It was launched in Milan by Eni, an energy

company, at the end of 2013 in partnership with FCA which provided approximately 2,500 vehicles. Since the service

was launched, approximately 830,000 individuals in six metropolitan areas have signed up to use it and approximately

18 million rentals have been logged.

FCA also supports individuals with special mobility needs. For an individual with a disability, accessible vehicle

mobility can offer an increased level of independence. At FCA, the Autonomy and DriveAbility programs are designed

to help customers with permanent disabilities by providing ﬁnancial assistance toward the purchase of appropriate

customizable adaptive equipment.

Materials and Life Cycle Assessment

The materials used in our products impact the environmental footprint of our vehicles at all stages of their life cycle.

FCA performs Life Cycle Assessments of selected vehicles and components which enable the Company to evaluate

their environmental impacts and to implement a circular economy approach. FCA has a target to offer new products

with environmental performance certiﬁcation through the integration of ISO 14040/44, compliant to Life Cycle

Assessment methodologies.

EU Directive 2000/53 addresses the principle of extended producer responsibility, which stipulates that automakers

must manage the end of life of the products they place on the market. FCA addresses this EU Directive through the

design of recyclable and recoverable vehicles, the management of the end of life vehicles free take-back networks,

the sharing of dismantling information and the continuous efforts to achieve the reuse/recycling/recovery targets in EU

countries.

FCA focuses on Substances of Concern (“SoC”) identiﬁed in globally regulated substance restrictions like the REACH

(Registration, Evaluation, Authorization and Restriction of Chemicals) regulation and heavy metals ban. The same level

of awareness and commitment to compliance is also adopted by FCA suppliers with whom we collaborate closely in

identifying technically equivalent and environmentally sustainable substitutes for substances that are expected to be

restricted in the near future.

Customer Experience

FCA aims to reinforce customer relationships by creating positive experiences throughout the ownership process.

We focus our efforts on the entire customer experience through both traditional products and services and more

customized solutions.

Vehicle Safety and Quality

Vehicle safety and quality are key elements of the overall customer experience. Delivering safe products to our

customers is a fundamental and unwavering objective of FCA, and is among the essential responsibilities described

in our Code of Conduct. In 2018, FCA expanded our communication and enhanced the existing FCA Ethics Helpline

system worldwide to encourage suppliers, dealers and other stakeholders to report concerns related to vehicle safety,

emissions or regulatory compliance. FCA employees are required under our Code of Conduct to report such issues.

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Vehicle Safety

FCA has adopted an approach that promotes a proactive vehicle safety culture within the industry and the Company.

FCA offers active and passive features for diverse drivers and vehicle segments. The intent of active safety systems

is to help drivers avoid crashes by assisting them to control their vehicles or alert them to potentially hazardous

situations. These systems monitor surroundings, the status of the vehicle and driver behavior. Passive safety systems

are designed to help mitigate the effects of a crash. These include occupant restraint technology and the use of more

advanced materials that enable improved crash energy management.

In addition to our focus on safety systems, when potential vehicle safety issues arise, we promptly investigate and take

corrective action, including initiating recall campaigns when appropriate.

As we continue efforts to deliver advancements in safety technologies, ratings from independent agencies help

validate our progress. Independent agencies rate the comparative safety of vehicles across the industry in different

regions. While the speciﬁc criteria vary, these ratings generally evaluate the level of safety provided for occupants

during a crash as well as a vehicle’s ability to avoid a crash through the use of technology. Over the years, FCA

vehicles have earned top ratings based on performance during assessments. For example, the 2019 Chrysler Paciﬁca

was named a Top Safety Pick by the Insurance Institute for Highway Safety (“IIHS”) and the Fiat 500X was awarded

the Latin NCAP 5-Star rating.

Vehicle Quality

In addition to safety, our ability to produce vehicles that meet product quality standards and gain market acceptance is

central to FCA’s approach in earning and maintaining the trust and loyalty of customers. During vehicle development,

our customer-focused approach to quality keeps the customers’ needs and expectations in mind, which may vary

from market to market due to differences in driving experiences and local preferences such as vehicle size, fuel type

and acceptance of new technology.

As part of our commitment to vehicle quality, FCA has set a target of achieving top quartile placement for the vehicle

portfolio by 2020, based on the relevant competitive benchmark for each geographic region. This includes vehicle

reliability as measured by rate of repair and survey results related to vehicle functionality and design. In 2018, the rate

of repair in the ﬁrst 90 days of ownership improved on average by approximately one percent globally. Things Gone

Wrong (“TGW”) is an internal and external survey process which evaluates customer needs and behaviors related to

vehicle functionality and design issues. In 2018, TGW improved on average by approximately two percent in three

regions (NAFTA, EMEA and APAC). The LATAM region launched a new external survey methodology and is not

included in the scope.

Product Quality and Customer Satisfaction, including product recalls, warranty obligations and other performance

indicators related to our product portfolio, have been identiﬁed as key global focus risks through FCA’s risk management

framework. For more information on this topic, refer to the section RISK MANAGEMENT elsewhere in this report.

Customer Communication

Customers have a variety of channels to communicate with FCA throughout their purchase and ownership experience.

At FCA, we provide dedicated customer contact organizations that have been established worldwide. Customer

Contact Centers (“CCC”), together with dealers, are the primary channels of communication between customers and

the Company. There are 26 CCCs worldwide, with around 1,500 agents and supervisors who handled approximately

28 million customer contacts in 2018, offering a variety of services including information, complaint management and,

in some locations, roadside assistance. They provide multilingual support with a strong focus on employing native

speakers of 28 different languages.

Workforce

FCA endeavors to create a work environment that enables employees to collaborate in ways that transform differences

into strengths, breaking down geographic and cultural barriers, and developing each person’s potential. The Company

regards the diversity of its workforce as a key asset and does not tolerate any form of discrimination, as stated in the

Human Rights Guidelines.

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FCA’s efforts to value every employee’s contribution are supported by long-term sustainability targets, speciﬁc

initiatives addressed to inclusion and monitoring of related performance. Human Resource processes aim to monitor

equal opportunity implementation worldwide and build a complete skill set within the Company.

The following examples from 2018 demonstrate FCA’s commitment:

20 percent of 198,545 employees were women;

88.8 percent of our employees worldwide were covered by collective bargaining, based on an average ﬁgure that

includes the Sevel plant (Italy) and that covers a variety of situations in accordance with regulations and practices in

the various countries;

in the non-unionized companies, 97.7 percent of employees not covered by collective bargaining beneﬁted from

conditions that are supplemental to, or better than, the minimum required by law;

approximately 8,900 ﬁxed term employment contracts were converted to permanent during the year; an indication

of the Group’s commitment to the long-term stability of the workforce; and

suitable opportunities for employees with disabilities were offered. In certain countries where FCA operates,

legislation requires that companies employ a minimum percentage of disabled workers. Even where no speciﬁc

regulations exist, Group companies are proactive in ensuring adequate accessibility to facilities and adaptation of

workstations for the disabled.

Management and Development

The Group’s approach to employee management and development is embodied in the commitment to our leadership

principles: we deﬁne leadership as leading change and leading people; we embrace and cherish competition; we

aim to achieve best in class performance; we collaborate and simplify decision making, striving for speed, rigor and

discipline in all we do; and we value diversity and inclusion.

These foundational elements are expected to inﬂuence every decision, including the appointment of leaders, as we

continue to strive to be an organization of best-in-class talent in today’s automotive industry.

Performance and Leadership Management (“PLM”) is the appraisal system adopted worldwide to assess FCA

employees’ performance (manager, professional and salaried). Through the PLM process, speciﬁc targets that contribute

to the Company’s success are established to guide and assess employees on their results and leadership behaviors.

Performance and Leadership assessment involved approximately 53,000 Group employees worldwide in 2018.

Talent management and succession planning are also integral to employee management and development. In 2018,

Talent Reviews identiﬁed individuals with leadership potential who merit additional attention and investment from the

Company in their professional development.

Learning and development opportunities are provided through a number of activities, such as job rotations, coaching,

mentoring and training. Recently, the Group launched an innovative learning platform that enables employees to grow

and share their individual professional skills with colleagues in a learning community, working in teams and solving

business challenges. In 2018, the Company deployed a second wave of our widespread training campaign focused

on sustainability that was made accessible to about 40,000 employees worldwide to strengthen the awareness and

engagement of the workforce on FCA commitments and achievements.

Health and Safety in the Workplace

FCA aims to provide all employees with a safe, healthy and productive work environment at every site worldwide and

in every area of activity. The Company focuses on identifying and evaluating safety risks; implementing safety and

ergonomics standards; increasing the use of collaborative robots; promoting employee awareness and safe behavior;

and encouraging a healthy lifestyle.

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FCA is further committed to establishing a strong culture of safety by applying an approach in which employee health

and safety are considered more broadly in terms of worker well-being. Employees are involved in this process through

training and initiatives designed to increase safety awareness, and by participating in a comprehensive system for

gathering feedback and suggestions.

The goal of achieving zero accidents is formalized in the targets set by the Company, as well as through the global adoption

of an Occupational Health and Safety Management System (“OHSMS”) certiﬁed to the OHSAS 18001 standard.

At year-end 2018, the vast majority of our plants had an OHSMS in place that was OHSAS 18001 certiﬁed.

Measures implemented over the years have contributed to signiﬁcant improvements in all injury indicators. In 2018,

the injury Frequency Rate was down more than 80 percent compared to 2010 (with 0.07 injuries per 100,000 hours

worked) and the Severity Rate was down more than 70 percent compared to 2010 (with 0.03 days of absence due to

injuries per 1,000 hours worked).

Effective safety management is also supported through the application of World Class Manufacturing tools and

methodologies, active involvement of employees, development of speciﬁc competencies and targeted investment.

Combined with these measures, FCA’s investment in health and safety has resulted in a progressive reduction in the

level of risk attributed to Group plants in Italy by INAIL, the Italian accident and disability insurance agency. As a result,

the Group was eligible for “good performer” premium discounts, which led to savings of more than €120 million from

2012 through 2018.

In addition to safety in the workplace, FCA offers numerous programs and services for employees and their families

to promote and support individual safety, well-being and a healthy lifestyle. These include, but are not limited

to, screening and vaccination, nutrition education initiatives, smoking cessation programs, HIV/AIDS prevention

programs, and promotion of physical exercise through sports teams or clubs including Company areas dedicated to

sports activities and/ or entering into agreements with local sports centers for use by employees and their families.

Employees are encouraged to take advantage of these initiatives, which form an important part of the Group’s culture.

Supply Chain

Strong supplier relationships built on cooperation and mutual understanding are vital to the effective sourcing of

goods and services. Working as an integrated team with our supply chain helps develop responsible and sustainable

practices that limit exposure to unexpected events and supply disruption.

Suppliers are selected based on the quality and competitiveness of their products and services, as well as on their

respect of social, ethical and environmental principles. This commitment is a prerequisite to becoming an FCA supplier

and developing a lasting business relationship with us.

The Company’s General Terms and Conditions require any new purchase order with suppliers to align with the

principles set forth by FCA’s policies, including the FCA Code of Conduct and the FCA Sustainability Guidelines

for Suppliers. If a supplier fails to meet these standards, a corrective action plan, jointly developed with FCA, is

required. Additional actions may be adopted by FCA in case of non-compliance, including and up to termination of

the business relationship.

In addition, potential suppliers, to be eligible, must demonstrate that they have adopted a code of conduct, a certiﬁed

system for managing employee health and safety, and a program that promotes sustainability, both internally and

along the supply chain. These conditions help ensure that they monitor and manage environmental aspects, labor

practices, human rights, and their impact on society.

Supplier Sustainability Guidelines available on the FCA corporate website and on the FCA Supplier Portal require that

Group suppliers adhere, at a minimum, to the following principles:

Human rights and working conditions;

rejection of the use of forced or child labor in any form;

recognition of the right to freedom of association in accordance with applicable laws;

freedom from harassment and discrimination;

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safeguarding of employee health and safety; and

guarantee of equal opportunities, fair working conditions, appropriate working time, equal compensation, and the

right to training for employees.

Respect for the environment

optimized use of resources;

responsible waste management;

management of Substances of Concern in the manufacturing process;

development of low environmental impact products; and

use of an environmentally sustainable logistics system.

Business ethics

high standards of integrity, honesty and fairness; and

prohibition of corruption and money laundering.

We purchase a variety of components, raw materials, supplies, utilities, logistics and other services from numerous

suppliers. These purchases have historically accounted for 70 - 80 percent of total cost of revenues. The cost of raw

materials has historically comprised 10 - 15 percent of the previously described total purchases.

Our operations impact local economies and whenever possible, we utilize local suppliers near major locations of

operation. This generates direct and indirect income and employment opportunities in the communities where

the business is located while minimizing transport-related environmental impacts. Local suppliers are those with

manufacturing operations that supply an FCA plant located in the same country. For example, in recent years more

than 75 percent of our spending at our plants in Brazil has originated from in-country suppliers.

Environmental and Social Impacts of the Supply Chain

FCA works to prevent or mitigate adverse environmental or social impacts that may be directly linked to our own

business activities or to products and services from our suppliers. The auto industry’s supply chain is highly complex,

and involves suppliers and sub-tier suppliers of commodities ranging from raw materials through ﬁnished components.

Suppliers play a key role in the continuity of our activities and can have a signiﬁcant impact on the external perception

of our social and environmental responsibility.

FCA evaluates the sustainability proﬁle of suppliers through the FCA Supplier Sustainability Self-Assessment (“SSSA”).

This survey covers environmental, labor practice, human rights, compliance, ethics, diversity, and health and safety

aspects. The results of the SSSA and other criteria are used to create a risk map to identify suppliers that may be at

risk, and that require further investigation through focused audits.

Because our environmental footprint extends beyond the boundaries of our own manufacturing locations, FCA

supports our suppliers in addressing climate change issues, which includes reducing greenhouse gas emissions. In

2018, the Group once again invited selected suppliers to participate in the CDP Supply Chain program. In 2018, 185

suppliers disclosed (71 percent response rate). The goal is to engage 90-100 percent of our top strategic suppliers in

the program by 2020.

Sustainability standards and performance along the value chain also include aspects related to international human

rights standards and labor laws.

FCA collaborates with peers, suppliers and other stakeholders on issues related to human rights and working conditions

throughout the supply chain. In addition to Conﬂict Minerals, this focus includes the mica and cobalt supply chains, which

also have risks associated with child and forced labor. To help combat these and other relevant supply chain issues,

including slavery and human trafﬁcking, we engage with automotive industry groups such as the Automotive Industry

Action Group (“AIAG”) and cross-sector groups like the Responsible Minerals Initiative (formerly “CFSI”).

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While suppliers carry much of the management responsibility, FCA recognizes the role the Company can play in

protecting human rights and promoting working conditions aligned to global standards and responsible sourcing.

The 5-Step Framework for Upstream and Downstream Supply Chains, created by the Organisation for Economic

Co-operation and Development (“OECD”), provides a common and foundational tool that helps solidify responsible

sourcing practices and decisions made throughout our supply chain. This framework is an important part of our

training for suppliers and FCA buyers.

In-depth training on responsible working conditions continues to be offered to suppliers in partnership with AIAG.

Developed in collaboration with other automakers, this training is designed to help protect the rights and dignity of

workers as well as reinforce environmental and ethical issues impacting the supply chain. FCA uses the training,

available in nine languages, to engage employees worldwide in the Purchasing and Supplier Quality departments on

these important concepts and to establish a consistent message with our supply base.

Conflict Minerals

We are committed to responsible sourcing and avoid knowingly using minerals that may be linked to human rights

abuses, including human trafﬁcking, slavery, forced labor, child labor, torture and war crimes. Due to the complexity

of our supply chain, we are dependent upon our suppliers to provide the information necessary to correctly identify

the smelters and reﬁners that furnish the tin, tantalum, tungsten, and gold (referred to as Conﬂict Minerals or “3TG”) in

our products and take appropriate action to determine that these smelters and reﬁners source responsibly. We do not

typically have a direct relationship with 3TG smelters or reﬁners and do not perform or direct audits of these entities

within our supply chain.

In accordance with OECD Guidance, we have implemented an internal management system by establishing an

internal oversight committee, joining industry associations, and working to increase supplier engagement.

FCA’s Conﬂict Minerals Policy afﬁrms that we make reasonable efforts: a) to know, and to require FCA suppliers to

disclose to the Company, the sources of Conﬂict Minerals used in our products; and b) to eliminate procurement,

as soon as commercially practicable, of products containing Conﬂict Minerals obtained from sources that fund or

support inhumane treatment that originate in conﬂict-affected and high risk areas. This policy is not intended to

ban procurement of Conﬂict Minerals or other products that originate in conﬂict-affected and high risk areas, but to

promote sourcing from responsible sources within those regions.

In addition to a Conﬂict Minerals compliance program led by our Purchasing department, we formed a cross-

functional Conﬂict Minerals Oversight Committee to provide expertise and feedback. A Conﬂict Minerals champion

leads the Conﬂict Minerals Oversight Committee and each region and afﬁliate of FCA has designated a Conﬂict

Minerals Team Lead to ensure engagement. This committee includes representatives from the FCA Supplier Relations,

Engineering, Legal, Sustainability, Communications, and Purchasing departments.

We use the iPoint Conﬂict Minerals Platform (“iPCMP”) and Conﬂict Minerals Reporting Template (“CMRT”) as the means for

our direct material suppliers to report their use of 3TG, the processing smelter or reﬁner, and the country and mine of origin.

If a supplier’s response indicates that its products do not include 3TG, we ask the supplier to certify this information.

As a means of additional due diligence, we use our internal systems to cross-check supplier responses to determine

what materials are contained in a supplier’s products and identify response discrepancies that may require additional

follow-up with the supplier. As outlined in the OECD Guidance, the internationally recognized standard upon which

our system is based, we support the Conﬂict-Free Sourcing Initiative, an industry initiative that audits smelters’ and

reﬁners’ due diligence activities.

Community Engagement

FCA strives to enrich the vitality of the communities where we live and work by creating jobs through our operations,

giving back through employee volunteering and providing ﬁnancial support through our charitable initiatives.

“Supporting our Communities” is one of the key Principles of the FCA Code of Conduct, which captures the

Company’s commitment to important values in business and personal conduct.

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Our corporate citizenship efforts primarily target areas where we have operations. Working with key community

stakeholders and leaders in the nonproﬁt, academic and government sectors, we can evaluate and, where possible,

address local social and economic development needs.

FCA’s community-related targets are aligned with the United Nations Sustainable Development Goals, and address

employee volunteering, enhancing the socio-economic development of local communities, and advancing youth

education and training, with particular emphasis on science, technology, engineering and math programs.

Our workforce donates their time and skills to help build strong, self-reliant communities and create a vital connection

with the communities where they live and work. During 2018, Group employees around the world volunteered

thousands of hours in support of a wide range of social projects.

Scope of Non-Financial Information and Exceptions

This Non-Financial Information addresses the requirement of the Dutch Decree on Non-Financial Information, that

incorporated the Directive 2014/95/EU into Dutch law and this Non-Financial Information is based on the GRI

Standards reporting guidelines.

The data reported in this section will also be included in the FCA 2018 Sustainability Report, that is submitted for assurance

to Deloitte & Touche S.p.A. The scope, methodology, limitations and conclusions of the assurance engagement are

provided in the Independent Auditors’ Report that will be published in the FCA 2018 Sustainability Report.

More detailed information and results are provided in the FCA Sustainability Report presented together with the Annual

Report at the Annual General Meeting of FCA NV on April 12, 2019 and made available online at www.fcagroup.com.

The reporting scope of this non-ﬁnancial disclosure differs from the ﬁnancial disclosures in the FCA Annual Report.

The exclusion of any geographical area, Group company, or speciﬁc site from the scope of reporting on selected

Key Performance Indicators is attributable to the inability to obtain data of satisfactory quality, or to its immateriality in

relation to the Group as a whole, as may be the case for newly-acquired entities or production activities that are not

yet fully operational. In some cases, entities that are not fully consolidated in the ﬁnancial statements were included in

the scope of reporting because of their signiﬁcant environmental and social impacts.

In particular:

data on Human Rights survey relates also to entities that are not fully consolidated;

data on occupational health and safety relates to 96 of the 102 plants, covering the vast majority of plant workers,

including agency workers; to ofﬁce facilities; and to four plants of companies that are not fully consolidated,

including one joint venture in Turkey and three in China; and

the Group’s environmental and energy performance refers to 96 of the 102 plants, covering nearly 100 percent of

the Group’s industrial revenues and to four plants of companies that are not fully consolidated, including one joint

venture in Turkey and three in China.

Data for this section was collected and reported using the same methodology the Company has used for many

years in its annual reporting of sustainability-related results. The data is collected and reported with the aid of existing

management control and information systems, where available, in order to ensure reliability of information ﬂows and the

correct monitoring of sustainability performance. A dedicated reporting process is in place for certain indicators, using

electronic databases or ﬁles populated directly by the individuals or entities responsible for each aspect worldwide.

This report excludes information relating to our Magneti Marelli business to allow comparability with the Group’s

Consolidated Financial Statements, where Magneti Marelli’s operations met the criteria to be classiﬁed as a disposal

group held for sale and a discontinued operation pursuant to IFRS 5 -Non-current Assets Held for Sale and

Discontinued Operations. Information relating to 2017 and 2016 has been re-presented to exclude Magneti Marelli.

Unless otherwise indicated, all data presented in this section refers to the International System of Units and may be

subject to rounding.

2018

ANNUAL REPORT

159

Controls and Procedures

Disclosure Controls and Procedures

Under the supervision, and with the participation, of our management, including our Chief Executive Ofﬁcer and

Chief Financial Ofﬁcer, we conducted an evaluation of the effectiveness of our disclosure controls and procedures

as of December31, 2018 pursuant to Exchange Act Rule 13a-15(b). Based on that evaluation, our Chief Executive

Ofﬁcer and Chief Financial Ofﬁcer concluded that our disclosure controls and procedures are effective to provide

reasonable assurance that information required to be disclosed in our Exchange Act ﬁlings is recorded, processed,

summarized and reported within the time periods speciﬁed in the SEC’s rules and forms and that such information is

accumulated and communicated to our management, including our Chief Executive Ofﬁcer and Chief Financial Ofﬁcer,

as appropriate, to allow timely decisions regarding required disclosure.

Management’s Report on Internal Control over Financial Reporting

The Company’s management is responsible for establishing and maintaining adequate internal control over ﬁnancial

reporting. The Company’s internal control system was designed to provide reasonable assurance regarding the

preparation and fair presentation of published ﬁnancial statements in accordance with IFRS.

All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems

determined to be effective can provide only reasonable assurance with respect to ﬁnancial statement preparation and

presentation in accordance with IFRS.

Management assessed the effectiveness of the Company’s internal control over ﬁnancial reporting as of December31,

2018, using the criteria set forth in the “Internal Control - Integrated Framework (2013)” issued by the Committee of

Sponsoring Organizations of the Treadway Commission. Based on that assessment, management believes that, as of

December31, 2018, the Company’s internal control over ﬁnancial reporting was effective.

The Company’s independent registered public accounting ﬁrm has issued an audit report on the effectiveness of the

Company’s internal control over ﬁnancial reporting. That report is included herein.

Changes in Internal Control

No change to our internal control over ﬁnancial reporting occurred during the year ended December31, 2018 that has

materially affected, or is reasonably likely to materially affect, our internal control over ﬁnancial reporting.

Principal Characteristics of the Internal Control System and Internal Control over Financial Reporting

The Company has designed a system of internal control over ﬁnancial reporting based on the model provided in

the COSO Framework for Internal Controls, according to which the internal control system is deﬁned as a set of

rules, procedures and tools designed to provide reasonable assurance of the achievement of corporate objectives.

In relation to the ﬁnancial reporting process, reliability, accuracy, completeness and timeliness of the information

contribute to the achievement of such corporate objectives. A periodic evaluation of the system of internal control over

ﬁnancial reporting is designed to provide reasonable assurance regarding the overall effectiveness of the components

of the COSO Framework (control environment, risk assessment, control activities, information and communication,

and monitoring) in achieving those objectives.

Board Report

Controls and Procedures

160

2018

ANNUAL REPORT

The approach adopted by the Company for the evaluation, monitoring and continuous updating of the system of

internal control over ﬁnancial reporting, is based on a ‘top-down, risk-based’ process consistent with the COSO

Framework. This enables focus on areas of higher risk and/or materiality, where there is risk of signiﬁcant errors,

including those attributable to fraud, in the elements of the ﬁnancial statements and related documents. The key

components of the process are:

identiﬁcation and evaluation of the source and probability of material errors in elements of ﬁnancial reporting;

assessment of the adequacy of key controls in preventing or detecting potential misstatements in elements of

ﬁnancial reporting; and

veriﬁcation of the operating effectiveness of controls based on the assessment of the risk of misstatement in

ﬁnancial reporting, with testing focused on areas of higher risk.

Board Report

Controls and Procedures

2018

ANNUAL REPORT

161

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders of

Fiat Chrysler Automobiles N.V.

Opinion on Internal Control over Financial Reporting

We have audited Fiat Chrysler Automobiles N.V.’s internal control over ﬁnancial reporting as of December31, 2018,

based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring

Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, Fiat Chrysler

Automobiles N.V. (the Company) maintained, in all material respects, effective internal control over ﬁnancial reporting

as of December31, 2018 based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board

(United States) (PCAOB), the consolidated statements of ﬁnancial position of Fiat Chrysler Automobiles N.V. as of

December31, 2018 and 2017, and the related consolidated statements of income, comprehensive income, cash

ﬂows and changes in equity for each of the three years in the period ended December31, 2018, and the related notes,

and our report dated February22, 2019 expressed an unqualiﬁed opinion thereon.

Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over ﬁnancial reporting and

for its assessment of the effectiveness of internal control over ﬁnancial reporting included in the accompanying

Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the

Company’s internal control over ﬁnancial reporting based on our audit. We are a public accounting ﬁrm registered

with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal

securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and

perform the audit to obtain reasonable assurance about whether effective internal control over ﬁnancial reporting was

maintained in all material respects.

Our audit included obtaining an understanding of internal control over ﬁnancial reporting, assessing the risk that a

material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on

the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We

believe that our audit provides a reasonable basis for our opinion.

Deﬁnition and Limitations of Internal Control Over Financial Reporting

A company’s internal control over ﬁnancial reporting is a process designed to provide reasonable assurance regarding

the reliability of ﬁnancial reporting and the preparation of ﬁnancial statements for external purposes in accordance with

generally accepted accounting principles. A company’s internal control over ﬁnancial reporting includes those policies

and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reﬂect the

transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded

as necessary to permit preparation of ﬁnancial statements in accordance with generally accepted accounting principles, and

that receipts and expenditures of the company are being made only in accordance with authorizations of management and

directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized

acquisition, use, or disposition of the company’s assets that could have a material effect on the ﬁnancial statements.

Because of its inherent limitations, internal control over ﬁnancial reporting may not prevent or detect misstatements. Also,

projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate

because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ EY S.p.A.

Turin, Italy

February22, 2019

162

2018

ANNUAL REPORT

Statement by the Board of Directors

Based on the assessment performed, the Board of Directors believes that, as of December31, 2018, the Group’s

and the Company’s Internal Control over Financial Reporting is considered effective and that (i) the Board Report

provides sufﬁcient insights into any material weakness in the effectiveness of the internal risk management and control

systems (please refer to the sectionCONTROLS AND PROCEDURES -Management’s Report on Internal Control

over Financial Reportingin this Annual Report), (ii) the internal risk management and control systems are designed to

provide reasonable assurance that the ﬁnancial reporting does not contain any material inaccuracies (please refer to

the section CONTROLS AND PROCEDURES -Management’s Report on Internal Control over Financial Reportingon

this Annual Report), (iii) based on the current state of affairs, it is justiﬁed that the Group’s and the Company’s ﬁnancial

reporting is prepared on a going concern basis (please refer to Note 2,Basis of preparationin theConsolidated

Financial Statementsfor additional information on the basis of preparation), and (iv) the Board Report states those

material risks and uncertainties that are, in the Board of Director’s judgment, relevant to the expectation of the

Company’s continuity for the period of twelve months after the preparation of the Board Report (please refer to the

sectionRisk Factorsin this Annual Report).

February22, 2019

/s/ John Elkann

John Elkann

Chairman

/s/ Michael Manley

Michael Manley

Chief Executive Ofcer

Board Report

Controls and Procedures

2018

ANNUAL REPORT

Board Report

163

2019 Guidance

Adjusted EBIT > €6.7 billion

Adjusted EBIT margin > 6.1%

Adjusted diluted EPS > €2.70 per share

Industrial free cash ﬂows > €1.5 billion

The above guidance is based on the following assumptions:

Continued strong performance in NAFTA and LATAM, with higher Adjusted EBIT and Adjusted EBIT margin:

NAFTA second half 2019 performance will beneﬁt from the all-new Jeep Gladiator and Ram Heavy Duty and

further planned industrial efﬁciency actions to improve margin; and

NAFTA ﬁrst half 2019 performance is expected to be lower due to:

– The non-repeat of the beneﬁt from the planned production overlap of the classic and all-new Jeep Wrangler

models which occurred in the ﬁrst half of 2018;

– Continuation of actions to manage dealer inventory levels; and

– Planned Jeep Wrangler downtime for plant retooling related to the launch of the new Wrangler Plug-in Hybrid

Electric Vehicle (“PHEV”) in early 2020.

Performance improvement in EMEA, Maserati and China expected beginning the second half of 2019;

Lower industrial free cash ﬂows due to:

Higher capital expenditure, in line with the business plan; and

Approximately €500 million of cash payments for ﬁnes and other costs in connection with the U.S. diesel

emission settlement.

Effective tax rate of approximately 25%, which will be higher than year ended December 31, 2018, primarily due to

the U.S.

February22, 2019

The Board of Directors

John Elkann

Michael Manley

John Abbott

Andrea Agnelli

Tiberto Brandolini d’Adda

Glenn Earle

Valerie A. Mars

Ruth J. Simmons

Ronald L. Thompson

Michelangelo A. Volpi

Patience Wheatcroft

Ermenegildo Zegna

164

2018

ANNUAL REPORT

Consolidated

Financial Statements

AT DECEMBER 31, 2018

Index to the Consolidated Financial Statements

Report of Independent Registered Public Accounting Firm _________________________________________ 166

Consolidated Income Statement _________________________________________________________________ 167

Consolidated Statement of Comprehensive Income ________________________________________________ 168

Consolidated Statement of Financial Position _____________________________________________________ 169

Consolidated Statement of Cash Flows ___________________________________________________________ 170

Consolidated Statement of Changes in Equity _____________________________________________________ 171

Notes to the Consolidated Financial Statements ___________________________________________________ 172

(1) Principal Activities _________________________________________________________________________ 172

(2) Basis of preparation _______________________________________________________________________ 172

(3) Scope of consolidation _____________________________________________________________________ 198

(4) Net revenues _____________________________________________________________________________ 202

(5) Research and development costs ___________________________________________________________ 203

(6) Net ﬁnancial expenses _____________________________________________________________________ 203

(7) Tax expense ______________________________________________________________________________ 204

(8) Other information by nature _________________________________________________________________ 207

(9) Goodwill and intangible assets with indeﬁnite useful lives ________________________________________ 208

(10) Other intangible assets _____________________________________________________________________ 209

(11) Property, plant and equipment ______________________________________________________________ 210

(12) Investments accounted for using the equity method ____________________________________________ 212

(13) Other ﬁnancial assets ______________________________________________________________________ 215

(14) Inventories _______________________________________________________________________________ 216

(15) Trade, other receivables and tax receivables __________________________________________________ 217

(16) Derivative ﬁnancial assets and liabilities _______________________________________________________ 220

(17) Cash and cash equivalents _________________________________________________________________ 223

(18) Share-based compensation ________________________________________________________________ 223

(19) Employee beneﬁts liabilities _________________________________________________________________ 227

(20) Provisions ________________________________________________________________________________ 234

(21) Debt ____________________________________________________________________________________ 236

(22) Other liabilities and Tax payables ____________________________________________________________ 241

(23) Fair value measurement ____________________________________________________________________ 243

(24) Related party transactions __________________________________________________________________ 246

(25) Guarantees granted, commitments and contingent liabilities _____________________________________ 250

(26) Equity ___________________________________________________________________________________ 255

(27) Earnings per share ________________________________________________________________________ 258

(28) Segment reporting ________________________________________________________________________ 260

(29) Explanatory notes to the Consolidated Statement of Cash Flows _________________________________ 264

(30) Qualitative and quantitative information on ﬁnancial risks ________________________________________ 266

(31) Subsequent events ________________________________________________________________________ 271

166

2018

ANNUAL REPORT

Consolidated

Financial Statements

Report of Independent Registered

Public Accounting Firm

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders of

Fiat Chrysler Automobiles N.V.

Opinion on the Financial Statements

We have audited the accompanying consolidated statement of ﬁnancial position of Fiat Chrysler Automobiles N.V. (the

Company) as of December31, 2018 and 2017, and the related consolidated statements of income, comprehensive

income, cash ﬂows and changes in equity for each of the three years in the period ended December31, 2018, and the

related notes (collectively referred to as the “ﬁnancial statements”). In our opinion, the ﬁnancial statements present fairly,

in all material respects, the consolidated ﬁnancial position of the Company at December31, 2018 and 2017, and the

consolidated results of its operations and its cash ﬂows for each of the three years in the period ended December31,

2018, in conformity with International Financial Reporting Standards as issued by the International Accounting Standards

Board, as well as International Financial Reporting Standards as adopted by the European Union.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board

(United States) (PCAOB), the Company’s internal control over ﬁnancial reporting as of December31, 2018,

based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring

Organizations of the Treadway Commission (2013 framework) and our report dated February22, 2019 expressed

an unqualiﬁed opinion thereon.

Basis for Opinion

These ﬁnancial statements are the responsibility of the Company’s management. Our responsibility is to express an

opinion on the Company’s ﬁnancial statements based on our audits. We are a public accounting ﬁrm registered with

the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal

securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan

and perform the audit to obtain reasonable assurance about whether the ﬁnancial statements are free of material

misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material

misstatement of the ﬁnancial statements, whether due to error or fraud, and performing procedures that respond to

those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in

the ﬁnancial statements. Our audits also included evaluating the accounting principles used and signiﬁcant estimates

made by management, as well as evaluating the overall presentation of the ﬁnancial statements. We believe that our

audits provide a reasonable basis for our opinion.

/s/ EY S.p.A.

We have served as the Company’s auditor since 2012.

Turin, Italy

February22, 2019

2018

ANNUAL REPORT

Consolidated

Financial Statements

167

Consolidated

Income Statement

Consolidated Income Statement

(in € million, except per share amounts)

Years ended December 31,

Note

2018 2017 2016

Net revenues

€ 110,412 € 105,730 € 105,798

Cost of revenues 95,011 89,710 90,927

Selling, general and other costs 7,318 7,177 7,388

Research and development costs

3,051 2,903 2,930

Result from investments: 235 399 310

Share of the profit of equity method investees

240 400 308

Other income from investments (5) (1) 2

Reversal of a Brazilian indirect tax liability

— 895 —

Gains on disposal of investments — 76 13

Restructuring costs 103 86 68

Net ﬁnancial expenses

1,056 1,345 1,858

Proﬁt before taxes 4,108 5,879 2,950

Tax expense

778 2,588 1,237

Net proﬁt from continuing operations 3,330 3,291 1,713

Proﬁt from discontinued operations, net of tax

302 219 101

Net proﬁt € 3,632 € 3,510 € 1,814

Net proﬁt attributable to:

Owners of the parent € 3,608 € 3,491 € 1,803

Non-controlling interests 24 19 11

€ 3,632 € 3,510 € 1,814

Net proﬁt from continuing operations attributable to:

Owners of the parent € 3,323 € 3,281 € 1,708

Non-controlling interests 7 10 5

€ 3,330 € 3,291 € 1,713

Earnings per share:

Basic earnings per share € 2.33 € 2.27 € 1.19

Diluted earnings per share € 2.30 € 2.24 € 1.18

Earnings per share for Net proﬁt from continuing operations:

Basic earnings per share € 2.15 € 2.14 € 1.13

Diluted earnings per share € 2.12 € 2.11 € 1.12

The accompanying notes are an integral part of the Consolidated Financial Statements.

168

2018

ANNUAL REPORT

Consolidated

Financial Statements

Consolidated Statement of

Comprehensive Income

Consolidated Statement

of Comprehensive Income

(in € million)

Years ended December 31,

Note

2018 2017 2016

Net proﬁt (A) € 3,632 € 3,510 € 1,814

Items that will not be reclassiﬁed to the Consolidated Income

Statement in subsequent periods: 26

Gains/(losses) on remeasurement of deﬁned beneﬁt plans 317 (72) 616

Share of gains/(losses) on remeasurement of deﬁned beneﬁt

plans for equity method investees — 2 (5)

Gains/(losses) on equity instruments measured at fair value

through other comprehensive income (4) 14 15

Related tax impact (76) (18) (265)

Items relating to discontinued operations, net of tax 2 5 (28)

Total items that will not be reclassiﬁed to the Consolidated

Income Statement in subsequent periods (B1) 239 (69) 333

Items that may be reclassiﬁed to the Consolidated Income

Statements in subsequent periods: 26

Gains/(losses) on cash ﬂow hedging instruments (9) 129 (240)

Exchange (losses)/gains on translating foreign operations 126 (1,982) 509

Share of Other comprehensive (loss) for equity method investees (103) (121) (122)

Related tax impact (6) (12) 69

Items relating to discontinued operations, net of tax (91) 60 (60)

Total items that may be reclassiﬁed to the Consolidated

Income Statement in subsequent periods (B2) (83) (1,926) 156

Total Other comprehensive income/(loss), net of tax

(B1)+(B2)=(B) 156 (1,995) 489

Total Comprehensive income (A)+(B) € 3,788 € 1,515 € 2,303

Total Comprehensive income attributable to:

Owners of the parent € 3,763 € 1,491 € 2,288

Non-controlling interests 25 24 15

€ 3,788 € 1,515 € 2,303

Total Comprehensive income attributable to owners of the

parent:

Continuing operations € 3,558 € 1,212 € 2,281

Discontinued operations 205 279 7

€ 3,763 € 1,491 € 2,288

The accompanying notes are an integral part of the Consolidated Financial Statements.

2018

ANNUAL REPORT

Consolidated

Financial Statements

169

Consolidated Statement

of Financial Position

Consolidated Statement of Financial Position

(in € million)

At December 31

Note

2018 2017

Assets

Goodwill and intangible assets with indeﬁnite useful lives

€ 13,970 € 13,390

Other intangible assets

11,749 11,542

Property, plant and equipment

26,307 29,014

Investments accounted for using the equity method

2,002 2,008

Other ﬁnancial assets

362 482

Deferred tax assets

1,814 2,004

Other receivables

1,484 666

Tax receivables

71 83

Prepaid expenses and other assets 266 328

Other non-current assets 556 508

Total Non-current assets 58,581 60,025

Inventories

10,694 12,922

Assets sold with a buy-back commitment 1,707 1,748

Trade and other receivables

7,188 7,887

Tax receivables

419 215

Prepaid expenses and other assets 418 377

Other ﬁnancial assets

615 487

Cash and cash equivalents

12,450 12,638

Assets held for sale

4,801 —

Total Current assets 38,292 36,274

Total Assets € 96,873 € 96,299

Equity and liabilities

Equity

Equity attributable to owners of the parent € 24,702 € 20,819

Non-controlling interests 201 168

Total Equity 24,903 20,987

Liabilities

Long-term debt

8,667 10,726

Employee beneﬁts liabilities

7,875 8,584

Provisions

5,561 5,770

Other ﬁnancial liabilities

3 1

Deferred tax liabilities

937 388

Tax payables

1 74

Other liabilities

2,452 2,500

Total Non-current liabilities 25,496 28,043

Trade payables 19,229 21,939

Short-term debt and current portion of long-term debt

5,861 7,245

Employee beneﬁt liabilities

595 694

Provisions

10,483 9,009

Other ﬁnancial liabilities

204 138

Tax payables

114 309

Other liabilities

7,057 7,935

Liabilities held for sale

2,931 —

Total Current liabilities 46,474 47,269

Total Equity and liabilities € 96,873 € 96,299

The accompanying notes are an integral part of the Consolidated Financial Statements.

170

2018

ANNUAL REPORT

Consolidated

Financial Statements

Consolidated Statement

of Cash Flows

Consolidated Statement of Cash Flows

(in € million)

Years ended December 31,

Note

2018 2017 2016

Cash ﬂows from operating activities:

Net proﬁt from continuing operations € 3,330 € 3,291 € 1,713

Amortization and depreciation 5,507 5,474 5,549

Net losses on disposal of tangible and intangible assets 1 16 14

Net gains on disposal of investments — (76) (13)

Other non-cash items

129 (197) 87

Dividends received 75 102 123

Change in provisions 913 545 1,453

Change in deferred taxes 457 1,075 435

Change due to assets sold with buy-back commitments and

GDP vehicles 158 (11) (95)

Change in inventories 1,399 (1,596) (494)

Change in trade receivables 19 (157) 131

Change in trade payables (1,240) 937 729

Change in other payables and receivables (1,284) 277 280

Cash ﬂows from operating activities - discontinued operations 484 705 682

Total 9,948 10,385 10,594

Cash ﬂows used in investing activities:

Investments in property, plant and equipment and intangible assets (5,392) (8,105) (8,241)

Investments in joint ventures, associates and unconsolidated

subsidiaries (3) (9) (113)

Proceeds from the sale of tangible and intangible assets 47 54 25

Proceeds from disposal of other investments — 4 55

Net change in receivables from ﬁnancing activities (676) (836) (488)

Change in securities (75) 174 301

Other changes (7) (8) (29)

Cash ﬂows used in investing activities - discontinued operations (632) (570) (549)

Total (6,738) (9,296) (9,039)

Cash ﬂows used in ﬁnancing activities:

Issuance of notes — — 1,250

Repayment of notes (1,850) (2,235) (2,373)

Proceeds of other long-term debt 935 811 1,309

Repayment of other long-term debt (2,852) (3,421) (4,605)

Net change in short-term debt and other ﬁnancial assets/liabilities 1,062 561 (570)

Distributions paid (1) (1) (18)

Other changes 11 (2) (119)

Cash ﬂows used in ﬁnancing activities - discontinued operations (90) (186) (1)

Total (2,785) (4,473) (5,127)

Translation exchange differences 106 (1,296) 228

Total change in Cash and cash equivalents 531 (4,680) (3,344)

Cash and cash equivalents at beginning of the period 12,638 17,318 20,662

Total change in Cash and cash equivalents 531 (4,680) (3,344)

Less: Cash and cash equivalents at end of the period - included

within Assets held for sale 719 — —

Cash and cash equivalents at end of the period

€ 12,450 € 12,638 € 17,318

The accompanying notes are an integral part of the Consolidated Financial Statements.

2018

ANNUAL REPORT

Consolidated

Financial Statements

171

Consolidated Statement

of Changes in Equity

Consolidated Statement of Changes in Equity

(in € million)

Attributable to owners of the parent

capital

Other

reserves

Cash

ﬂow

hedge

reserve

Currency

translation

differences

Financial

Assets

measured

at FVOCI

Remeasure-

ment of

deﬁned

beneﬁt

plans

Cumulative

share of OCI

of equity

method

investees

Non-

controlling

interests Total

At December 31, 2015 € 17 € 15,455 € 70 € 2,492 € (26) € (1,098) € (105) € 163 € 16,968

Capital Increase — — — — — — — 18 18

Mandatory Convertible

Securities (Note 26) 2 (2) — — — — — — —

Share-based compensation — 98 — — — — — — 98

Net proﬁt — 1,803 — — — — — 11 1,814

Other comprehensive

income/(loss) — — (182) 456 15 324 (128) 4 489

Other changes — (42) 49 (36) — 6 — (11) (34)

At December 31, 2016 19 17,312 (63) 2,912 (11) (768) (233) 185 19,353

Capital increase — — — — — — — 3 3

Demerger of Itedi S.p.A — (64) — — — 5 — (28) (87)

Distributions — — — — — — — (1) (1)

Share-based compensation — 115 — — — — — — 115

Net proﬁt — 3,491 — — — — — 19 3,510

Other comprehensive

income/(loss) — — 131 (1,942) 14 (84) (119) 5 (1,995)

Other changes — 67 — — — 37 — (15) 89

At December 31, 2017 19 20,921 68 970 3 (810) (352) 168 20,987

Impact from the adoption of

IFRS 15 and IFRS 9 — 21 — — — — — — 21

At January 1, 2018 19 20,942 68 970 3 (810) (352) 168 21,008

Capital increase — — — — — — — 11 11

Distributions — — — — — — — (1) (1)

Share-based compensation — 82 — — — — — — 82

Net proﬁt — 3,608 — — — — — 24 3,632

Other comprehensive

income/(loss) — — (22) 41 (4) 243 (103) 1 156

Other changes

(1)

18 (1) — — — — (2) 15

At December 31, 2018 € 19 € 24,650 € 45 € 1,011 € (1) € (567) € (455) € 201 € 24,903

(1)

Includes €1 million of deferred hedging gains transferred to inventory, net of tax

The accompanying notes are an integral part of the Consolidated Financial Statements.

172

2018

ANNUAL REPORT

Consolidated

Financial Statements

Notes to the Consolidated

Financial Statements

Notes to the Consolidated Financial Statements

1. PRINCIPAL ACTIVITIES

On January 29, 2014, the Board of Directors of Fiat S.p.A. (“Fiat”) approved a proposed corporate reorganization

resulting in the formation of Fiat Chrysler Automobiles N.V. and establishing Fiat Chrysler Automobiles N.V., organized in

the Netherlands, as the parent of the Group with its principal executive ofﬁces located at 25 St. James’s Street, London

SW1A 1HA, United Kingdom. Fiat Chrysler Automobiles N.V. was incorporated as a public limited liability company

(naamloze vennootschap) under the laws of the Netherlands on April 1, 2014 under the name Fiat Investments N.V.

On October 12, 2014, the cross-border legal merger of Fiat into its 100 percent owned direct subsidiary Fiat

Investments N.V. (the “Merger”) became effective. The Merger, which took the form of a reverse merger, resulted in

Fiat Investments N.V. being the surviving entity and it was renamed Fiat Chrysler Automobiles N.V. (“FCA NV”).

Unless otherwise speciﬁed, the terms “Group”, “FCA Group”, “Company” and “FCA”, refer to FCA NV, together with

its subsidiaries and its predecessor prior to the completion of the Merger, or any one or more of them, as the context

may require. Any references to “Fiat” refer solely to Fiat S.p.A., the predecessor of FCA NV prior to the Merger.

The Group and its subsidiaries, of which the most signiﬁcant is FCA US LLC (“FCA US”), together with its subsidiaries, are

engaged in the design, engineering, manufacturing, distribution and sale of automobiles and light commercial vehicles,

engines, transmission systems, metallurgical products and production systems. In addition, the Group is also involved in

certain other activities, including (mainly captive) services, which represent an insigniﬁcant portion of the Group’s business.

Refer to Note 3, Scope of consolidation for information on the presentation of Magneti Marelli as a discontinued operation.

FCA has ﬁled a list of subsidiaries and associated companies, prepared in accordance with Sections 379 and 414,

Book 2, Dutch Civil Code, at the Dutch trade register of Amsterdam.

All references in this report to “Euro” and “€” refer to the currency introduced at the start of the third stage of European

Economic and Monetary Union pursuant to the Treaty on the Functioning of the European Union, as amended. The

Group’s ﬁnancial information is presented in Euro. All references to “U.S. Dollars”, “U.S. Dollar”, “U.S.$” and “$” refer

to the currency of the United States of America (“U.S.”).

2. BASIS OF PREPARATION

Authorization of Consolidated Financial Statements and compliance with International Financial Reporting

Standards

The Consolidated Financial Statements, together with the notes thereto, of FCA as of and for the year ended

December31, 2018 were authorized for issuance by the Board of Directors on February22, 2019 and have been

prepared in accordance with the International Financial Reporting Standards (“IFRS”) as issued by the International

Accounting Standards Board (“IASB”), as well as IFRS as adopted by the European Union. There is no effect on these

consolidated ﬁnancial statements resulting from differences between IFRS as issued by the IASB and IFRS as adopted

by the European Union. The designation “IFRS” includes International Accounting Standards (“IAS”) as well as all

interpretations of the IFRS Interpretations Committee (“IFRIC”).

Basis of preparation

The Consolidated Financial Statements are prepared under the historical cost method, modiﬁed for the measurement of

certain ﬁnancial instruments as required, as well as on a going concern basis. In this respect, the Group’s assessment is

that no material uncertainties (as deﬁned in IAS 1 - Presentation of Financial Statements) exist about its ability to continue

as a going concern.

For presentation of the Consolidated Income Statement, the Group uses a classiﬁcation based on the function of

expenses rather than based on their nature as it is more representative of the format used for internal reporting and

management purposes and is consistent with international practice in the automotive sector.

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173

SIGNIFICANT ACCOUNTING POLICIES

Basis of consolidation

Subsidiaries

Subsidiaries are entities over which the Group has control. Control is achieved when the Group has power over the investee,

when it is exposed to, or has rights to, variable returns from its involvement with the investee and has the ability to use its

power over the investee to affect the amount of the investor’s returns. Subsidiaries are consolidated on a line by line basis

from the date which control is achieved by the Group. The Group reassesses whether or not it controls an investee if facts

and circumstances indicate that there are changes to one or more of the three elements of control listed above.

The Group recognizes a non-controlling interest in the acquiree on a transaction-by-transaction basis, either at fair

value or at the non-controlling interest’s share of the recognized amounts of the acquiree’s identiﬁable net assets.

Net proﬁt or loss and each component of Other comprehensive income/(loss) are attributed to Equity attributable to

owners of the parent and to Non-controlling interests. Total comprehensive income/(loss) of subsidiaries is attributed

to Equity attributable to the owners of the parent and to the non-controlling interest even if this results in a deﬁcit

balance in Non-controlling interests.

Changes in the Group’s ownership interests in a subsidiary that do not result in the Group losing control over the

subsidiary are accounted for as equity transactions. The carrying amounts of Equity attributable to owners of the

parent and Non-controlling interests are adjusted to reﬂect the changes in their relative interests in the subsidiary. Any

difference between the carrying amount of the non-controlling interests and the fair value of the consideration paid or

received in the transaction is recognized directly in Equity attributable to the owners of the parent.

Subsidiaries are deconsolidated from the date on which control ceases. When the Group ceases to have control

over a subsidiary, it derecognizes the assets (including any goodwill) and liabilities of the subsidiary at their carrying

amounts, derecognizes the carrying amount of non-controlling interests in the former subsidiary and recognizes the

fair value of any consideration received from the transaction. Any retained interest in the former subsidiary is then

remeasured to its fair value.

All intra-group balances and transactions, and any unrealized gains and losses arising from intra-group transactions,

are eliminated in preparing the Consolidated Financial Statements.

Interests in Joint Ventures and Associates

A joint venture is a joint arrangement whereby the parties that have joint control of the arrangement have rights to the

net assets of the arrangement.

An associate is an entity over which the Group has signiﬁcant inﬂuence. Signiﬁcant inﬂuence is the power to participate in

the ﬁnancial and operating policy decisions of the investee but does not have control or joint control over those policies.

Joint ventures and associates are accounted for using the equity method of accounting from the date joint control or

signiﬁcant inﬂuence is obtained. On acquisition, any excess of the investment over the share of the net fair value of

the investee’s identiﬁable assets and liabilities is recognized as goodwill and is included in the carrying amount of the

investment. Any excess of the Group’s share of the net fair value of the investee’s identiﬁable assets and liabilities over

the cost of the investment is included as income in the determination of the Group’s share of the investee’s proﬁt/(loss)

in the acquisition period.

Under the equity method, investments are initially recognized at cost and adjusted thereafter to recognize the Group’s

share of the proﬁt/(loss) and other comprehensive income/(loss) of the investee. The Group’s share of the investee’s

proﬁt/(loss) is recognized in the Consolidated Income Statement. Distributions received from an investee reduce the

carrying amount of the investment. Post-acquisition movements in Other comprehensive income/(loss) are recognized

in Other comprehensive income/(loss) with a corresponding adjustment to the carrying amount of the investment.

Unrealized gains arising on transactions between the Group and its joint ventures and associates are eliminated to

the extent of the Group’s interest in the joint venture or associate. Unrealized losses are also eliminated unless the

transaction provides evidence of an impairment of the asset transferred.

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Consolidated

Financial Statements

Notes to the Consolidated

Financial Statements

When the Group’s share of the losses of a joint venture or associate exceeds the Group’s interest in that joint venture

or associate, the Group discontinues recognizing its share of further losses. Additional losses are provided for and a

liability is recognized only to the extent that the Group has incurred legal or constructive obligations or made payments

on behalf of the joint venture or associate.

The Group discontinues the use of the equity method from the date the investment ceases to be an associate or a

joint venture, or when it is classiﬁed as available-for-sale.

Interests in Joint Operations

A joint operation is a type of joint arrangement whereby the parties that have joint control have rights to the assets and

obligations for the liabilities relating to the arrangement. Joint control is the contractually agreed sharing of control of

an arrangement, which exists only when decisions about the relevant activities require the unanimous consent of the

parties sharing control.

When the Group undertakes its activities under joint operations, it recognizes its related interest in the joint operation

including: (i)its assets, including its share of any assets held jointly, (ii)its liabilities, including its share of any liabilities

incurred jointly, (iii)its revenue from the sale of its share of the output arising from the joint operation, (iv)its share of

the revenue from the sale of the output by the joint operation and (v)its expenses, including its share of any expenses

incurred jointly.

Assets held for sale, Assets held for distribution and Discontinued Operations

Pursuant to IFRS 5 - Non-current Assets Held for Sale and Discontinued Operations, non-current assets and disposal

groups are classiﬁed as held for sale if their carrying amount will be recovered principally through a sale transaction

rather than through continuing use. This condition is regarded as met only when the asset or disposal group is

available for immediate sale in its present condition, subject only to terms that are usual and customary for sales of

such an asset or disposal group, and the sale is highly probable, with the sale expected to be completed within one

year from the date of classiﬁcation.

Non-current assets and disposal groups classiﬁed as held for sale are measured at the lower of their carrying amount

and fair value less costs to sell and are presented separately in the Consolidated Statement of Financial Position. Non-

current assets and disposal groups are not classiﬁed as held for sale within the comparative period presented for the

Consolidated Statement of Financial Position.

A discontinued operation is a component of the Group that either has been disposed of or is classiﬁed as held for

sale and (i) represents either a separate major line of business or a geographical area of operations, (ii) is part of a

single coordinated plan to dispose of a separate major line of business or geographical area of operations, or (iii) is a

subsidiary acquired exclusively with a view to resell and the disposal involves loss of control.

Classiﬁcation as a discontinued operation occurs upon disposal or, if earlier, when the asset or disposal group

meets the criteria to be classiﬁed as held for sale. When the asset or disposal group is classiﬁed as a discontinued

operation, the comparative information is reclassiﬁed within the Consolidated Income Statement and the

Consolidated Statement of Cash Flows as if the asset or disposal group had been discontinued from the start of

the earliest comparative period presented. In addition, when an asset or disposal group is classiﬁed as held for sale,

depreciation and amortization cease.

The classiﬁcation, presentation and measurement requirements of IFRS 5 - Non-current Assets Held for Sale

and Discontinued Operations outlined above also apply to an asset or disposal group that is classiﬁed as held for

distribution to owners, whereby there must be commitment to the distribution, the asset or disposal group must be

available for immediate distribution and the distribution must be highly probable.

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175

Foreign currency

The functional currency of the Group’s entities is the currency used in their respective primary economic environments.

In individual companies, transactions in foreign currencies are recorded at the exchange rate prevailing at the date

of the transaction. Monetary assets and liabilities denominated in foreign currencies are translated at the exchange

rate prevailing at the date of the Consolidated Statement of Financial Position. Exchange differences arising on

the settlement of monetary items or on reporting monetary items at rates different from those initially recorded, are

recognized in the Consolidated Income Statement.

All assets and liabilities of foreign consolidated companies with a functional currency other than the Euro are translated using

the closing rates as at the date of the Consolidated Statement of Financial Position. Income and expenses are translated

into Euro at the average exchange rate for the period. Translation differences arising from the application of this method

are classiﬁed within Other comprehensive income/(loss) until the disposal of the subsidiary. Average exchange rates for the

period are used in preparing the Consolidated Statement of Cash Flows to translate the cash ﬂows of foreign subsidiaries.

The principal exchange rates used to translate other currencies into Euro were as follows:

2018 2017 2016

Average At December 31 Average At December 31 Average At December 31

U.S. Dollar (U.S.$) 1.181 1.145 1.130 1.199 1.107 1.054

Brazilian Real (BRL) 4.308 4.444 3.605 3.973 3.857 3.431

Chinese Renminbi (CNY) 7.808 7.875 7.629 7.804 7.352 7.320

Canadian Dollar (CAD) 1.529 1.561 1.465 1.504 1.466 1.419

Mexican Peso (MXN) 22.705 22.492 21.329 23.661 20.664 21.772

Polish Zloty (PLN) 4.261 4.301 4.257 4.177 4.363 4.410

Argentine Peso (ARS)

(1)

43.074 43.074 18.683 22.595 16.327 16.707

Pound Sterling (GBP) 0.885 0.895 0.877 0.887 0.819 0.856

Swiss Franc (CHF) 1.155 1.127 1.112 1.170 1.090 1.074

(1)

From July 1, 2018, Argentina’s economy was considered to be hyperinflationary. Transactions after July 1, 2018for entities with the Argentinian

Peso as the functional currency were translated using the December 31, 2018 closing spot rate.

Intangible assets

Goodwill

Goodwill represents the excess of the fair value of consideration paid in a business combination over the fair value of

net tangible and identiﬁable intangible assets acquired. Goodwill is not amortized but is tested for impairment annually

or more frequently if events or changes in circumstances indicate that it might be impaired. After initial recognition,

goodwill is measured at cost less any accumulated impairment losses.

Intangible assets with indefinite useful lives

Intangible assets with indeﬁnite useful lives consist principally of brands which have no legal, contractual, competitive,

economic or other factors that limit their useful lives.Intangible assets with indeﬁnite useful lives are not amortized but are tested

for impairment annually, or more frequently if events or changes in circumstances indicate that the asset may be impaired.

Development expenditures

Development expenditures for vehicle production and related components, engines and production systems

are recognized as an asset if both of the following conditions within IAS 38 – Intangible assets are met: (i) that

development expenditure can be measured reliably and (ii) that the technical feasibility of the product, projected

volumes and pricing support the view that the development expenditure will generate future economic beneﬁts.

Capitalized development expenditures include all direct and indirect costs that may be directly attributed to the

development process. All other development expenditures are expensed as incurred.

Capitalized development expenditures are amortized on a straight-line basis from the beginning of production over the

expected life cycle of the models (generally 5-6 years) or powertrains (generally 10-12 years) developed.

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Consolidated

Financial Statements

Notes to the Consolidated

Financial Statements

Property, plant and equipment

Cost

Property, plant and equipment is initially recognized at cost and includes the purchase price, any costs directly

attributable to bringing the assets to the location and condition necessary to be capable of operating in the manner

intended by management and any initial estimate of the costs of dismantling and removing the asset and restoring

the site on which it is located. Self-constructed assets are initially recognized at production cost. Subsequent

expenditures and the cost of replacing parts of an asset are capitalized only if they increase the future economic

beneﬁts embodied in that asset. All other expenditures are expensed as incurred. When such replacement costs are

capitalized, the carrying amount of the parts that are replaced is expensed to the Consolidated Income Statement.

Assets held under ﬁnance leases, which provide the Group with substantially all the risks and rewards of ownership,

are recognized as assets of the Group at their fair value or, if lower, at the present value of the minimum lease

payments. The corresponding liability to the lessor is included in the Consolidated Statement of Financial Position

within Debt.

Depreciation

During the years ended December31, 2018, 2017 and 2016, assets depreciated on a straight-line basis over their

estimated useful lives used the following depreciation rates:

Depreciationrates

Buildings 3%-8%

Plant, machinery and equipment 3%-33%

Other assets 5%-33%

Leases under which the lessor retains substantially all the risks and rewards of ownership of the leased assets are

classiﬁed as operating leases. Operating lease expenditures are expensed on a straight-line basis over the respective

lease term.

Borrowing Costs

Borrowing costs that are directly attributable to the acquisition, construction or production of property, plant or

equipment or an intangible asset that is deemed to be a qualifying asset as deﬁned in IAS 23 - Borrowing Costs

are capitalized. The amount of borrowing costs eligible for capitalization corresponds to the actual borrowing costs

incurred during the period, less any investment income on the temporary investment of any borrowed funds not yet

used. The amount of borrowing costs capitalized in the year ended December31, 2018 and 2017 was €155 million

and €225 million, respectively.

Impairment of long-lived assets

Annually, or more frequently if facts or circumstances indicate otherwise, the Group assesses whether there is any

indication that its ﬁnite-lived intangible assets (including capitalized development expenditures) and its property, plant

and equipment may be impaired.

If indications of impairment are present, the carrying amount of the asset is reduced to its recoverable amount which

is the higher of fair value less costs of disposal and its value in use. The recoverable amount is determined for the

individual asset, unless the asset does not generate cash inﬂows that are largely independent of those from other

assets or groups of assets, in which case the asset is tested as part of the cash-generating unit (“CGU”) to which

the asset belongs. A CGU is the smallest identiﬁable group of assets that generates cash inﬂows that are largely

independent of the cash inﬂows from other assets or groups of assets. In assessing the value in use of an asset or

CGU, the estimated future cash ﬂows are discounted to their present value using a discount rate that reﬂects current

market assessments of the time value of money and the risks speciﬁc to the asset or CGU. An impairment loss is

recognized if the recoverable amount is lower than the carrying amount.

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177

When an impairment loss for assets no longer exists or has decreased, the carrying amount of the asset or CGU is

increased to the revised estimate of its recoverable amount but not in excess of the carrying amount that would have

been recorded had no impairment loss been recognized. The reversal of an impairment loss is recognized in the

Consolidated Income Statement. Refer to the section Use of estimates below for additional information.

Financial assets and liabilities

Refer to New standards and amendments effective January 1, 2018 below for information on the Group’s adoption of

IFRS 9 - Financial Instruments.

Transfers of ﬁnancial assets

Refer to New standards and amendments effective January 1, 2018 below for information on the Group’s adoption of

IFRS 9 - Financial Instruments.

Inventories

Raw materials, semi-ﬁnished products and ﬁnished goods inventories are stated at the lower of cost and net realizable

value, with cost being determined on a ﬁrst-in, ﬁrst-out (“FIFO”) basis. The measurement of Inventories includes the

direct cost of materials and labor as well as indirect costs (variable and ﬁxed). A provision is made for obsolete and

slow-moving raw materials, ﬁnished goods, spare parts and other supplies based on their expected future use and

realizable value. Net realizable value is the estimated selling price in the ordinary course of business, less the estimated

costs of completion and the estimated costs for sale and distribution.

The measurement of production systems construction contracts is based on the stage of completion, which is

determined as the proportion of cost incurred at the balance sheet date over the estimated total contract cost. These

items are presented net of progress billings received from customers. Any losses on such contracts are recorded in

the Consolidated Income Statement in the period in which they are identiﬁed.

Employee beneﬁts

Defined contribution plans

Costs arising from deﬁned contribution plans are expensed as incurred.

Defined benefit plans

The Group’s net obligations are determined separately for each deﬁned beneﬁt plan by estimating the present value

of future beneﬁts that employees have earned and deducting the fair value of any plan assets. The present value

of deﬁned beneﬁt obligations is measured using actuarial techniques and actuarial assumptions that are unbiased,

mutually compatible and attribute beneﬁts to periods in which the obligation to provide post-employment beneﬁts

arise by using the Projected Unit Credit Method. Plan assets are recognized and measured at fair value.

When the net obligation is a potential asset, the recognized amount is limited to the present value of any economic

beneﬁts available in the form of future refunds or reductions in future contributions to the plan (asset ceiling).

The components of deﬁned beneﬁt cost are recognized as follows:

Service cost is recognized in the Consolidated Income Statement by function and is presented within the relevant

line items (Cost of revenues, Selling, general and other costs, and Research and development costs);

Net interest expense on the deﬁned beneﬁt liability/(asset) is recognized in the Consolidated Income Statement

within Net ﬁnancial expenses and is determined by multiplying the net liability/(asset) by the discount rate used

to discount obligations taking into account the effect of contributions and beneﬁt payments made during the

year; and

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2018

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Consolidated

Financial Statements

Notes to the Consolidated

Financial Statements

Remeasurement components of the net obligation, which comprise actuarial gains and losses, the return on plan

assets (excluding interest income recognized in the Consolidated Income Statement) and any change in the effect

of the asset ceiling are recognized immediately in Other comprehensive income/(loss). These remeasurement

components are not reclassiﬁed to the Consolidated Income Statement in a subsequent period.

Past service costs arising from plan amendments and curtailments and gains and losses on the settlement of a plan

are recognized immediately in the Consolidated Income Statement.

Other long term employee benefits

The Group’s obligations represent the present value of future beneﬁts that employees have earned in return for their

service. Remeasurement components on other long term employee beneﬁts are recognized in the Consolidated

Income Statement in the period in which they arise.

Share-based compensation

The Group has several compensation plans that provide for the granting of share-based compensation to certain

employees and directors. Share-based compensation plans are accounted for in accordance with IFRS 2 - Share-

based Payment, which requires the recognition of share-based compensation expense based on fair value.

Compensation expense for equity-classiﬁed awards is measured at the grant date based on the fair value of the award

using the Monte Carlo simulation model, which requires the input of subjective assumptions, including the expected

volatility of our common shares, interest rates and a correlation coefﬁcient between our common shares and the

relevant market index. For those awards with post-vesting contingencies, we apply an adjustment to account for the

probability of meeting the contingencies.

Management uses its best estimates incorporating both publicly observable data and discounted cash ﬂow

methodologies in the measurement of fair value for liability-classiﬁed awards, which are remeasured to fair value at

each balance sheet date until the award is settled.

Compensation expense is recognized over the vesting period with an offsetting increase to equity or other liabilities

depending on the nature of the award. Share-based compensation expense related to plans with graded vesting

is recognized using the graded vesting method. Share-based compensation expense is recognized within Selling,

general and other costs within the Consolidated Income Statement.

Revenue recognition

Refer to New standards and amendments effective January 1, 2018 below for information on the Group’s adoption of

IFRS 15 - Revenue from contracts with customers.

Cost of revenues

Cost of revenues comprises expenses incurred in the manufacturing and distribution of vehicles and parts. The most

signiﬁcant element is the cost of materials and components and the remaining costs include labor (consisting of direct

and indirect wages), transportation costs, depreciation of property, plant and equipment and amortization of other

intangible assets relating to production. In addition, expenses which are directly attributable to the ﬁnancial services

companies, including interest expense related to their ﬁnancing as a whole and provisions for risks and write-downs of

assets, are recorded within Cost of revenues (€75 million, €68 million and €91 million for the years ended December

31, 2018, 2017 and 2016, respectively). Cost of revenues also included €293 million, €397 million and €384 million

related to the decrease in value for assets sold with buy-back commitments for the years ended December 31, 2018,

2017 and 2016, respectively. In addition, estimated costs related to product warranty and recall campaigns are

recorded within Cost of revenues (refer to the section Use of estimates below for further information).

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Government Grants

Government grants are recognized in the Consolidated Financial Statements when there is reasonable assurance of

the Group’s compliance with the conditions for receiving such grants and that the grants will be received. Government

grants are recognized as income over the same periods as the related costs which they are intended to offset.

The beneﬁt of a government loan at a below-market rate of interest is treated as a government grant. The beneﬁt of the

below-market rate of interest is measured as the difference between the initial carrying amount of the loan (fair value

plus transaction costs) and the proceeds received, and it is accounted for in accordance with the policies used for the

recognition of government grants.

Taxes

Income taxes include all taxes which are based on the taxable proﬁts of the Group. Current and deferred taxes are

recognized as a beneﬁt or expense and are included in the Consolidated Income Statement for the period, except

for tax arising from (i)a transaction or event which is recognized, in the same or a different period, either in Other

comprehensive income/(loss) or directly in Equity, or (ii)a business combination.

Deferred taxes are accounted for under the full liability method. Deferred tax liabilities are recognized for all taxable

temporary differences between the carrying amounts of assets or liabilities and their tax base, except to the extent that

the deferred tax liabilities arise from the initial recognition of goodwill or the initial recognition of an asset or liability in

a transaction which is not a business combination and at the time of the transaction, affects neither accounting proﬁt

nor taxable proﬁt. Deferred tax assets are recognized for all deductible temporary differences to the extent that it is

probable that taxable proﬁt will be available against which the deductible temporary differences can be utilized, unless

the deferred tax assets arise from the initial recognition of an asset or liability in a transaction that is not a business

combination and at the time of the transaction, affects neither accounting proﬁt nor taxable proﬁt.

Deferred tax assets and liabilities are measured at the substantively enacted tax rates in the respective jurisdictions in

which the Group operates that are expected to apply to the period when the asset is realized or liability is settled.

The Group recognizes deferred tax liabilities associated with the existence of a subsidiary’s undistributed proﬁts when

it is probable that this temporary difference will not reverse in the foreseeable future, except when it is able to control

the timing of the reversal of the temporary difference. The Group recognizes deferred tax assets associated with the

deductible temporary differences on investments in subsidiaries only to the extent that it is probable that the temporary

differences will reverse in the foreseeable future and taxable proﬁt will be available against which the temporary

difference can be utilized.

Deferred tax assets relating to the carry-forward of unused tax losses and tax credits, as well as those arising from

deductible temporary differences, are recognized to the extent that it is probable that future proﬁts will be available

against which they can be utilized. The Group monitors unrecognized deferred tax assets at each reporting date and

recognizes a previously unrecognized deferred tax asset to the extent that it has become probable that future taxable

proﬁt will allow the deferred tax asset to be recovered.

Current income taxes and deferred taxes are offset when they relate to the same taxation jurisdiction and there is a

legally enforceable right of offset. Other taxes not based on income, such as property taxes and capital taxes, are

included within Selling, general and other costs.

Refer to Note 7, Tax expense, for additional information on tax expense and deferred tax assets.

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Consolidated

Financial Statements

Notes to the Consolidated

Financial Statements

Fair Value Measurement

Fair value for measurement and disclosure purposes is determined as the consideration that would be received to sell

an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date,

regardless of whether that price is directly observable or estimated using a valuation technique. Fair value measurement

is based on the presumption that the transaction to sell the asset or transfer the liability takes place either:

in the principal market for the asset or liability; or

in the absence of a principal market, in the most advantageous market for the asset or liability.

The fair value of an asset or a liability is measured using the assumptions that market participants would use when

pricing the asset or liability, assuming that market participants act in their own economic best interest. A fair value

measurement of a non-ﬁnancial asset takes into account a market participant’s ability to generate economic beneﬁts

by using the asset in its highest and best use or by selling it to another market participant that would use the asset

in its highest and best use. In estimating fair value, we use market-observable data to the extent it is available. When

market-observable data is not available, we use valuation techniques that maximize the use of relevant observable

inputs and minimize the use of unobservable inputs.

IFRS 13 - Fair Value Measurement establishes a hierarchy which prioritizes the inputs used in measuring fair value.

The hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for identical assets and liabilities

(Level 1 inputs) and the lowest priority to unobservable inputs (level 3 inputs). In some cases, the inputs used to

measure the fair value of an asset or a liability might be categorized within different levels of the fair value hierarchy. In

those cases, the fair value measurement is categorized in its entirety in the same level of the fair value hierarchy at the

lowest level input that is signiﬁcant to the entire measurement.

Levels used in the hierarchy are as follows:

Level 1 inputs include quoted prices (unadjusted) in active markets for identical assets and liabilities that the Group

can access at the measurement date. Level 1 primarily consists of ﬁnancial instruments such as cash and cash

equivalents and certain available-for-sale and held-for-trading securities.

Level 2 inputs include those which are directly or indirectly observable as of the measurement date. Level 2

instruments include commercial paper and non-exchange-traded derivatives such as over-the-counter currency

and commodity forwards, swaps and option contracts, which are valued using models or other valuation

methodologies. These models are primarily industry-standard models that consider various assumptions, including

quoted forward prices for similar instruments in active markets, quoted prices for identical or similar inputs not in

active markets, and observable inputs.

Level 3 inputs are unobservable from objective sources in the market and reﬂect management judgment about the

assumptions market participants would use in pricing the instruments. Instruments in this category include non-

exchange-traded derivatives such as certain over-the-counter commodity option and swap contracts.

Refer to Note 23, Fair value measurement, for additional information on fair value measurements.

Use of estimates

The Consolidated Financial Statements are prepared in accordance with IFRS which requires the use of estimates,

judgments and assumptions that affect the carrying amount of assets and liabilities, the disclosure of contingent

assets and liabilities and the amounts of income and expenses recognized. The estimates and associated

assumptions are based on management’s best judgment of elements that are known when the ﬁnancial statements

are prepared, on historical experience and on any other factors that are considered to be relevant.

Estimates and underlying assumptions are reviewed by the Group periodically and when circumstances require. Actual

results could differ from the estimates, which would require adjustment accordingly. The effects of any changes in estimates

are recognized in the Consolidated Income Statement in the period in which the adjustment is made, or in future periods.

Items requiring estimates for which there is a risk that a material difference may arise in the future in respect of the

carrying amounts of assets and liabilities are discussed below.

2018

ANNUAL REPORT

181

Employee Benefits

The Group provides post-employment beneﬁts for certain of its active employees and retirees, which vary according

to the legal, ﬁscal and economic conditions of each country in which the Group operates and may change periodically.

The plans are classiﬁed by the Group on the basis of the type of beneﬁt provided as follows: pension beneﬁts, health

care and life insurance plans and other post-employment beneﬁts.

Group companies provide certain post-employment beneﬁts, such as pension or health care beneﬁts, to their

employees under deﬁned contribution plans whereby the Group pays contributions to public or private plans on a

legally mandatory, contractual, or voluntary basis. The Group recognizes the cost for deﬁned contribution plans as

incurred and classiﬁes this by function within Cost of revenues, Selling, general and other costs, and Research and

development costs in the Consolidated Income Statement.

Pension plans

The Group sponsors both non-contributory and contributory deﬁned beneﬁt pension plans primarily in the U.S.

and Canada, the majority of which are funded. Non-contributory pension plans cover certain hourly and salaried

employees and the beneﬁts are based on a ﬁxed rate for each year of service. Additionally, contributory beneﬁts are

provided to certain salaried employees under the salaried employees’ retirement plans.

The Group’s deﬁned beneﬁt pension plans are accounted for on an actuarial basis, which requires the use of estimates

and assumptions to determine the net liability or net asset. The Group estimates the present value of the projected

future payments to all participants by taking into consideration parameters of a ﬁnancial nature such as discount rates,

the rate of salary increases and the likelihood of potential future events estimated by using demographic assumptions,

which may have an effect on the amount and timing of future payments, such as mortality, dismissal and retirement

rates, which are developed to reﬂect actual and projected plan experience. Mortality rates are developed using our

plan-speciﬁc populations, recent mortality information published by recognized experts in this ﬁeld, primarily the U.S.

Society of Actuaries and the Canadian Institute of Actuaries, and other data where appropriate to reﬂect actual and

projected plan experience. The expected amount and timing of contributions is based on an assessment of minimum

funding requirements. From time to time, contributions are made beyond those that are legally required.

Plan obligations and costs are based on existing retirement plan provisions. Assumptions regarding any potential

future changes to beneﬁt provisions beyond those to which the Group is presently committed are not made.

Signiﬁcant differences in actual experience or signiﬁcant changes in the following key assumption may affect the

pension obligations and pension expense:

Discount rates. Our discount rates are based on yields of high-quality (AA-rated) ﬁxed income investments for which

the timing and amounts of maturities match the timing and amounts of the projected beneﬁt payments.

The effects of actual results differing from assumptions and of amended assumptions are included in Other

comprehensive income/(loss). The weighted average discount rates used to determine the deﬁned beneﬁt obligation

for the deﬁned beneﬁt plans were 4.3 percent and 3.7 percent at December31, 2018 and 2017, respectively.

At December31, 2018, the effect on the deﬁned beneﬁt obligation of a decrease or increase in the discount rate,

holding all other assumptions constant, is as follows:

Effect on pension beneﬁt

obligation increase/

(decrease) in Net liability

( € million)

10 basis point decrease in discount rate 257

10 basis point increase in discount rate (252)

Refer to Note 19, Employee benefits liabilities, for additional information on the Group’s pension plans.

182

2018

ANNUAL REPORT

Consolidated

Financial Statements

Notes to the Consolidated

Financial Statements

Other post-employment benefits

Other post-employment beneﬁts comprises other employee beneﬁts granted to Group employees in Europe and

includes the Italian employee severance indemnity (trattamento di fine rapporto, or “TFR”) obligation required under

Italian Law, amounting to €664 million at December31, 2018 and €752 million at December31, 2017.

The amount of TFR to which each employee is entitled must be paid when the employee leaves the Group and is

calculated based on the period of employment and the taxable earnings of each employee. Under certain conditions,

the entitlement may be partially advanced to an employee during their working life.

The legislation governing this scheme was amended by Law 296 of December 27, 2006 and subsequent decrees

and regulations issued in 2007. Under these amendments, companies with at least 50 employees were obliged to

transfer the TFR obligation to the “Treasury fund” managed by the Italian state-owned social security body (“INPS”) or

to supplementary pension funds. Prior to the amendments, accruing TFR for employees of all Italian companies could

be managed by the company itself. Consequently, the Italian companies’ obligation to INPS and the contributions

to supplementary pension funds take the form of deﬁned contribution plans under IAS 19 - Employee Benefits,

whereas the amounts recorded in the provision for employee severance pay retain the nature of deﬁned beneﬁt plans.

Accordingly, the provision for employee severance indemnity in Italy consisted of the residual TFR obligation through

December31, 2006. This is an unfunded deﬁned beneﬁt plan as the beneﬁts have already been entirely earned, with

the sole exception of future revaluations. Since 2007, the scheme has been classiﬁed as a deﬁned contribution plan

and the Group recognizes the associated cost over the period in which the employee renders service.

Changes in deﬁned beneﬁt obligations for other post-employment beneﬁts were as follows:

2018 2017

(€ million)

Present value of obligations at January1 € 987 € 987

Included in the Consolidated Income Statement 23 23

Included in Other comprehensive income:

Actuarial (gains)/losses from:

- Demographic and other assumptions 2 18

- Financial assumptions (5) (3)

Effect of movements in exchange rates (3) (5)

Other:

Beneﬁts paid (50) (48)

Transfer to Liabilities held for sale (98) —

Other changes (37) 15

Present value of obligations at December31 € 819 € 987

2018

ANNUAL REPORT

233

Amounts recognized in the Consolidated Income Statement were as follows:

Years ended December 31,

2018 2017 2016

(€ million)

Current service cost € 9 € 9 € 6

Interest expense 14 11 14

Past service costs/(credits) and losses/(gains) arising from settlements — — 1

Items relating to discontinued operations — 3 5

Total recognized in the Consolidated Income Statement € 23 € 23 € 26

The discount rates used for the measurement of the Italian TFR obligation are based on yields of high-quality (AA

rated) ﬁxed income securities for which the timing and amounts of maturities match the timing and amounts of the

projected beneﬁt payments. For this plan, the single weighted average discount rate that reﬂects the estimated timing

and amount of the scheme future beneﬁt payments for 2018 was 1.4 percent (1.2 percent in 2017). The average

duration of the Italian TFR is approximately 7 years. Retirement or employee leaving rates are developed to reﬂect

actual and projected Group experience and legal requirements for retirement in Italy.

Other provisions for employees

Other provisions for employees primarily include long-term disability beneﬁts, supplemental unemployment beneﬁts,

variable and other deferred compensation, as well as bonuses granted for tenure at the Company.

234

2018

ANNUAL REPORT

Consolidated

Financial Statements

Notes to the Consolidated

Financial Statements

20. PROVISIONS

Provisions consisted of the following:

At December 31

2018 2017

Current Non-current Total Current Non-current Total

(€ million)

Product warranty and recall campaigns € 2,745 € 4,015 € 6,760 € 2,676 € 4,049 € 6,725

Sales incentives 5,999 — 5,999 5,377 — 5,377

Legal proceedings and disputes 849 428 1,277 125 551 676

Commercial risks 442 272 714 481 334 815

Restructuring 134 31 165 26 44 70

Other risks 314 815 1,129 324 792 1,116

Total Provisions € 10,483 € 5,561 € 16,044 € 9,009 € 5,770 € 14,779

Changes in Provisions were as follows:

January 1,

2018

Additional

provisions Settlements

Unused

amounts

Translation

differences

Transfer to

Liabilities

held for sale

Other

changes

December

31, 2018

(€ million)

Product warranty and recall

campaigns € 6,725 € 3,241 € (3,272) € — € 180 € (118) € 4 € 6,760

Sales incentives 5,377 14,514 (14,014) (35) 162 — (5) 5,999

Legal proceedings and disputes 676 971 (113) (67) (6) (59) (125) 1,277

Commercial risks 815 426 (457) (65) 21 (27) 1 714

Restructuring costs 70 105 (26) (3) — (4) 23 165

Other risks 1,116 323 (230) (84) 17 (2) (11) 1,129

Total Provisions € 14,779 € 19,580 € (18,112) € (254) € 374 € (210) € (113) € 16,044

Product warranty and recall campaigns

At December 31, 2018, the Product warranty and recall campaigns provision was substantially in line with 2017.

During the year ended December 31, 2018, an additional amount of €114 million was accrued in relation to costs for

recall campaigns related to Takata airbag inﬂators, net of recovery. At December 31, 2017, the Product warranty and

recall campaigns provision included €102 million of charges recognized within Cost of revenues in the Consolidated

Income Statement for the year ended December 31, 2017 for the estimated costs associated with an expansion of

the recall campaigns related to an industry-wide recall of airbag inﬂators resulting from parts manufactured by Takata,

of which €29 million related to the previously announced recall in NAFTA and €73 million related to the preventative

safety campaigns in LATAM. Refer to Note 25, Guarantees granted, commitments and contingent liabilities, for

additional information. The cash outﬂow for the non-current portion of the Product warranty and recall campaigns

provision is primarily expected within a period through 2021.

Sales incentives

As described within Note 2, Basis of preparation - Use of estimates, the Group records the estimated cost of sales

incentive programs offered to dealers and consumers as a reduction to revenue at the time of sale of the vehicle to

the dealer.

2018

ANNUAL REPORT

235

Legal proceedings and disputes

None of the provisions within the total Legal proceedings and disputes provision are individually signiﬁcant except

for the provision of €748 million recognized during the year ended December 31, 2018, for costs related to ﬁnal

settlements reached on civil, environmental and consumer claims related to U.S. diesel emissions matters (refer to

Note 25, Guarantees granted, commitments and contingent liabilities).

As described within Note 2, Basis of preparation - Use of estimates, a provision for legal proceedings is recognized

when it is deemed probable that the proceedings will result in an outﬂow of resources. As the ultimate outcome of

pending litigation is uncertain, the timing of cash outﬂows for the Legal proceedings and disputes provision is also

uncertain.

Commercial risks

Commercial risks arise in connection with the sale of products and services, such as onerous maintenance contracts,

and as a result of certain regulatory emission requirements. For items such as onerous maintenance contracts, a

provision is recognized when the expected costs to complete the services under these contracts exceed the revenues

expected to be realized. A provision for ﬁnes related to certain regulatory emission requirements that can be settled

with cash ﬁnes is recognized at the time vehicles are sold based on the estimated cost to settle the obligation,

measured as the sum of the cost of regulatory credits previously purchased plus the amount, if any, of the ﬁne

expected to be paid in cash. The cash outﬂow for the non-current portion of the Commercial risks provision is primarily

expected within a period through 2021.

Other risks

Other risks includes, among other items: provisions for disputes with suppliers related to supply contracts or other

matters that are not subject to legal proceedings, provisions for product liabilities arising from personal injuries

including wrongful death and potential exemplary or punitive damages alleged to be the result of product defects,

disputes with other parties relating to contracts or other matters not subject to legal proceedings and management’s

best estimate of the Group’s probable environmental obligations, which also includes costs related to claims on

environmental matters. The cash outﬂow for the non-current portion of the Other risks provision is primarily expected

within a period through 2021.

236

2018

ANNUAL REPORT

Consolidated

Financial Statements

Notes to the Consolidated

Financial Statements

21. DEBT

Debt classiﬁed within current liabilities includes short-term borrowings from banks and other ﬁnancing with an original

maturity date falling within twelve months, as well as the current portion of long-term debt. Debt classiﬁed within non-

current liabilities includes borrowings from banks and other ﬁnancing with maturity dates greater than twelve months

(long-term debt), net of the current portion.

The following table summarizes the Group’s current and non-current Debt by maturity date (amounts include accrued

interest):

At December 31

2018 2017

Due

within

oneyear

(current)

Due

between

one and

ﬁveyears

Due

beyond

ﬁveyears

Total

(non-

current)

Total

Debt

Due

within

oneyear

(current)

Due

between

one and

ﬁveyears

Due

beyond

ﬁve

years

Total

(non-

current)

Total

Debt

(€ million)

Notes € 1,598 € 4,977 € 1,250 € 6,227 € 7,825 € 2,054 € 5,071 € 2,501 € 7,572 € 9,626

Borrowings from banks 2,935 2,012 234 2,246 5,181 4,132 2,278 502 2,780 6,912

Asset-backed ﬁnancing

(Note 15) 457 — — — 457 357 — — — 357

Other debt 871 151 43 194 1,065 702 347 27 374 1,076

Total Debt € 5,861 € 7,140 € 1,527 € 8,667 € 14,528 € 7,245 € 7,696 € 3,030 € 10,726 € 17,971

Notes

The following table summarizes the notes outstanding at December31, 2018 and 2017:

At December 31

Currency

Facevalueof

outstanding

notes

(million) Coupon % Maturity 2018 2017

Medium Term Note Programme:

(€ million)

Fiat Chrysler FinanceEurope S.A.

(1)

EUR 1,250 6.625 March 15, 2018 — 1,250

Fiat Chrysler FinanceEurope S.A.

(1)

EUR 600 7.375 July 9, 2018 — 600

Fiat Chrysler FinanceEurope S.A.

(2)

CHF 250 3.125 September 30, 2019 222 213

Fiat Chrysler FinanceEurope S.A.

(1)

EUR 1,250 6.750 October 14, 2019 1,250 1,250

Fiat Chrysler FinanceEurope S.A.

(1)

EUR 1,000 4.750 March 22, 2021 1,000 1,000

Fiat Chrysler FinanceEurope S.A.

(1)

EUR 1,350 4.750 July 15, 2022 1,350 1,350

FCA NV

(1)

EUR 1,250 3.750 March 29, 2024 1,250 1,250

Other

(3)

EUR 7 7 7

Total Medium Term Note Programme 5,079 6,920

Other Notes:

FCA NV

(1)

U.S.$ 1,500 4.500 April 15, 2020 1,310 1,251

FCA NV

(1)

U.S.$ 1,500 5.250 April 15, 2023 1,310 1,251

Total Other Notes 2,620 2,502

Hedging effect, accrued interest and amortized

cost valuation 126 204

Total Notes € 7,825 € 9,626

(1)

Listing on the Irish Stock Exchange was obtained.

(2)

Listing on the SIX Swiss Exchange was obtained.

(3)

Medium Term Notes with amounts outstanding equal to or less than the equivalent of €50 million.

2018

ANNUAL REPORT

237

Notes Issued Through the Medium Term Note Programme

Certain notes issued by the Group are governed by the terms and conditions of the Medium Term Note (“MTN”)

Programme (previously known as the Global Medium Term Note Programme, or “GMTN” Programme). A maximum of

€20 billion may be used under this programme, of which notes of €5.1 billion were outstanding at December31, 2018

(€6.9 billion at December31, 2017). Notes under the MTN Programme are issued, or otherwise guaranteed, by FCA

NV. From time to time, we may buy back notes in the market that have been issued. Such buybacks, if made, depend

upon market conditions, the Group’s ﬁnancial situation and other factors which could affect such decisions.

Changes in notes issued under the MTN Programme during the year ended December 31, 2018 were due to the

repayment at maturity:

in March 2018 of a note with a principal amount of €1,250 million; and

in July 2018 of a note with a principal amount of €600 million.

Changes in notes issued under the MTN Programme during the year ended December 31, 2017 were due to the

repayment at maturity:

in March 2017 of a note with a principal amount of €850 million;

in June 2017 of a note with a principal amount of €1,000 million; and

in November 2017 of a note with a principal amount of CHF 450 million (€385 million).

Notes issued under the MTN Programme impose covenants on the issuer and, in certain cases, on FCA NV as

guarantor, which include: (i)negative pledge clauses which require that in the case that any security interest upon assets

of the issuer and/or FCA NV is granted in connection with other notes or debt securities having the same ranking, such a

security should be equally and ratably extended to the outstanding notes; (ii)pari passu clauses, under which the notes

rank and will rank pari passu with all other present and future unsubordinated and unsecured obligations of the issuer

and/or FCA NV; (iii)periodic disclosure obligations; (iv)cross-default clauses which require immediate repayment of the

notes under certain events of default on other ﬁnancial instruments issued by FCA’s main entities; and (v)other clauses

that are generally applicable to securities of a similar type. A breach of these covenants may require the early repayment

of the notes. As of December31, 2018, FCA was in compliance with the covenants under the MTN Programme.

Other Notes

In 2015, FCA NV issued U.S.$1.5 billion (€1.4 billion) principal amount of 4.5 percent unsecured senior debt securities

due April 15, 2020 (the “2020 Notes”) and U.S.$1.5 billion (€1.4 billion) principal amount of 5.25 percent unsecured

senior debt securities due April 15, 2023 (the “2023 Notes”) at an issue price of 100 percent of their principal amount.

The 2020 Notes and the 2023 Notes, collectively referred to as the “Notes”, rank pari passu in right of payment with

respect to all of FCA NV’s existing and future senior unsecured indebtedness and senior in right of payment to any of

FCA NV’s future subordinated indebtedness and existing indebtedness, which is by its terms subordinated in right of

payment to the Notes. Interest on the 2020 Notes and the 2023 Notes is payable semi-annually in April and October.

The Notes impose covenants on FCA NV including: (i)negative pledge clauses which require that in the case that any

security interest upon assets of FCA NV is granted in connection with other notes or debt securities having the same

ranking, such a security should be equally and ratably extended to the outstanding Notes; (ii)pari passu clauses, under

which the Notes rank and will rank pari passu with all other present and future unsubordinated and unsecured obligations

of FCA NV; (iii)periodic disclosure obligations; (iv)cross-default clauses which require immediate repayment of the Notes

under certain events of default on other ﬁnancial instruments issued by FCA’s main entities; and (v)other clauses that are

generally applicable to securities of a similar type. A breach of these covenants may require the early repayment of the

Notes. As of December31, 2018, FCA was in compliance with the covenants of the Notes.

Fiat Chrysler Finance US Inc.

On March 6, 2017, Fiat Chrysler Finance US Inc. (“FCF US”) was incorporated under the laws of Delaware and became

an indirect, 100 percent owned subsidiary of the Company. If FCF US issues debt securities, they will be fully and

unconditionally guaranteed by the Company. No other subsidiary of the Company will guarantee such indebtedness.

238

2018

ANNUAL REPORT

Consolidated

Financial Statements

Notes to the Consolidated

Financial Statements

Borrowings from banks

FCA US Tranche B Term Loans

On November 13, 2018, FCA US prepaid the U.S.$1,009 million (€893 million) outstanding principal and accrued

interest on its Tranche B term loan maturing December 31, 2018 (the “Tranche B Term Loan due 2018”). The

prepayment was made with cash on hand and resulted in a €1 million loss on extinguishment.

At December31, 2017, €836 million, including accrued interest, was outstanding under FCA US’s Tranche B Term

Loan maturing December 31, 2018. On February 24, 2017, FCA US prepaid the U.S.$1,826 million (€1,721 million)

outstanding principal and accrued interest on its tranche B term loan maturing May 24, 2017 (the “Tranche B Term

Loan due 2017”). The prepayment was made with cash on hand and resulted in a €3 million loss on extinguishment. On

April 12, 2017, FCA US amended the credit agreement that governs the Tranche B Term Loan due 2018, reducing the

applicable interest rate spreads by 0.50 percent per annum and reduced the LIBOR ﬂoor by 0.75 percent per annum, to

0.00 percent. For the years ended December 31, 2018, 2017 and 2016, interest was accrued based on LIBOR.

On March 15, 2016, FCA US entered into amendments to the credit agreements that govern the Tranche B Term

Loans to, among other items, eliminate covenants restricting the provision of guarantees and payment of dividends

by FCA US for the beneﬁt of the rest of the Group, to enable a uniﬁed ﬁnancing platform and to provide free ﬂow

of capital within the Group. In conjunction with these amendments, FCA US made a U.S.$2.0 billion (€1.8 billion)

voluntary prepayment of principal at par with cash on hand, of which U.S.$1,288 million (€1,159 million) was applied to

the Tranche B Term Loan due 2017 and U.S.$712 million (€641 million) was applied to the Tranche B Term Loan due

2018. Accrued interest related to the portion of principal prepaid of the Tranche B Term Loans and related transaction

fees were also paid.

The prepayments of principal were accounted for as debt extinguishments and, as a result, a non-cash charge of

€10 million was recorded within Net ﬁnancial expenses in the Consolidated Income Statement for the year ended

December 31, 2016 which consisted of the write-off of the remaining unamortized debt issuance costs. The

amendments to the remaining principal balance were analyzed on a lender-by-lender basis and accounted for as

debt modiﬁcations in accordance with IAS 39. As such, the debt issuance costs for each of the amendments were

capitalized and amortized over the respective remaining terms of the Tranche B Term Loans.

European Investment Bank Borrowings

FCA has ﬁnancing agreements with the European Investment Bank (“EIB”) for a total of €0.7 billion outstanding at

December31, 2018 (€1.1 billion outstanding at December31, 2017), which included the residual debt due under the

following facilities:

€250 million (maturing in December 2019) entered into in December 2016 to support the Group’s investment

plan (2017-2019) in research and development centers in Italy, which includes a number of key objectives such

as greater fuel efﬁciency, a reduction in CO

emissions by petrol and alternative fuel engines and the study of new

hybrid architectures, as well as certain capital expenditures for facilities located in southern Italy;

€500 million (maturing in June 2021), entered into in May 2011 (guaranteed by SACE and the Serbian Authorities)

for an investment program relating to the modernization and expansion of production capacity of an automotive

plant in Serbia; and

€420 million (maturing in June 2022), entered into in June 2018 to support research and development projects to

be implemented by FCA during the period 2018-2020.

2018

ANNUAL REPORT

239

Brazil

Our Brazilian subsidiaries have access to various local bank facilities in order to fund investments and operations. Total

debt outstanding under those facilities amounted to a principal amount of €2.3 billion at December31, 2018 (€3.2

billion at December31, 2017). The loans primarily include subsidized loans granted by public ﬁnancing institutions,

such as Banco Nacional do Desenvolvimento (“BNDES”), with the aim to support industrial projects in certain

areas. This has provided the Group with the opportunity to fund large investments in Brazil with loans of sizeable

amounts at attractive rates. At December31, 2018, outstanding subsidized loans amounted to €1.4 billion (€2.1

billion at December31, 2017), of which approximately €1.0 billion (€1.3 billion at December31, 2017) related to the

construction of the plant in Pernambuco (Brazil), which was supported by subsidized credit lines totaling Brazilian Real

(“BRL”) 6.5 billion (€1.5 billion). Approximately €0.1 billion (€0.1 billion at December31, 2017) of committed credit lines

contracted to fund scheduled investments in the area were undrawn at December31, 2018.

Revolving Credit Facilities

In March 2018, the Group amended its syndicated revolving credit facility originally signed in June 2015 and previously

amended in March 2017 (as amended, the “RCF”). The amendment extended the RCF’s ﬁnal maturity to March 2023.

The RCF is available for general corporate purposes and for the working capital needs of the Group and is structured

in two tranches: €3.125 billion, with a 37-month tenor and two extension options of 1-year and of 11-months

exercisable on the ﬁrst and second anniversary of the amendment signing date, respectively, and €3.125 billion,

with a 60-month tenor. This amendment was accounted for as a debt modiﬁcation and, as a result, the new costs

associated with the March 2018 amendment, as well as the remaining unamortized debt issuance costs related to

the original €5.0 billion RCF and the previous March 2017 amendment, will be amortized over the life of the amended

RCF. At December31, 2018, the €6.25 billion RCF was undrawn.

In the March 2017 amendment, the original RCF was increased from €5.0 billion to €6.25 billion and the ﬁnal maturity

extended to March 2022. The amendment was accounted for as a debt modiﬁcation and, as a result, the remaining

unamortized debt issuance costs related to the original €5.0 billion RCF and the new costs associated with the

amendment were amortized over the life of the RCF.

The covenants of the RCF include ﬁnancial covenants as well as negative pledge, pari passu, cross-default and

change of control clauses. Failure to comply with these covenants, and in certain cases if not suitably remedied,

can lead to the requirement of early repayment of any outstanding amounts. As of December31, 2018, FCA was in

compliance with the covenants of the RCF.

At December31, 2018, undrawn committed credit lines totaling €7.7 billion included the €6.25 billion RCF and

approximately €1.5 billion of other revolving credit facilities. At December31, 2017, undrawn committed credit lines

totaling €7.6 billion included the €6.25 billion RCF and approximately €1.3 billion of other revolving credit facilities.

Mexico Bank Loan

FCA Mexico, S.A. de C.V. (“FCA Mexico”), our principal operating subsidiary in Mexico, has a non-revolving loan

agreement (“Mexico Bank Loan”) maturing on March 20, 2022 and bears interest at one-month LIBOR plus 3.35

percent per annum. At December31, 2018, the Mexico Bank Loan had an outstanding balance of €0.3 billion

(€0.4 billion at December31, 2017). As of December31, 2018, we may prepay all or any portion of the loan without

premium or penalty. The Mexico Bank Loan requires FCA Mexico to maintain certain ﬁxed assets as collateral and

comply with certain covenants, including, but not limited to, ﬁnancial maintenance covenants, limitations on liens,

incurrence of debt and asset sales. As of December31, 2018, FCA Mexico was in compliance with the covenants

under the Mexico Bank Loan.

240

2018

ANNUAL REPORT

Consolidated

Financial Statements

Notes to the Consolidated

Financial Statements

Asset-backed financing

Asset-backed ﬁnancing represents the amount of ﬁnancing received through factoring transactions which do not meet

the IFRS 9 derecognition requirements and are recognized with assets of the same amount of €457 million (€357

million at December31, 2017) within Trade and other receivables in the Consolidated Statement of Financial Position

(Note 15, Trade, other receivables and tax receivables).

Other debt

During the year ended December 31, 2017, FCA US’s Canadian subsidiary made payments on the Canada Health

Care Trust (“HCT”) Tranche B Note totaling €272 million, which included a scheduled payment of principal and

accrued interest and the prepayment of the remaining scheduled payments due on the note. The prepayment of

€226 million was accounted for as a debt extinguishment and, as a result, a gain on extinguishment of €9 million

was recorded within Net ﬁnancial expenses in the Consolidated Income Statement for the year ended December 31,

2017. This Canada HCT Note represented FCA US’s principal Canadian subsidiary’s remaining ﬁnancial liability to the

Canadian Health Care Trust arising from the settlement of its obligations for postretirement health care beneﬁts for the

National Automobile, Aerospace, Transportation and General Workers Union of Canada “CAW” (now part of Unifor),

which represented employees, retirees and dependents.

Other debt also included funds raised from ﬁnancial services companies, primarily in Latin America, deposits from

dealers in Brazil and China and the Group’s payables for ﬁnance leases, which is summarized in the table below:

At December 31

2018 2017

Due

within

oneyear

Due

between

one and

three

years

Due

between

three and

ﬁve years

Due

beyond

ﬁve

years Total

Due

within

oneyear

Due

between

one and

three

years

Due

between

three and

ﬁve years

Due

beyond

ﬁve

years Total

(€ million)

Minimum future lease

payments € 73 € 106 € 54 € 80 € 313 € 90 € 134 € 19 € 74 € 317

Interest expense (17) (18) (11) (6) (52) (15) (15) (3) (3) (36)

Present value of minimum

lease payments € 56 € 88 € 43 € 74 € 261 € 75 € 119 € 16 € 71 € 281

Debt secured by assets

At December31, 2018, debt secured by assets of the Group amounted to €1,095 million (€1,348 million at

December31, 2017), of which €261 million (€281 million at December31, 2017) was due to creditors for assets

acquired under ﬁnance leases and the remaining amount mainly related to subsidized ﬁnancing in Latin America.

The total carrying amount of assets acting as security for loans for the Group amounted to €2,214 million at

December31, 2018 (€2,372 million at December31, 2017, excluding the amounts secured in relation to the Tranche

B Term Loan). At December31, 2017, debt secured by assets of FCA US, in relation the Tranche B Term Loan

amounted to €836 million. Refer to Note 11, Property, plant and equipment.

2018

ANNUAL REPORT

241

22. OTHER LIABILITIES AND TAX PAYABLES

Other liabilities consisted of the following:

At December 31

2018 2017

Current Non-current Total Current Non-current Total

(€ million)

Payables for GDP and buy-back agreements € 2,362 € — € 2,362 € 2,234 € — € 2,234

Accrued expenses and deferred income 783 697 1,480 1,573 2,260 3,833

Indirect tax payables 681 16 697 799 19 818

Payables to personnel 956 16 972 988 16 1,004

Social security payables 265 4 269 313 6 319

Construction contract liabilities (Note 14) 93 — 93 190 — 190

Service contract liability 568 1,521 2,089 — — —

Other 1,349 198 1,547 1,838 199 2,037

Total Other liabilities € 7,057 € 2,452 € 9,509 € 7,935 € 2,500 € 10,435

The impact of the adoption of IFRS 15 on Other liabilities as at January 1, 2018, was as follows:

At December 31, 2017 (as

previously reported)

Adjustments/

Reclassiﬁcations

At January 1, 2018

(as adjusted)

Current

Non-

Current Total Current

Non-

Current Total Current

Non-

Current Total

(€ million)

Payables for GDP and buy-back

agreements € 2,234 € — € 2,234 € (293) € — € (293) € 1,941 € — € 1,941

Accrued expenses and deferred

income 1,573 2,260 3,833 (440) (1,414) (1,854) 1,133 846 1,979

Service contract liability — — — 497 1,397 1,894 497 1,397 1,894

Balances unaffected by IFRS 15

adoption 4,128 240 4,368 — — — 4,128 240 4,368

Total Other liabilities € 7,935 € 2,500 € 10,435 € (236) € (17) € (253) € 7,699 € 2,483 € 10,182

Other liabilities (excluding Accrued expenses, Deferred income and Service contract liability) by due date were as follows:

At December 31

2018 2017

Total

duewithin

one year

(Current)

Due

between

oneand

ﬁve

years

Due

beyond

ﬁve

years

Total

due after

one year

(Non-

Current) Total

Total

duewithin

one year

(Current)

Due

between

oneand

ﬁve

years

Due

beyond

ﬁve

years

Total

due after

one year

(Non-

Current) Total

(€ million)

Other liabilities (excluding

Accrued expenses,

deferred income and

service contract liability) € 5,706 € 221 € 13 € 234 € 5,940 € 6,362 € 227 € 13 € 240 € 6,602

Payables for GDP and buy-back agreements relate to buy-back agreements entered into by the Group and includes

the price received for the product, recognized as an advance at the date of the sale and, subsequently, the repurchase

price and the remaining lease installments yet to be recognized.

Accrued expenses and deferred income includes the remaining portion of government grants that will be recognized as

income in the Consolidated Income Statement over the same periods as the related costs which they are intended to offset.

242

2018

ANNUAL REPORT

Consolidated

Financial Statements

Notes to the Consolidated

Financial Statements

On March 15, 2017, the Brazilian Supreme Court ruled that state value added tax should be excluded from the basis

for calculating a federal tax on revenue. At June 30, 2017, the Group determined that the likelihood of economic

outﬂow related to such indirect taxes was no longer probable and the total liability of €895 million that FCA had

accrued but not paid for such taxes for the period from 2007 to 2014 was reversed. Due to the materiality of this

item and its effect on our results, the amount is presented separately in the line Reversal of a Brazilian indirect tax

liability in the Consolidated Income Statement for the year ended December 31, 2017, and is composed of €547

million, originally recognized as a reduction to Net revenues, and €348 million, originally recognized within Net ﬁnancial

expenses. The Brazilian Supreme Court issued summary written minutes of its ruling on September 29, 2017 and Trial

Minutes on October 2, 2017. On October 19, 2017, the Brazilian government ﬁled its appeal against the PIS/COFINS

over ICMS decision. At December 31, 2017, due to the uncertainty of scope of the application of the Supreme Court

ruling taking into account the government’s appeal and request for modulation, and due to Brazil’s current heightened

political and economic uncertainty, management believed a risk of economic outﬂow wasstill greater than remote.On

August 18, 2018, the litigation concerning PIS over ICMS had its ﬁnal and deﬁnitive favorable decision. At September

30, 2018, the Group determined that the likelihood of economic outﬂow related to such indirect taxes was no longer

probable and the total liability of €54 million accrued and paid will be recovered.At December 31, 2018,management

believes a risk of economic outﬂow for COFINS over ICMS is still greater than remote.

The service contract liability is mainly comprised of maintenance plans and extended warranties. Changes in the

Group’s service contract liability for the year ended December31, 2018, were as follows:

At January 1,

2018

Advances

received

from

customers

Amounts

recognized

within

revenue

Transfers

to Assets/

(Liabilities)

held for sale

Other

Changes

December

31, 2018

(€ million)

Service contract liability € 1,894 € 879 € (658) € — € (26) € 2,089

Of the total Service contract liability at December31, 2018, the Group expects to recognize approximately €512

million in 2019, €440 million in 2020, €362 million in 2021 and €775 million thereafter

Tax payables

Tax payables by due date were as follows:

At December 31

2018 2017

Total

duewithin

one year

(Current)

Due

between

oneand

ﬁve years

Due

beyond

ﬁve years

Total due

after one

year (Non-

Current) Total

Total

duewithin

one year

(Current)

Due

between

oneand

ﬁve years

Due

beyond

ﬁve years

Total due

after one

year (Non-

Current) Total

(€ million)

Tax payables € 114 € 1 € — € 1 € 115 € 309 € 32 € 42 € 74 € 383

2018

ANNUAL REPORT

243

23. FAIR VALUE MEASUREMENT

Assets and liabilities that are measured at fair value on a recurring basis

The following table shows the fair value hierarchy, based on observable and unobservable inputs, for ﬁnancial assets

and liabilities that are measured at fair value on a recurring basis:

At December 31

2018 2017

Level 1 Level2 Level3 Total Level 1 Level2 Level3 Total

Note

(€ million)

Debt securities and equity

instruments measured at FVOCI 13 € 3 € 15 € 13 € 31 € 3 € 24 € — € 27

Debt securities and equity

instruments measured at FVPL 13 270 — 3 273 275 — 2 277

Derivative ﬁnancial assets

— 256 41 297 — 254 30 284

Collateral deposits

61 — — 61 61 — — 61

Receivables from ﬁnancing activities

— — 973 973 — — — —

Trade receivables

— 65 — 65 — — — —

Cash at banks

(1)

— — — — 6,396 — — 6,396

Money market securities

(1)

4,352 — — 4,352 4,404 1,838 — 6,242

Total Assets € 4,686 € 336 € 1,030 € 6,052 € 11,139 € 2,116 € 32 € 13,287

Derivative ﬁnancial liabilities

— 205 2 207 — 138 1 139

Total Liabilities € — € 205 € 2 € 207 € — € 138 € 1 € 139

(1)

Amounts relating to Cash at banks and certain Money market securities were reclassified to amortized cost as January 1, 2018. Refer to Note

2, Basis of preparation - New standards and amendments effective January 1, 2018.

The impact of the adoption of IFRS 9 on the fair value hierarchy as at January 1, 2018 was as follows:

At December 31, 2017

(as previously reported)

Adjustments/

Reclassiﬁcations

At January 1, 2018

(as adjusted)

Level 1 Level2 Level3 Total Level 1 Level2 Level3 Total Level 1 Level2 Level3 Total

(€ million)

Debt securities

and equity

instruments

measured at

FVOCI € 3 € 24 € — € 27 € — € (4) € 23 € 19 € 3 € 20 € 23 € 46

Debt securities

and equity

instruments

measured at

FVPL 275 — 2 277 — — 20 20 275 — 22 297

Derivative

ﬁnancial assets — 254 30 284 — — — — — 254 30 284

Collateral

deposits 61 — — 61 — — — — 61 — — 61

Receivables

from ﬁnancing

activities — — — — — — 700 700 — — 700 700

Trade receivables — — — — — 28 — 28 — 28 — 28

Cash at banks

(1)

6,396 — — 6,396 (6,396) — — (6,396) — — — —

Money market

securities

(1)

4,404 1,838 — 6,242 (1,692) (1,838) — (3,530) 2,712 — — 2,712

Total Assets € 11,139 € 2,116 € 32 € 13,287 € (8,088) € (1,814) € 743 € (9,159) € 3,051 € 302 € 775 € 4,128

Derivative

ﬁnancial liabilities — 138 1 139 — — — — — 138 1 139

Total Liabilities € — € 138 € 1 € 139 € — € — € — € — € — € 138 € 1 € 139

244

2018

ANNUAL REPORT

Consolidated

Financial Statements

Notes to the Consolidated

Financial Statements

In 2018, there were no transfers between Levels in the fair value hierarchy. For assets and liabilities recognized in the

ﬁnancial statements at fair value on a recurring basis, the Group determines whether transfers have occurred between

levels in the hierarchy by re-assessing categorization at the end of each reporting period.

The fair value of derivative ﬁnancial assets and liabilities is measured by taking into consideration market parameters

at the balance sheet date and using valuation techniques widely accepted in the ﬁnancial business environment, as

described below:

the fair value of forward contracts and currency swaps is determined by taking the prevailing exchange rates and

interest rates at the balance sheet date;

the fair value of interest rate swaps and forward rate agreements is determined by taking the prevailing interest rates

at the balance sheet date and using the discounted expected cash ﬂow method;

the fair value of combined interest rate and currency swaps is determined using the exchange and interest rates

prevailing at the balance sheet date and the discounted expected cash ﬂow method; and

the fair value of swaps and options hedging commodity price risk is determined by using suitable valuation

techniques and taking market parameters at the balance sheet date (in particular, underlying prices, interest rates

and volatility rates).

The fair value of money market securities is also based on available market quotations. Where appropriate, the fair

value of cash equivalents is determined with discounted expected cash ﬂow techniques using observable market

yields (categorized as Level 2).

The fair value of Receivables from ﬁnancing activities, which are classiﬁed in Level 3 of the fair value hierarchy, has

been estimated using discounted cash ﬂow models. The most signiﬁcant inputs used in this measurement are market

discount rates that reﬂect conditions applied in various reference markets on receivables with similar characteristics,

adjusted in order to take into account the credit risk of the counterparties.

The following table provides a reconciliation of the changes in items measured at fair value and categorized within

Level 3:

2018 2017

Receivables from

ﬁnancing activities

Debt securities

and equity

instruments

Derivative

ﬁnancial

assets/

(liabilities)

Debt securities

and equity

instruments

Derivative

ﬁnancial

assets/

(liabilities)

(€ million)

At January 1 700 45 29 12 19

Gains/(Losses) recognized in Consolidated

Income Statement — (1) 30 1 27

Gains/(Losses) recognized in Other

comprehensive income/(loss) — — 9 (1) 18

Issues/Settlements 273 — (29) — (35)

Transfers to Assets/(Liabilities) held for sale — (28) — — —

At December 31 € 973 € 16 € 39 12 29

The gains/(losses) included in the Consolidated Income Statements were recognized within Cost of revenues. Of the

total gains/(losses) recognized in Other comprehensive income, €7 million was recognized within Cash ﬂow reserves

and€2 million was recognized within Currency translation differences.

2018

ANNUAL REPORT

245

Assets and liabilities not measured at fair value on recurring basis

The carrying value of debt securities measured at amortized cost, ﬁnancial receivables, current receivables and

payables is a reasonable approximation of fair value as the present value of future cash ﬂows does not differ

signiﬁcantly from the carrying amount.

The carrying value of Cash at banks and Other cash equivalents usually approximates fair value due to the short

maturity of these instruments (refer to Note 17, Cash and cash equivalents).

The following table provides the carrying amount and fair value of ﬁnancial assets and liabilities not measured at fair

value on a recurring basis:

At December 31

2018 2017

Carrying

amount

Fair

Value

Carrying

amount

Fair

Value

Note

(€ million)

Dealer ﬁnancing € 1,681 € 1,682 € 2,295 € 2,295

Retail ﬁnancing 601 584 420 405

Finance lease 3 3 4 4

Other receivables from ﬁnancing activities 356 355 421 421

Total Receivables from ﬁnancing activities

(1)

€ 2,641 € 2,624 € 3,140 € 3,125

Asset backed ﬁnancing € 457 € 457 € 357 € 357

Notes 7,825 8,152 9,626 10,365

Other debt 6,246 6,229 7,988 8,001

Total Debt

€ 14,528 € 14,838 € 17,971 € 18,723

(1)

Amount at December 31, 2018 excludes receivables measured at FVPL

The fair value of Receivables from ﬁnancing activities, which are categorized within Level 3 of the fair value hierarchy,

has been estimated with discounted cash ﬂows models. The most signiﬁcant inputs used in this measurement

are market discount rates that reﬂect conditions applied in various reference markets on receivables with similar

characteristics, adjusted in order to take into account the credit risk of the counterparties.

Notes that are traded in active markets for which close or last trade pricing is available are classiﬁed within Level 1 of

the fair value hierarchy. Notes for which such prices are not available are valued at the last available price or based on

quotes received from independent pricing services or from dealers who trade in such securities and are categorized

as Level 2. At December31, 2018, €8,145 million and €7 million of notes were classiﬁed within Level1 and Level2,

respectively. At December31, 2017, €10,358 million and €7 million of notes were classiﬁed within Level1 and Level2,

respectively.

The fair value of Other debt included in Level 2 of the fair value hierarchy has been estimated using discounted

cash ﬂow models. The main inputs used are year-end market interest rates, adjusted for market expectations of the

Group’s non-performance risk implied in quoted prices of traded securities issued by the Group and existing credit

derivatives on Group liabilities. The fair value of Other debt that requires signiﬁcant adjustment using unobservable

inputs is categorized within Level 3. At December31, 2018, €5,241 million and €988 million of Other Debt was

classiﬁed within Level2 and Level3, respectively. At December31, 2017, €6,796 million and €1,205 million of Other

Debt was classiﬁed within Level2 and Level3, respectively.

246

2018

ANNUAL REPORT

Consolidated

Financial Statements

Notes to the Consolidated

Financial Statements

24. RELATED PARTY TRANSACTIONS

In accordance with IAS 24 - Related Party Disclosures, the related parties of the Group are determined as those

entities and individuals capable of exercising control, joint control or signiﬁcant inﬂuence over the Group and its

subsidiaries. Related parties include companies belonging to Exor N.V. (the largest shareholder of FCA through its

28.98 percent common shares shareholding interest and 42.11 percent voting power at December 31, 2018), which

include Ferrari N.V. and CNHI. Related parties also include associates, joint ventures and unconsolidated subsidiaries

of the Group, members of the FCA Board of Directors, executives with strategic responsibilities and certain members

of their families.

Transactions carried out by the Group with its related parties are on commercial terms that are normal in the

respective markets, considering the characteristics of the goods or services involved, and primarily relate to:

the purchase of engines and engine components for Maserati vehicles from Ferrari N.V.;

transactions related to the display of FCA brand names on Ferrari N.V. Formula 1 cars;

the sale of vehicles to the leasing and renting subsidiaries of the joint ventures Koc Fiat Kredi and FCA Bank;

the sale of engines, other components and production systems to and the purchase of light commercial vehicles

from the joint operation Sevel S.p.A. Refer to Note 31, Subsequent events for additional detail;

the sale of engines, other components and production systems to the companies of CNHI;

the purchase of vehicles from, the provision of services and the sale of goods to the joint operation Fiat India

Automobiles Private Limited;

the provision of services and the sale of goods to the GAC FCA JV;

the provision of services (accounting, payroll, tax administration, information technology, purchasing and security) to

the companies of CNHI;

the purchase of light commercial vehicles and passenger cars from the joint venture Tofas; and

the sale of automotive lighting and automotive components, which is included within discontinued operations, to

Ferrari N.V.

The most signiﬁcant ﬁnancial transactions with related parties generated Receivables from ﬁnancing activities of the

Group’s ﬁnancial services companies from joint ventures and Asset-backed ﬁnancing relating to amounts due to FCA

Bank for the sale of receivables, which do not qualify for derecognition under IFRS 9 – Financial Instruments.

2018

ANNUAL REPORT

247

The amounts for signiﬁcant transactions with related parties recognized in the Consolidated Income Statements were

as follows:

Years ended December 31,

2018 2017 2016

Net

Revenues

Cost of

revenues

Selling,

general

and other

costs,

net

Net

Financial

expenses/

(income)

Net

Revenues

Cost of

revenues

Selling,

general

and other

costs,

net

Net

Financial

expenses/

(income)

Net

Revenues

Cost of

revenues

Selling,

general

and other

costs,

net

Net

Financial

expenses/

(income)

(€ million)

Tofas € 926 € 2,572 € 7 € — € 1,287 € 2,779 € 9 € — € 1,536 € 2,811 € 3 € —

Sevel S.p.A. 402 1 4 — 392 — 5 — 381 — 5 —

FCA Bank 1,611 28 (21) 56 1,715 26 (20) 36 1,571 18 (21) 39

GAC FCA JV 419 11 (49) — 569 — (105) — 683 — (82) —

Fiat India

Automobiles

Limited 2 — — — 25 1 — — 23 1 (1) (1)

Other 27 6 (4) 1 35 2 (4) 2 36 5 (3) —

Total joint

arrangements 3,387 2,618 (63) 57 4,023 2,808 (115) 38 4,230 2,835 (99) 38

Total

associates 30 229 (2) (1) 73 52 (3) (1) 91 47 — —

CNHI 501 326 6 — 526 329 2 — 543 422 3 —

Ferrari N.V. 64 218 4 — 82 320 1 — 81 246 — —

Directors

and Key

Management — — 77 — — — 114 — — — 143 —

Other 2 — 26 — 1 — 26 — — — 26 —

Total CNHI,

Ferrari,

Directors and

other 567 544 113 — 609 649 143 — 624 668 172 —

Total

unconsolidated

subsidiaries 7 8 4 1 61 8 3 1 57 7 8 1

Total

transactions

with related

parties € 3,991 € 3,399 € 52 € 57 € 4,766 € 3,517 € 28 € 38 € 5,002 € 3,557 € 81 € 39

Total for the

Group € 110,412 € 95,011 € 7,318 € 1,056 € 105,730 € 89,710 € 7,177 € 1,345 € 105,798 € 90,927 € 7,388 € 1,858

248

2018

ANNUAL REPORT

Consolidated

Financial Statements

Notes to the Consolidated

Financial Statements

Assets and liabilities from signiﬁcant transactions with related parties were as follows:

At December 31

2018 2017

Trade and

other

receivables

Trade

payables

Other

liabilities

Asset-

backed

ﬁnancing Debt

(1)

Trade

and other

receivables

Trade

payables

Other

liabilities

Asset-

backed

ﬁnancing Debt

(1)

(€ million)

Tofas € 11 € 176 € 40 € — € — € 34 € 240 € 50 € — € —

Sevel S.p.A. 20 — 2 — 11 23 — 6 — 1

FCA Bank 395 258 232 449 28 466 206 199 319 32

GAC FCA JV 63 22 1 — — 58 15 1 — —

Fiat India Automobiles

Limited — — 6 — — 7 13 5 — —

Other 19 1 — — — 20 1 — — —

Total joint

arrangements 508 457 281 449 39 608 475 261 319 33

Total associates 34 33 10 — — 36 32 13 — —

CNHI 53 71 12 — — 47 86 11 — —

Ferrari N.V. 25 45 3 — — 23 75 — — —

Other 2 2 — — — 1 2 — — —

Total CNHI, Ferrari

N.V. and other 80 118 15 — — 71 163 11 — —

Total unconsolidated

subsidiaries 17 7 1 — 26 83 8 1 — 28

Total originating from

related parties € 639 € 615 € 307 € 449 € 65 € 798 € 678 € 286 € 319 € 61

Total for the Group € 8,672 € 19,229 € 9,509 € 457 € 14,071 € 8,553 € 21,939 € 10,435 € 357 € 17,614

(1)

Relating to Debt excluding Asset-backed financing, refer to Note, 21 Debt.

Commitments and Guarantees

As of December31, 2018, the Group had a take-or-pay commitment with Tofas with future minimum expected

obligations as follows:

(€million)

2019 € 299

2020 € 291

2021 € 267

2022 € 152

2023 € —

2024 and thereafter € —

We provided guarantees to FCA Bankrelated to certain dealer ﬁnancing arrangements FCA Bank has with

dealers.The amount of the guarantees outstanding at December 31, 2018 was approximately €86 million.The fair

value of these guarantees is immaterial due tothe value of vehicles in the dealers’ stock pledgedto FCA.

2018

ANNUAL REPORT

249

Compensation to Directors and Key Management

The fees of the Directors of the Group for carrying out their respective functions, including those in other consolidated

companies, were as follows:

Years ended December 31,

2018 2017 2016

(€ thousand)

Directors

(1)

€ 18,830 € 29,861 € 39,329

Total Compensation € 18,830 € 29,861 € 39,329

(1)

Including the notional compensation cost arising from long-term share-based compensation granted to the Chief Executive Officer and share-

based compensation to non-executive Directors.

Refer to Note 18, Share-based compensation, for information related to the special recognition award granted to the

Chief Executive Ofﬁcer on April 16, 2015 and the PSU and RSU awards granted to certain key employees.

The aggregate compensation expense for remaining executives with strategic responsibilities was approximately €58

million for 2018 (€81 million in 2017 and €103 million in 2016), which, in addition to base compensation, included:

approximately €28 million in 2018 (approximately €49 million in 2017 and approximately €73 million in 2016) for

share-based compensation expense;

approximately €7 million in 2018 (approximately €8 million in 2017 and approximately €8 million in 2016) for short-

term employee beneﬁts; and

€10 million in 2018 (€9 million in 2017 and €6 million in 2016) for pension and similar beneﬁts.

250

2018

ANNUAL REPORT

Consolidated

Financial Statements

Notes to the Consolidated

Financial Statements

25. GUARANTEES GRANTED, COMMITMENTS AND CONTINGENT LIABILITIES

Guarantees granted

At December31, 2018, the Group had pledged guarantees on the debt or commitments of third parties totaling

€7 million (€5 million at December31, 2017), as well as guarantees of €3 million on related party debt (€4 million at

December31, 2017).

SCUSA Private-label financing agreement

In February 2013, FCA US entered into a private-label ﬁnancing agreement (the “SCUSA Agreement”) with Santander

Consumer USA Inc. (“SCUSA”), an afﬁliate of Banco Santander, which launched on May1, 2013. Under the SCUSA

Agreement, SCUSA provides a wide range of wholesale and retail ﬁnancing services to FCA US’s dealers and

consumers in accordance with its usual and customary lending standards, under the Chrysler Capital brand name.

The SCUSA Agreement has a ten-year term from February 2013, subject to early termination in certain circumstances,

including the failure by a party to comply with certain of its ongoing obligations under the SCUSA Agreement. In

accordance with the terms of the agreement, SCUSA provided an upfront, non-refundable payment of €109 million

(U.S.$150 million) in May 2013, which was recognized as deferred revenue and is amortized over ten years. At

December 31, 2018, €57 million (U.S.$65 million) remained in deferred revenue.

From time to time, FCA US works with certain lenders to subsidize interest rates or cash payments at the inception

of a ﬁnancing arrangement to incentivize customers to purchase its vehicles, a practice known as “subvention”. FCA

US has provided SCUSA with limited exclusivity rights to participate in speciﬁed minimum percentages of certain of its

retail ﬁnancing rate subvention programs. SCUSA has committed to certain revenue sharing arrangements, as well as

to consider future revenue sharing opportunities. SCUSA bears the risk of loss on loans contemplated by the SCUSA

Agreement. The parties share in any residual gains and losses in respect of consumer leases, subject to speciﬁc

provisions in the SCUSA Agreement, including limitations on FCA US participation in gains and losses.

Other repurchase obligations

In accordance with the terms of other wholesale ﬁnancing arrangements in Mexico, FCA Mexico is required to

repurchase dealer inventory ﬁnanced under these arrangements, upon certain triggering events and with certain

exceptions, including in the event of an actual or constructive termination of a dealer’s franchise agreement. These

obligations exclude certain vehicles including, but not limited to, vehicles that have been damaged or altered, that

are missing equipment or that have excessive mileage or an original invoice date that is more than one year prior

to the repurchase date. In December 2015, FCA Mexico entered into a ten-year private label ﬁnancing agreement

with FC Financial, S.A De C.V., Sofom, E.R., Grupo Financiaro Inbursa (“FC Financial”), a wholly owned subsidiary of

Banco Inbursa, under which FC Financial provides a wide range of ﬁnancial wholesale and retail ﬁnancial services to

FCA Mexico’s dealers and retail customers under the FCA Financial Mexico brand name. The wholesale repurchase

obligation under the new agreement will be limited to wholesale purchases in case of actual or constructive termination

of a dealer’s franchise agreement.

At December31, 2018, the maximum potential amount of future payments required to be made in accordance with

these wholesale ﬁnancing arrangements was approximately €206 million (US$236 million) and was based on the

aggregate repurchase value of eligible vehicles ﬁnanced through such arrangements in the respective dealer’s stock.

If vehicles are required to be repurchased through such arrangements, the total exposure would be reduced to the

extent the vehicles can be resold to another dealer. The fair value of the guarantee was nil at December31, 2018.

2018

ANNUAL REPORT

251

Arrangements with key suppliers

From time to time and in the ordinary course of our business, the Group enters into various arrangements with

key third party suppliers in order to establish strategic and technological advantages. A limited number of these

arrangements contain unconditional purchase obligations to purchase a ﬁxed or minimum quantity of goods

and/or services with ﬁxed and determinable price provisions. Future minimum purchase obligations under these

arrangements at December31, 2018 were as follows for the Group’s continuing operations:

(€million)

2019 € 804

2020 € 508

2021 € 349

2022 € 216

2023 € 32

2024 and thereafter € 42

Operating lease contracts

The Group has operating lease contracts for the right to use industrial buildings and equipment with an average term

of 10-20 years and 3-5 years, respectively. The following table summarizes the total future minimum lease payments

under non-cancellable lease contracts for the Group’s continuing operations:

At December 31, 2018

Due within

oneyear

Due

between

one and

three

years

Due

between

three and

ﬁve years

Due

beyond

ﬁveyears Total

(€ million)

Future minimum lease payments under operating lease agreements € 325 € 331 € 172 € 199 € 1,027

During 2018, the Group recognized lease payments expense of €423 million (€284 million in 2017 and €280 million in 2016).

Other commitments, arrangements and contractual rights

UAW Labor Agreement

In October 2015, FCA US and the UAW agreed to a four-year national collective bargaining agreement, which will

expire in September 2019. The provisions of the new agreement continue certain opportunities for success-based

compensation upon meeting certain quality and ﬁnancial performance metrics. The agreement closes the pay gap

between “Traditional” and “In-progression” employees over an eight-year period and will continue to provide UAW-

represented employees with a simpliﬁed adjusted proﬁt sharing plan. The adjusted proﬁt sharing plan was effective

for the 2016 plan year and is directly aligned with NAFTA proﬁtability. The agreement included lump-sum payments in

lieu of further wage increases of primarily U.S.$4,000 for “Traditional” employees and U.S.$3,000 for “In-progression”

employees totaling approximately U.S.$141 million (€127 million) that was paid to UAW members on November 6,

2015. These payments are being amortized ratably over the four-year labor agreement period.

252

2018

ANNUAL REPORT

Consolidated

Financial Statements

Notes to the Consolidated

Financial Statements

Italian labor agreement

In April 2015, a four-year compensation agreement was signed by FCA companies within the automobiles business in

Italy. The compensation agreement was subsequently included into the labor agreement and was extended to all FCA

companies in Italy on July 7, 2015.

The compensation arrangement was effective retrospectively from January 1, 2015 through December 31, 2018 and

incentivized all employees toward achievement of the productivity, quality and proﬁtability targets established in the

2015-2018 period of the 2014-2018 business plan developed in May 2014 by adding two variable additional elements

to base pay:

an annual bonus, calculated on the basis of production efﬁciencies achieved and the plant’s World Class

Manufacturing audit status; and

a component linked to achievement of the ﬁnancial targets established in the 2015-2018 period of the 2014-2018

business plan for the EMEA region, including the activities of the premium brands Alfa Romeo and Maserati.

A total of €72 million, €105 million and €101 million related to the additional variable elements above was recorded as

an expense included within Net proﬁt from continuing operations for the years ended December31, 2018, 2017 and

2016, respectively.

Negotiations for the renewal of this labor contract commenced on November 29, 2018. As of February 22, 2019,

negotiations are ongoing.

Canada labor agreement

FCA entered into a four-year labor agreement with Unifor in Canada that was ratiﬁed on October 16, 2016. The terms

of this agreement provide a two percent wage increase in the ﬁrst and fourth years of the agreement for employees

hired prior to September 24, 2012 and will continue to close the pay gap for employees hired on or after September

24, 2012 by revising a ten-year progressive pay scale plan. The agreement includes a lump sum payment in lieu of

further wage increases of 6,000 Canadian dollars (“CAD$”) per employee totaling approximately CAD$55 million

(approximately €38 million) that was paid to Unifor members on November 4, 2016. These payments will be amortized

ratably over the four-year labor agreement period. The agreement expires September 2020.

Contingent liabilities

In connection with signiﬁcant asset divestitures carried out in prior years, the Group provided indemnities to

purchasers with the maximum amount of potential liability under these contracts generally capped at a percentage

of the purchase price. These liabilities refer principally to potential liabilities arising from possible breaches of

representations and warranties provided in the contracts and, in certain instances, environmental or tax matters,

generally for a limited period of time. Potential obligations with respect to these indemnities were approximately €160

million and a total of €50 million has been recognized within Provisions related to these obligations as of December31,

2018 and 2017. The Group has provided certain other indemniﬁcations that do not limit potential payment and as

such, it was not possible to estimate the maximum amount of potential future payments that could result from claims

made under these indemnities.

Takata airbag inators

We are aware of putative class action lawsuits ﬁled in March 2018 against FCA US in the U.S. District Courts for the

Southern District of Florida and the Eastern District of Michigan, asserting claims under federal and state laws alleging

economic loss due to Takata airbag inﬂators installed in certain of our vehicles. At this early stage, we are unable to

reliably evaluate the likelihood that a loss will be incurred or estimate a range of possible loss.

2018

ANNUAL REPORT

253

Rear Impact Litigation

On July 9, 2012, a lawsuit was ﬁled against FCA US in the Superior Court of Decatur County, Georgia, U.S., with

respect to a March 2012 fatality in a rear-impact collision involving a 1999 Jeep Grand Cherokee. Plaintiffs alleged

that the manufacturer had acted in a reckless and wanton fashion when it designed and sold the vehicle due to the

placement of the fuel tank behind the rear axle and had breached a duty to warn of the alleged danger. On April 2,

2015, a jury found in favor of the plaintiffs and the trial court entered a judgment against FCA US in the amount of U.S.

$148.5 million (€141 million). On July 24, 2015, the Court issued a remittitur reducing the judgment against FCA US to

U.S. $40 million (€38 million).

While FCA US respects the decision of the jury, the Company appealed the ﬁnal judgment issued by the judge. FCA

US believes the judgment was not supported by the evidence or the law. FCA US maintains that the 1999 Jeep Grand

Cherokee is not defective, and its fuel system does not pose an unreasonable risk to motor vehicle safety. The vehicle

met or exceeded all applicable Federal Motor Vehicle Safety Standards, including the standard governing fuel system

integrity. Furthermore, FCA US has submitted extensive data to NHTSA validating that the vehicle performs as well as,

or better than, peer vehicles in impact studies. During the trial, however, the judge did not permit FCA US to introduce

for the jury’s consideration, all data previously provided to NHTSA along with other key evidence, demonstrating the

vehicle’s fuel system is not defective.

On November 15, 2016, the Georgia Court of Appeals afﬁrmed the Court’s verdict and judgment of U.S.$40

million (€38 million). On March 15, 2018, the Georgia Supreme Court afﬁrmed the judgment of the Georgia Court of

Appeals.FCA US declined to pursue further appeals and the ﬁnal amount of the outstanding judgment, including

accrued interest, did not materially exceed our existing provisions.

Emissions Matters

On January 10, 2019, we announced that FCA USreached ﬁnal settlements on civil, environmental and consumer

claims with the U.S. Environmental Protection Agency (“EPA”), U.S. Department of Justice, the California Air

Resources Board, the State of California, 49 other States and U.S. Customs and Border Protection, for which we

have accrued €748 million, of which approximately €350 million will be paid in civil penalties to resolve differences

over diesel emissions requirements.We also announced that FCA US had reached settlements in connection with a

putative class action on behalf of consumers in connection with which FCA US agreed to pay an average of $2,800

per vehicle for each eligible customer affected by the recall.

We remain subject to diesel emissions-related investigations by the U.S. Securities and Exchange Commission and the

U.S. Department of Justice, Criminal Division. In addition, we remain subject to a number of related private lawsuits and

the potential for additional claims by consumers who choose not to participate in the class action settlement.

We have also received inquiries from other regulatory authorities in a number of jurisdictions as they examine the

on-road tailpipe emissions of several automakers’ vehicles and, when jurisdictionally appropriate, we continue to

cooperate with these governmental agencies and authorities.

In Europe, we have been working with the Italian Ministry of Transport (“MIT”) and the Dutch Vehicle Regulator

(“RDW”), the authorities that certiﬁed FCA diesel vehicles for sale in the European Union, and the UK Driver and Vehicle

Standards Agency. We also initially responded to inquiries from the German authority, the Kraftfahrt-Bundesamt

(“KBA”), regarding emissions test results for our vehicles, and we discussed the KBA reported test results, our

emission control calibrations and the features of the vehicles in question. After these initial discussions, the MIT, which

has sole authority for regulatory compliance of the vehicles it has certiﬁed, asserted its exclusive jurisdiction over

the matters raised by the KBA, tested the vehicles, determined that the vehicles complied with applicable European

regulations and informed the KBA of its determination. Thereafter, mediations have been held under European

Commission (“EC”) rules, between the MIT and the German Ministry of Transport and Digital Infrastructure, which

oversees the KBA, in an effort to resolve their differences. The mediation was concluded with no action being taken

with respect to FCA. In May 2017, the EC announced its intention to open an infringement procedure against Italy

regarding Italy’s alleged failure to respond to EC’s concerns regarding certain FCA emission control calibrations. The

MIT has responded to the EC’s allegations by conﬁrming that the vehicles’ approval process was correctly performed.

254

2018

ANNUAL REPORT

Consolidated

Financial Statements

Notes to the Consolidated

Financial Statements

In addition, at the request of the French Consumer Protection Agency, the Juge d’Instruction du Tribunal de Grande

Instance of Paris is investigating diesel vehicles of a number of automakers including FCA, regarding whether the sale

of those vehicles violated French consumer protection laws. InDecember 2018, the Korean Ministry of Environment

announced its determination that 2,428 FCA vehicles imported in Korea during 2015, 2016 and 2017 were not

emissions compliant and that the vehicles with a subsequent update of the emission control calibrations voluntarily

performed by FCA, although compliant, would have required re-homologation of the vehicles concerned.

The results of the unresolved inquiries and private litigation cannot be predicted at this time and these inquiries and

litigation may lead to further enforcement actions, penalties or damage awards, any of which may have a material

adverse effect on our business, results of operations and reputation.It is possible that the resolution of these matters

may adversely affect our reputation with consumers, which may negatively impact demand for our vehicles and could

have a material adverse effect on our business, ﬁnancial condition and results of operations. At this stage, we are

unable to evaluate the likelihoodthat a loss will be incurred with regard to the unresolved inquiries and private litigation

or estimate a range of possible loss.

Safety Recall and Emissions-related Securities Class Action Lawsuit

On September 11, 2015, a putative securities class action complaint was ﬁled in the U.S. District Court for the

Southern District of New York against us alleging material misstatements regarding our compliance with regulatory

requirements and that we failed to timely disclose certain expenses relating to our vehicle recall campaigns. On

October 5, 2016, the district court dismissed the claims relating to the disclosure of vehicle recall campaign expenses

but ruled that claims regarding the alleged misstatements regarding regulatory requirements would be allowed to

proceed. On February 17, 2017, the plaintiffs amended their complaint to allege material misstatements regarding

emissions compliance. On November 13, 2017, the Court denied our motion to dismiss the emissions-related claims.

On June 15, 2018, the Court certiﬁed a class of our stockholders in the case. On February 4, 2019, we entered into an

agreement in principle to settle the litigationcontingentoncourt approval andour insurers’ conﬁrmationfor an amount

within the coverage limits of our applicable insurance policies.As such,any potential loss is not material to the Group.

U.S. Sales Reporting Investigations

On July 18, 2016, we conﬁrmed that the U.S. Securities and Exchange Commission had commenced an investigation

into our reporting of vehicle unit sales to end customers in the U.S. and that inquiries into similar issues have been

received from the U.S. Department of Justice.These vehicle unit sales reports relate to unit sales volumes primarily by

dealers to consumers while we generally recognize revenues based on shipments to dealers and other customers and

not on vehicle unit sales to consumers. We continue to cooperate with these investigations; however their outcome

is uncertain and cannot be predicted at this time. At this stage, we are unable to reliably evaluate the likelihood that a

loss will be incurred or estimate a range of possible loss.

As previously reported, two putative securities class action lawsuits were ﬁled against us in the U.S. District Court for

the Eastern District of Michigan making allegations with regard to our reporting of vehicle unit sales to end consumers

in the U.S. These lawsuits have been consolidated into a single action and on October 4, 2018, we entered into an

agreement in principle to settle the consolidated litigation, subject to court approval, for an amount that is not material

to the Group.

National Training Center

In connection with an on-going government investigation into matters at the UAW-Chrysler National Training Center, the

U.S. Department of Justice has brought charges against a number of individuals including former FCA US employees

and individuals associated with the UAW for, among other things, tax fraud and conspiring to provide money or other

things of value to a UAW ofﬁcer and UAW employees while acting in the interests of FCA US, in violation of the Labor

Management Relations (Taft-Hartley) Act. We continue to cooperate with this investigation. Several putative class action

lawsuits have been ﬁled against FCA US in U.S. federal court alleging harm to UAW workers as a result of these acts.

Those actions have been dismissed at the trial court stage, but remain subject to appeal. At this stage, we are unable to

reliably evaluate the likelihood that a loss will be incurred or estimate a range of possible loss.

2018

ANNUAL REPORT

255

26. EQUITY

Share capital

At December31, 2018, the authorized share capital of FCA was forty million Euro (€40,000,000), divided into two

billion (2,000,000,000) FCA common shares, nominal value of one Euro cent (€0.01) per share and two billion

(2,000,000,000) special voting shares, nominal value of one Euro cent (€0.01) per share.

At December31, 2018, fully paid-up share capital of FCA amounted to €19 million (€19 million at December31, 2017)

and consisted of 1,550,617,563 common shares and of 408,941,767 special voting shares, all with a par value of

€0.01 each (1,540,089,690 common shares and 408,941,767 special voting shares, all with a par value of €0.01 each

at December31, 2017).

The following table summarizes the changes in the number of outstanding common shares and special voting shares

of FCA during the year ended December31, 2018:

Common Shares

Special Voting

Shares Total

Balance at January 1, 2018 1,540,089,690 408,941,767 1,949,031,457

Shares issued to Key management 10,527,873 — 10,527,873

Balance at December 31, 2018 1,550,617,563 408,941,767 1,959,559,330

On October29, 2014, the Board of Directors of FCA resolved to authorize the issuance of up to a maximum of

90,000,000 common shares under the equity incentive plan and the long-term incentive program which had been

adopted before the closing of the Merger and under which equity awards can be granted to eligible individuals.

Any issuance of shares during the period from 2014 to 2018 are subject to the satisfaction of certain performance/

retention requirements and any issuances to directors are subject to FCA shareholders’ approval (refer to Note 18,

Share-based compensation).

Mandatory Convertible Securities

On December 15, 2016, each U.S.$100 notional amount of the Mandatory Convertible Securities that had been

issued in December 2014 was converted to 8.3077 of FCA’s common shares based upon the average volume

weighted average prices of FCA common shares on the New York Stock Exchange during the 20 consecutive

trading day period beginning November 14, 2016 and ending on December 12, 2016 (inclusive), which resulted in the

issuance of total of 238,846,375 FCA common shares.

Other reserves:

Other reserves comprised the following:

a legal reserve of €12,831 million at December31, 2018 (€11,594 million at December31, 2017) determined in

accordance to the Dutch law and primarily relating to development expenditures capitalized by subsidiaries and

their earnings, subject to certain restrictions on distributions to FCA;

capital reserves of €5,920 million at December31, 2018 (€5,817 million at December31, 2017);

retained earnings, after the separation of the legal reserve, of positive €1,836 million (negative €333 million at

December31, 2017); and

proﬁt attributable to owners of the parent of €3,608 million for the year ended December31, 2018 (€3,491 million

for the year ended December31, 2017).

256

2018

ANNUAL REPORT

Consolidated

Financial Statements

Notes to the Consolidated

Financial Statements

Other comprehensive income

Other comprehensive income was as follows:

Years ended December 31,

2018 2017 2016

(€ million)

Items that will not be reclassiﬁed to the Consolidated Income Statement in subsequent

periods:

(Losses)/gains on remeasurement of deﬁned beneﬁt plans € 317 € (72) € 616

Share of gains/(losses) on remeasurement of deﬁned beneﬁt plans for equity method

investees — 2 (5)

Gains/(losses) on equity instruments measured at fair value through other

comprehensive income (4) 14 15

Items relating to discontinued operations 1 8 (32)

Total Items that will not be reclassiﬁed to the Consolidated Income Statement (B1) 314 (48) 594

Items that may be reclassiﬁed to the Consolidated Income Statement in subsequent

periods:

Gains/(losses) on cash ﬂow hedging instruments arising during the period 99 47 (25)

Gains/(losses) on cash ﬂow hedging instruments reclassiﬁed to the Consolidated

Income Statement (108) 82 (215)

Total Gains/(losses) on cash ﬂow hedging instruments (9) 129 (240)

Foreign exchange gains/(losses) 126 (1,982) 509

Share of Other comprehensive income/(loss) for equity method investees arising during

the period (77) (94) (97)

Share of Other comprehensive income/(loss) for equity method investees reclassiﬁed to

the Consolidated Income Statement (26) (27) (25)

Total Share of Other comprehensive (loss)/income for equity method investees (103) (121) (122)

Items relating to discontinued operations (91) 58 (60)

Total Items that may be reclassiﬁed to the Consolidated Income Statement (B2) (77) (1,916) 87

Total Other comprehensive income (B1)+(B2)=(B) 237 (1,964) 681

Tax effect (82) (30) (196)

Tax effect - discontinued operations 1 (1) 4

Total Other comprehensive income, net of tax € 156 € (1,995) € 489

Gains and losses arising from the remeasurement of deﬁned beneﬁt plans primarily include actuarial gains and losses

arising during the period, the return on plan assets (net of interest income recognized in the Consolidated Income

Statement) and any changes in the effect of the asset ceiling. These gains and losses are offset against the related

deﬁned beneﬁt plan’s net liabilities or assets (Note 19, Employee benefits liabilities).

2018

ANNUAL REPORT

257

The following table summarizes the tax effect relating to Other comprehensive income:

Years ended December 31,

2018 2017 2016

Pre-tax

balance

Tax

income/

(expense)

Net

balance

Pre-tax

balance

Tax

income/

(expense)

Net

balance

Pre-tax

balance

Tax

income/

(expense)

Net

balance

(€ million)

(Losses)/gains on

remeasurement of deﬁned

beneﬁt plans € 317 € (76) € 241 € (72) € (18) € (90) € 616 € (265) € 351

Gains/(Losses) on cash ﬂow

hedging instruments (9) (6) (15) 129 (12) 117 (240) 69 (171)

Gains/(losses) on equity

instruments measured at

fair value through other

comprehensive income (4) — (4) 14 — 14 15 — 15

Foreign exchange (losses)/

gains 126 — 126 (1,982) — (1,982) 509 — 509

Share of Other

comprehensive income/(loss)

for equity method investees (103) — (103) (119) — (119) (127) — (127)

Items relating to

discontinued operations (90) 1 (89) 66 (1) 65 (92) 4 (88)

Total Other comprehensive

income € 237 € (81) € 156 € (1,964) € (31) € (1,995) € 681 € (192) € 489

Policies and processes for managing capital

The objectives identiﬁed by the Group for managing capital are to create value for shareholders as a whole, safeguard

business continuity and support the growth of the Group. As a result, the Group endeavors to maintain an adequate

level of capital that, at the same time, enables it to obtain a satisfactory economic return for its shareholders and

guarantee economic access to external sources of funds, including by means of achieving an adequate credit rating.

The Group constantly monitors the ratio between debt and equity, particularly the level of net debt and the generation of

cash from its industrial activities. In order to reach these objectives, the Group continues to aim for improvement in the

proﬁtability of its operations. Furthermore, the Group may sell part of its assets to reduce the level of its debt, while the Board

of Directors may make proposals to FCA shareholders at a general meeting of FCA shareholders to reduce or increase

share capital or, where permitted by law, to distribute reserves. The Group may also make purchases of treasury shares,

without exceeding the limits authorized at a general meeting of FCA shareholders, under the same logic of creating value,

compatible with the objectives of achieving ﬁnancial equilibrium and an improvement in the Group’s rating.

The FCA Board intends to recommend to the upcoming Annual General Meeting of Shareholders an annual

ordinary dividend distribution to holders of FCA common shares of €0.65 per common share (a total distribution of

approximately €1 billion). The distribution, from the Company’s 2018 proﬁts, will be subject to the approval by the

Annual General Meeting of Shareholders, which is scheduled to be held on April 12, 2019.

If the dividend proposal is approved by shareholders, FCA common shares will be traded ex-dividend as of April 23,

2019 at the NYSE and the MTA. In compliance with the listing requirements of the NYSE and the MTA, the dividend

record date will be April 24, 2019. The payment of the dividend is expected to be during May 2019.

No dividends have been declared or paid by FCA in the preceding ﬁve years. Proposed dividends on ordinary shares

are not recognized as a liability as at December 31, 2018.

258

2018

ANNUAL REPORT

Consolidated

Financial Statements

Notes to the Consolidated

Financial Statements

The FCA loyalty voting structure

The purpose of the loyalty voting structure is to reward long-term ownership of FCA common shares and to promote

stability of the FCA shareholder base by granting long-term FCA shareholders with special voting shares to which

one voting right is attached in addition to the one granted by each FCA common share that they hold. In connection

with the Merger, FCA issued 408,941,767 special voting shares with a nominal value of €0.01 each to those eligible

shareholders of Fiat who had elected to participate in the loyalty voting structure upon completion of the Merger in

addition to FCA common shares. In addition, an FCA shareholder may, at any time, elect to participate in the loyalty

voting structure by requesting that FCA register all or some of the number of FCA common shares held by such

an FCA shareholder in the Loyalty Register. Only a minimal dividend accrues to the special voting shares, which is

allocated to a separate special dividend reserve, and they shall not carry any entitlement to any other reserve of FCA.

Having only immaterial economic entitlements, the special voting shares do not impact earnings per share.

27. EARNINGS PER SHARE

Basic earnings per share

The basic earnings per share for the years ended December 31, 2018, 2017 and 2016 was determined by dividing the

Net proﬁt attributable to the equity holders of the parent by the weighted average number of shares outstanding during

each period.

The following tables provide the amounts used in the calculation of basic earnings per share:

Years ended December 31,

2018 2017 2016

Net proﬁt attributable to owners of the parent

million

€ 3,608 € 3,491 € 1,803

Weighted average number of shares outstanding

thousand

1,548,439 1,535,988 1,513,019

Basic earnings per share

€

€ 2.33 € 2.27 € 1.19

Years ended December 31,

2018 2017 2016

Net proﬁt from continuing operations attributable to owners of the parent

million

€ 3,323 € 3,281 € 1,708

Weighted average number of shares outstanding

thousand

1,548,439 1,535,988 1,513,019

Basic earnings per share from continuing operations

€

€ 2.15 € 2.14 € 1.13

Years ended December 31,

2018 2017 2016

Net proﬁt from discontinued operations attributable to owners of the parent

million

€ 285 € 210 € 95

Weighted average number of shares outstanding

thousand

1,548,439 1,535,988 1,513,019

Basic earnings per share from discontinued operations

€

€ 0.18 € 0.14 € 0.06

Diluted earnings per share

In order to calculate the diluted earnings per share, the weighted average number of shares outstanding was

increased to take into consideration the theoretical effect of potential common shares that would be issued for the

restricted and performance share units outstanding and unvested at December 31, 2018, 2017 and 2016 (Note 18,

Share-based compensation), as determined using the treasury stock method.

For the year ended December 31, 2017, the theoretical effect that would arise if some of the PSU NI awards granted

in 2015 and 2016 and some of the RSU awards granted in 2017 (refer to Note 18, Share-based compensation) were

exercised was not taken into consideration in the calculation of diluted earnings per share as this would have had an

anti-dilutive effect. There were no instruments excluded from the calculation of diluted earnings per share because of

an anti-dilutive impact for the years ended December 31, 2018 and 2016.

2018

ANNUAL REPORT

259

The following tables provide the amounts used in the calculation of diluted earnings per share:

Years ended December 31,

2018 2017 2016

Net proﬁt attributable to owners of the parent

million

€ 3,608 € 3,491 € 1,803

Weighted average number of shares outstanding

thousand

1,548,439 1,535,988 1,513,019

Number of shares deployable for share-based compensation

thousand

19,400 20,318 13,357

Weighted average number of shares outstanding for diluted earnings per share

thousand

1,567,839 1,556,306 1,526,376

Diluted earnings per share

€

€ 2.30 € 2.24 € 1.18

Years ended December 31,

2018 2017 2016

Net proﬁt from continuing operations attributable to owners of the parent

million

€ 3,323 € 3,281 € 1,708

Weighted average number of shares outstanding for diluted earnings per share

thousand

1,567,839 1,556,306 1,526,376

Diluted earnings per share from continuing operations

€

€ 2.12 € 2.11 € 1.12

Years ended December 31,

2018 2017 2016

Net proﬁt from discontinued operations attributable to owners of the parent

million

€ 285 € 210 € 95

Weighted average number of shares outstanding for diluted earnings per share

thousand

1,567,839 1,556,306 1,526,376

Diluted earnings per share from discontinued operations

€

€ 0.18 € 0.13 € 0.06

260

2018

ANNUAL REPORT

Consolidated

Financial Statements

Notes to the Consolidated

Financial Statements

28. SEGMENT REPORTING

Reportable segments reﬂect the operating segments of the Group that are regularly reviewed by the Chief Executive

Ofﬁcer (the “chief operating decision maker” as deﬁned under IFRS 8 – Operating Segments) for making strategic

decisions, allocating resources and assessing performance and that exceed the quantitative thresholds provided in

IFRS 8, or whose information is considered useful for the users of the ﬁnancial statements. The Group’s reportable

segments include the four regional mass-market vehicle operating segments (NAFTA, LATAM, APAC and EMEA) and

the Maserati global luxury brand operating segment, which are described as follows:

NAFTA designs, engineers, develops, manufactures and distributes vehicles. NAFTA mainly earns its revenues from

the sale of vehicles under the Chrysler, Jeep, Dodge, Ram, Fiat and Alfa Romeo brand names and from sales of the

related parts and accessories in the United States, Canada, Mexico and Caribbean islands.

LATAM designs, engineers, develops, manufactures and distributes vehicles. LATAM mainly earns its revenues

from the sale of passenger cars and light commercial vehicles and related spare parts under the Fiat and Jeep

brand names in South and Central America as well as from the distribution of the Chrysler, Dodge and Ram brand

cars in the same region. In addition, the segment provides ﬁnancial services to the dealer network in Brazil and to

the dealer network and retail customers in Argentina.

APAC mainly earns its revenues from the distribution and sale of cars and related spare parts under the Abarth, Alfa

Romeo, Chrysler, Dodge, Fiat and Jeep brands mostly in China, Japan, Australia, South Korea and India. These

activities are carried out through both subsidiaries and joint ventures. In addition, the segment provides ﬁnancial

services to the dealer network and retail customers in China.

EMEA designs, engineers, develops, manufactures and distributes vehicles. EMEA mainly earns its revenues from

the sale of passenger cars and light commercial vehicles under the Fiat, Alfa Romeo, Lancia, Abarth, Jeep and

Fiat Professional brand names, the sale of the related spare parts in Europe, Middle East and Africa, and from the

distribution of the Chrysler, Dodge and Ram brand vehicles in these areas. In addition, the segment provides ﬁnancial

services related to the sale of cars and light commercial vehicles in Europe, primarily through the FCA Bank joint

venture and Fidis S.p.A., a fully owned captive ﬁnance company that is mainly involved in the factoring business.

Maserati designs, engineers, develops, manufactures and distributes vehicles. Maserati earns its revenues from the

sale of luxury vehicles under the Maserati brand.

Transactions among the mass-market vehicle segments generally are presented on a “where-sold” basis, which

reﬂects the proﬁt/(loss) on the ultimate sale to third party customer within the segment. This presentation generally

eliminates the effect of the legal entity transfer price within the segments. Revenues of the other segments, aside

from the mass-market vehicle segments, are those directly generated by or attributable to the segment as the result

of its usual business activities and include revenues from transactions with third parties as well as those arising from

transactions with segments, recognized at normal market prices.

The results of our Magneti Marelli business were previously reported within the Components segment along with our

industrial automation systems design and production business and our cast iron and aluminum components business.

Following the classiﬁcation of Magneti Marelli as a discontinued operation for the years ended December 31, 2018

and 2017 (refer to Note 3, Scope of consolidation), the remaining activities within Components segment are no longer

considered a separate reportable segment as deﬁned by IFRS 8 and are reported within “Other activities” below.

Other activities include the results of our industrial automation systems design and production business and our cast iron

and aluminum components business, as well as the activities and businesses that are not operating segments under IFRS

8 – Operating Segments. In addition, Unallocated items and eliminations include consolidation adjustments, eliminations, as

well as costs related to the launch of the Alfa Romeo Giulia platform which were not allocated to the mass-market vehicle

segments due to the limited number of shipments. Financial income and expenses and income taxes are not attributable to

the performance of the segments as they do not fall under the scope of their operational responsibilities.

Adjusted Earnings Before Interest and Taxes (“Adjusted EBIT”) is the measure used by the chief operating decision maker

to assess performance, allocate resources to the Group’s operating segments and to view operating trends, perform

analytical comparisons and benchmark performance between periods and among the segments. Adjusted EBIT excludes

certain adjustments from Net proﬁt from continuing operations including gains/(losses) on the disposal of investments,

2018

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261

restructuring, impairments, asset write-offs and unusual income/(expenses) that are considered rare or discrete events that

are infrequent in nature, and also excludes Net ﬁnancial expenses and Tax expense/(beneﬁt). See below for a reconciliation

of Net proﬁt from continuing operations, which is the most directly comparable measure included in our Consolidated

Income Statement, to Adjusted EBIT. Operating assets are not included in the data reviewed by the chief operating decision

maker, and as a result and as permitted by IFRS 8 – Operating Segments, the related information is not provided.

The following tables summarize selected ﬁnancial information by segment for the years ended December 31, 2018,

2017 and 2016:

Mass-Market Vehicles

Maserati

Other

activities

Unallocated

items &

eliminations FCA2018 NAFTA LATAM APAC EMEA

(€ million)

Revenues € 72,384 € 8,152 € 2,703 € 22,815 € 2,663 € 2,888 € (1,193) € 110,412

Revenues from transactions

with other segments (31) (10) (57) (101) (18) (976) 1,193 —

Revenues from third party

customers € 72,353 € 8,142 € 2,646 € 22,714 € 2,645 € 1,912 € — € 110,412

Net proﬁt from continuing

operations € 3,330

Tax expense € 778

Net ﬁnancial expenses € 1,056

Adjustments:

Charge for U.S. diesel

emission matters

(1)

€ — € — € — € — € — € — € 748 € 748

Impairment expense and

supplier obligations

(2)

€ 16 € 8 € 11 € 307 € — € — € 11 € 353

China inventory impairment

(3)

€ — € — € 129 € — € — € — € — € 129

Costs for recall, net of

recovery - airbag inﬂators

(4)

€ 114 € — € — € — € — € — € — € 114

U.S. special bonus payment

(5)

€ 109 € — € — € — € — € 2 € — € 111

Restructuring costs, net of

reversals

(6)

€ — € (28) € — € 123 € — € 8 € — € 103

Employee beneﬁts

settlement losses

(7)

€ 92 € — € — € — € — € — € — € 92

Port of Savona (Italy) ﬁre and

ﬂood

(8)

€ — € — € — € 2 € 11 € 30 € — € 43

(Recovery of)/costs for recall

- contested with supplier

(9)

€ (50) € — € — € — € — € — € — € (50)

NAFTA capacity realignment

(10)

€ (60) € — € — € — € — € — € — € (60)

Brazil indirect tax - reversal of

liability/recognition of credits

(11)

€ — € (54) € — € — € — € (18) € — € (72)

Other € 1 € — € — € 30 € — € 12 € 20 € 63

Adjusted EBIT € 6,230 € 359 € (296) € 406 € 151 € (40) € (72) € 6,738

Share of proﬁt of equity method

investees € — € — € (67) € 284 € — € 22 € 1 € 240

(1)

A provision of €748 million was recognized for costs related to final settlements reached on civil, environmental and consumer claims related

to U.S. diesel emissions matters. Refer to Note 25, Guarantees granted, commitments and contingent liabilities;

(2)

Impairment expense of €297 million and supplier obligations of €56 million, primarily in EMEA, resulting from changes in product plans in

connection with the 2018-2022 business plan;

(3)

Impairment of inventory in connection with acceleration of new emissions standards in China and slower than expected sales. Refer to Note

14, Inventories;

(4)

Accrual in relation to costs for recall campaigns related to Takata airbag inflators, net of recovery;

(5)

Special bonus payment of $2,000 to approximately 60,000 employees in NAFTA as a result of the U.S. Tax Cuts and Jobs Act;

(6)

Restructuring costs primarily consisting of €123 million in EMEA, partially offset by the reversal of €28 million of previously recorded restructuring

costs in LATAM;

(7)

Charges arising on settlement of a portion of a supplemental retirement plan and an annuity buyout in NAFTA. Refer to Note 19, Employee

benefits liabilities;

(8)

Costs in relation to the Port of Savona (Italy) flood and fire;

(9)

Recovery of amounts accrued in 2016 in relation to costs for recall contested with a supplier;

(10)

Reduction of costs in relation to the NAFTA capacity realignment which were accrued in 2015;

(11)

Credits recognized related to indirect taxes in Brazil.

262

2018

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Consolidated

Financial Statements

Notes to the Consolidated

Financial Statements

Mass-Market Vehicles

Maserati

Other

activities

Unallocated

items &

eliminations FCA2017 NAFTA LATAM APAC EMEA

(€ million)

Revenues € 66,094 € 8,004 € 3,250 € 22,700 € 4,058 € 3,248 € (1,624) € 105,730

Revenues from transactions

with other segments (47) (10) (32) (116) (21) (1,398) 1,624 —

Revenues from third party

customers € 66,047 € 7,994 € 3,218 € 22,584 € 4,037 € 1,850 € — € 105,730

Net proﬁt from continuing

operations € 3,291

Tax expense € 2,588

Net ﬁnancial expenses € 1,345

Adjustments:

Reversal of a Brazilian

indirect tax liability

(1)

€ — € — € — € — € — € — € — € (895)

Impairment expense

(2)

€ — € 77 € — € 142 € — € — € — € 219

Recall campaigns - airbag

inﬂators

(3)

€ 29 € 73 € — € — € — € — € — € 102

Restructuring costs/(reversal)

(4)

€ (1) € 75 € — € — € — € 11 € 1 € 86

Deconsolidation of

Venezuela

(5)

€ — € 42 € — € — € — € — € — € 42

NAFTA capacity

realignment

(6)

€ (38) € — € — € — € — € — € — € (38)

Tianjin (China) port explosion,

net of insurance recoveries

(7)

€ — € — € (68) € — € — € — € — € (68)

Gain on disposal of

investments

(8)

€ — € — € — € — € — € (27) € (49) € (76)

Other € (1) € — € 1 € — € — € 12 € 1 € 13

Adjusted EBIT € 5,227 € 151 € 172 € 735 € 560 € (98) € (138) € 6,609

Share of proﬁt of equity method

investees € — € — € 75 € 306 € — € 18 € 1 € 400

(1)

As this liability related to the Group’s Brazilian operations in multiple segments, it was not attributed to the results of the related segments;

(2)

Impairment expense in EMEA relates to changes in global product portfolio. Impairment expense in LATAM relates to product portfolio changes

and the impairment of certain real estate assets in Venezuela, in the second quarter of 2017 due to the continued deterioration of the economic

conditions;

(3)

Refer to Note 20, Provisions and Note 25, Guarantees granted, commitments and contingent liabilities;

(4)

Primarily related to workforce restructuring costs related to LATAM;

(5)

Refer to Note 3, Scope of consolidation;

(6)

Income related to adjustments to reserves for the NAFTA capacity realignment plan;

(7)

Insurance recoveries related to losses incurred in connection with the explosions at the Port of Tianjin (China) in August 2015 are excluded from

Adjusted EBIT to the extent the insured loss to which the recovery relates was excluded from Adjusted EBIT. Insurance recoveries are included

in Adjusted EBIT to the extent they relate to costs, increased incentives or business interruption losses that were included in Adjusted EBIT;

(8)

Refer to Note 3, Scope of consolidation.

2018

ANNUAL REPORT

263

Mass-Market Vehicles

Maserati

Other

activities

Unallocated

items &

eliminations FCA2016 NAFTA LATAM APAC EMEA

(€ million)

Revenues € 69,094 € 6,197 € 3,662 € 21,860 € 3,479 € 3,116 € (1,610) € 105,798

Revenues from transactions

with other segments (40) (39) (24) (127) (9) (1,371) 1,610 —

Revenues from third party

customers € 69,054 € 6,158 € 3,638 € 21,733 € 3,470 € 1,745 € — € 105,798

Net proﬁt from continuing

operations € 1,713

Tax expense € 1,237

Net ﬁnancial expenses € 1,858

Adjustments:

Recall campaigns - airbag

inﬂators

(1)

€ 414 € — € — € — € — € — € — € 414

Costs for recall, net of

supplier recoveries -

contested with supplier

(2)

€ 132 € — € — € — € — € — € — € 132

NAFTA capacity realignment

(3)

€ 156 € — € — € — € — € — € — € 156

Tianjin (China) port explosions,

net of insurance recoveries

(4)

€ — € — € (55) € — € — € — € — € (55)

Currency devaluation € — € 19 € — € — € — € — € — € 19

Restructuring costs/(reversal)

(5)

€ (10) € 68 € — € 5 € — € 5 € — € 68

Impairment expense

(6)

€ — € 52 € 109 € 7 € — € 9 € — € 177

Gains on disposal of

investments € — € — € — € — € — € (13) € — € (13)

Other € (25) € 3 € (10) € — € — € (1) € 7 € (26)

Adjusted EBIT € 5,133 € 5 € 105 € 540 € 339 € (175) € (267) € 5,680

Share of proﬁt of equity method

investees € 2 € — € 30 € 272 € — € 3 € 1 € 308

(1)

Refer to Note 20, Provisions and Note 25, Guarantees granted, commitments and contingent liabilities.;

(2)

Refer to Note 20, Provisions.;

(3)

Refer to Note 5, Research and development costs and Note 11, Property plant and equipment;

(4)

Insurance recoveries related to losses incurred in connection with the explosions at the Port of Tianjin (China) in August 2015 are excluded

from Adjusted EBIT to the extent the insured loss to which the recovery relates was excluded from Adjusted EBIT. Insurance recoveries are

included in Adjusted EBIT to the extent they relate to costs, increased incentives or business interruption losses that were included in Adjusted

EBIT. Through December 31, 2016, no significant insurance recoveries related to Tianjin have been recognized in Adjusted EBIT;

(5)

Restructuring costs within LATAM and Components primarily relate to cost reduction initiatives to right-size to market volume in Brazil;

(6)

Refer to Note 5, Research and development costs. and Note 11, Property plant and equipment.

Information about geographical area

The following table summarizes the non-current assets (other than ﬁnancial instruments, deferred tax assets and post-

employment beneﬁts assets) attributed to certain geographic areas:

At December 31

2018 2017

(€ million)

North America € 35,493 € 34,099

Italy 11,478 12,458

Brazil 4,125 5,137

Poland 937 1,151

Serbia 571 639

Other countries 1,456 2,536

Total Non-current assets (other than ﬁnancial instruments, deferred tax assets

and post-employment beneﬁts assets) € 54,060 € 56,020

264

2018

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Consolidated

Financial Statements

Notes to the Consolidated

Financial Statements

29. EXPLANATORY NOTES TO THE CONSOLIDATED STATEMENT OF CASH FLOWS

Non-cash items

For the year ended December31, 2018, Other non-cash items of €129 million primarily included €297 million of

impairments, partially offset by €240 million related to the revaluation of investments accounted for by using the equity

method and other amounts that were not individually material.

For the year ended December 31, 2017, Other non-cash items of €(197) million primarily included €400 million

related to the revaluation of investments accounted for by using the equity method, partially offset by €219 million of

impairments and other amounts that were not individually material.

For the year ended December 31, 2016, Other non-cash items of €87 million primarily included €177 million of

impairments, which were partially offset by other amounts that were not individually material.

Operating activities

For the year ended December31, 2018, net cash from operating activities of €9,948 million was primarily the result

of: (i) net proﬁt from continuing operations of €3,330 million adjusted to add back €5,507 million for depreciation

and amortization expense; in addition to (ii) a net increase of €913 million in provisions primarily due to a provision of

€748 million recognized for costs related to ﬁnal settlements reached on civil, environmental and consumer claims

related to U.S. diesel emissions matters; (iii) an increase of €457 million in net deferred tax assets, mainly due to

increased deferred tax liabilities in NAFTA; and (iv) cash ﬂow from operating activities of discontinued operations for

€484 million. These positive impacts were partially offset by negative effect of the change in working capital of €1,106

million primarily driven by (a) decrease in trade payables of €1,240 million related to lower production volumes in

EMEA in December 2018 compared to the same month in 2017 in addition to lower capital expenditure, (b) decrease

in other payables net of receivables of €1,284 million mainly as a result of higher indirect tax receivable in LATAM,

decreased income tax payable in NAFTA and lower advances from customers in LATAM and EMEA, and (c) decrease

in inventories of €1,399 million due to inventory management actions across all the regions.

For the year ended December 31, 2017 the €1,596 million increase in inventories related to ramp-up of new models at

year end, including the all-new Alfa Romeo Stelvio and the new Jeep Wrangler, as well as volume increases in LATAM

and Maserati. Theincrease in trade payables of €937 million primarily related to increased production volumes in

NAFTA and LATAM in the fourth quarter of 2017 as compared to the same period in 2016.

For the year ended December 31, 2016, the net increase of €1,453 million in provisions was mainly due to the

increase in the warranty provision of €414 million in NAFTA for recall campaigns related to an industry wide recall for

airbag inﬂators resulting from parts manufactured by Takata, an increase in accrued sales incentives primarily related

to NAFTA and EMEA, as well as estimated net costs of €132 million associated with a recall for which costs are

being contested with a supplier. In addition, the €494 million increase in inventories primarily related to the increased

production of new vehicle models in EMEA and the €729 million increase in trade payables mainly related to increased

production levels in EMEA, which was partially offset by reduced activity in LATAM and the effect of localized Jeep

production in China. Furthermore, the change in other payables and receivables of 280 million primarily reﬂected the

net payment of taxes and deferred expenses.

Financing activities

For the year ended December31, 2018, net cash used in ﬁnancing activities of €2,785 million was primarily the result

of; (i) the voluntary prepayment in November 2018 of the outstanding principal and accrued interest of U.S. $1,009

million (€893 million) of FCA US’s tranche B term loan maturing December 31, 2018 (the “Tranche B Term Loan due

2018”); and (ii) the repayment at maturity of two notes under the Medium Term Note Programme (“MTN Programme”,

previously referred to as the Global Medium Term Note Programme, or “GMTN” Programme), one with a principal

amount of €1,250 million and one with a principal amount of €600 million.

2018

ANNUAL REPORT

265

For the year ended December 31, 2017, net cash used in ﬁnancing activities was primarily the result of: (i) the voluntary

prepayment in February 2017 of the outstanding principal and accrued interest of U.S.$1,826 million (€1,721 million)

of FCA US’s Tranche B Term Loan due 2017; (ii) the repayment of three notes at maturity under the MTN Programme,

one with a principal amount of €850 million, one with a principal amount of €1,000 million and one with a principal

amount of CHF450 million (€385 million), as described in Note 21, Debt; and (iii) the repayment of other long-term

debt, net of proceeds, of a principal amount of €889 million.

For the year ended December 31, 2016, net cash used in ﬁnancing activities was primarily the result of the (i) the

repayment at maturity of three notes issued under the MTN Programme, two of which were for an aggregate principal

amount of €2,000 million and one for a principal amount of CHF 400 million (€373 million) as described in Note 21,

Debt and (ii) the repayment of other long-term debt for a total of €4,605 million, which included (a) the voluntary

prepayments of principal of the FCA US Tranche B Term Loans of U.S.$2.0 billion (€1.8 billion) as described in Note

21, Debt, (b) the payment of the ﬁnancial liability related to the Mandatory Convertible Securities of €213 million upon

their conversion to FCA shares and (c) repayments at maturity of other long-term debt of €2,605 million primarily in

Brazil, which were partially offset by (iii) the issuance of a new note under the MTN Programme for a principal amount

of €1,250 million and (iv) proceeds from other long-term debt for a total of €1,309 million, which included the proceeds

from the €250 million loan entered into with the EIB in December 2016 as described in Note 21, Debt.

The following is a reconciliation of liabilities arising from ﬁnancing activities for the year ended December 31, 2018 and 2017:

Years ended December 31

2018 2017

(€ million)

Total Debt at January 1 € 17,971 € 24,048

Derivative (assets)/liabilities and collateral at January 1 (206) 150

Total Liabilities from ﬁnancing activities at January 1 € 17,765 € 24,198

Cash ﬂows € (2,795) € (4,470)

Foreign exchange effects € (226) € (1,311)

Fair value changes € (136) € (286)

Changes in scope of consolidation € (3) € (83)

Transfer to (Assets)/Liabilities held for sale € (177) € —

Other changes € (51) € (283)

Total Liabilities from ﬁnancing activities at December 31 € 14,377 € 17,765

Derivative (assets)/liabilities and collateral at December 31 (151) (206)

Total Debt at December 31 € 14,528 € 17,971

Interest expense and taxes paid

During the years ended December 31, 2018, 2017 and 2016, the Group paid interest of €1,024 million and received

interest of €308 million, €1,190 million and €299 million, and €1,676 million and €370 million, respectively. Amounts

indicated are also inclusive of interest rate differentials paid or received on interest rate derivatives.

During the years ended December 31, 2018, 2017 and 2016, the Group made income tax payments, net of refunds,

totaling €750 million, €533 million and €622 million, respectively.

266

2018

ANNUAL REPORT

Consolidated

Financial Statements

Notes to the Consolidated

Financial Statements

30. QUALITATIVE AND QUANTITATIVE INFORMATION ON FINANCIAL RISKS

The Group is exposed to the following ﬁnancial risks connected with its operations:

credit risk, principally arising from its normal commercial relations with ﬁnal customers and dealers, and its ﬁnancing

activities;

liquidity risk, with particular reference to the availability of funds and access to the credit market and to ﬁnancial

instruments in general;

ﬁnancial market risk (principally relating to exchange rates, interest rates and commodity prices), since the Group

operates at an international level in different currencies and uses ﬁnancial instruments which generate interest. The

Group is also exposed to the risk of changes in the price of certain commodities and of certain listed shares.

These risks could signiﬁcantly affect the Group’s ﬁnancial position and results and for this reason, the Group

systematically identiﬁes and monitors these risks in order to detect potential negative effects in advance and take the

necessary action to mitigate them, primarily through its operating and ﬁnancing activities and if required, through the

use of derivative ﬁnancial instruments in accordance with established risk management policies.

Financial instruments held by the funds that manage pension plan assets are not included in this analysis (refer to Note

19, Employee benefits liabilities).

The following section provides qualitative and quantitative disclosures on the effect that these risks may have upon the

Group. The quantitative data reported in the following does not have any predictive value, in particular the sensitivity

analysis on ﬁnance market risks does not reﬂect the complexity of the market or the reaction which may result from

any changes that are assumed to take place.

Credit risk

Overall, the credit risk regarding the Group’s trade receivables and receivables from ﬁnancing activities is concentrated

mainly in NAFTA, EMEA and LATAM.

The maximum credit risk to which the Group is potentially exposed at December31, 2018 is represented by the

carrying amounts of ﬁnancial assets in the ﬁnancial statements as discussed in Note 15, Trade, other receivables and

tax receivables and the nominal value of the guarantees provided on liabilities and commitments to third parties as

discussed in Note 25, Guarantees granted, commitments and contingent liabilities.

The Group’s exposure to credit risk is inﬂuenced mainly by the individual characteristics of each counterparty. The Group

monitors these exposures and establishes credit lines with single or homogeneous categories of counterparties.

Dealers and ﬁnal customers for which the Group provides ﬁnancing are subject to speciﬁc assessments of their

creditworthiness under a detailed scoring system. To mitigate this risk, the Group could obtain ﬁnancial and non-

ﬁnancial guarantees. These guarantees are further strengthened where possible by reserve of title clauses on ﬁnanced

vehicle sales to the sales network made by Group ﬁnancial service companies and on vehicles assigned under ﬁnance

and operating lease agreements.

Receivables from ﬁnancing activities amounting to €3,140 million at December31, 2017, contained balances totaling

€5 million, which have been written down on an individual basis. Of the remainder, balances totaling €46 million were

past due by up to one month, while balances totaling €21 million were past due by more than one month. In the event

of installment payments, even if only one installment is overdue, the entire receivable balance is classiﬁed as overdue.

Trade receivables and other receivables amounting to €5,413 million at December31, 2017 contained balances totaling

€15 million, which have been written down on an individual basis. Of the remainder, balances totaling €271 million were

past due by up to one month, while balances totaling €233 million were past due by more than one month.

For further information regarding the exposure to credit risk and ECLs of Trade receivables, other receivables and

ﬁnancial receivables at December31, 2018, refer to Note 15, Trade, other receivables and tax receivables.

Even though our current securities and Cash and cash equivalents consist of balances spread across various primary

national and international banking institutions and money market funds that are measured at fair value, there was no

exposure to sovereign debt securities at December31, 2018 which might lead to signiﬁcant risk of repayment.

2018

ANNUAL REPORT

267

Liquidity risk

Liquidity risk is the risk the Group is unable to obtain the funds needed to carry out its operations and meet its

obligations. Any actual or perceived limitations on the Group’s liquidity may affect the ability of counterparties to do

business with the Group or may require additional amounts of cash and cash equivalents to be allocated as collateral

for outstanding obligations.

The continuation of challenging economic conditions in the markets in which the Group operates and the uncertainties

that characterize the ﬁnancial markets, necessitate special attention to the management of liquidity risk. In that sense,

measures taken to generate funds through operations and to maintain a conservative level of available liquidity are

important factors for ensuring operational ﬂexibility and addressing strategic challenges over the next few years.

The main factors that determine the Group’s liquidity situation are the funds generated by or used in operating and

investing activities, the debt lending period and its renewal features or the liquidity of the funds employed and market

terms and conditions.

The Group has adopted a series of policies and procedures whose purpose is to optimize the management of funds

and to reduce liquidity risk as follows:

centralizing the management of receipts and payments where it may be economical in the context of the local civil,

currency and ﬁscal regulations of the countries in which the Group is present;

maintaining a conservative level of available liquidity;

diversifying the means by which funds are obtained and maintaining a continuous and active presence in the capital

markets;

obtaining adequate credit lines; and

monitoring future liquidity on the basis of business planning.

The Group manages liquidity risk by monitoring cash ﬂows and keeping an adequate level of funds at its disposal. The

operating cash management and liquidity investment of the Group are centrally coordinated in the Group’s treasury

companies, with the objective of ensuring effective and efﬁcient management of the Group’s funds. These companies

obtain funds in the ﬁnancial markets from various funding sources.

Certain notes issued by FCA and its treasury subsidiaries include covenants which may be affected by circumstances

related to certain subsidiaries;in particular, there are cross-default clauses which may accelerate repayments in the

event that such subsidiaries fail to pay certain of their debt obligations.

Details of the repayment structure of the Group’s ﬁnancial assets and liabilities are provided in Note 15, Trade, other

receivables and tax receivables, Note 22, Other liabilities and Tax payables and in Note 21, Debt. Details of the

repayment structure of derivative ﬁnancial instruments are provided in Note 16, Derivative financial assets and liabilities.

The Group believes that the Group’s total available liquidity, in addition to the funds that will be generated from

operating and ﬁnancing activities, will enable the Group to satisfy the requirements of its investing activities and

working capital needs, fulﬁll its obligations to repay its debt at the natural due dates and ensure an appropriate level of

operating and strategic ﬂexibility.

Financial market risks

Due to the nature of our business, the Group is exposed to a variety of market risks, including foreign currency

exchange rate risk, interest rate risk and commodity price risk.

The Group’s exposure to foreign currency exchange rate risk arises both in connection with the geographical

distribution of the Group’s industrial activities compared to the markets in which it sells its products, and in relation to

the use of external borrowing denominated in foreign currencies.

The Group’s exposure to interest rate risk arises from the need to fund industrial and ﬁnancial operating activities and the

necessity to deploy surplus funds. Changes in market interest rates may have the effect of either increasing or decreasing

the Group’s Net proﬁt, thereby indirectly affecting the costs and returns of ﬁnancing and investing transactions.

268

2018

ANNUAL REPORT

Consolidated

Financial Statements

Notes to the Consolidated

Financial Statements

The Group’s exposure to commodity price risk arises from the risk of changes in the price of certain raw materials and

energy used in production. Changes in the price of raw materials could have a signiﬁcant effect on the Group’s results

by indirectly affecting costs and product margins.

These risks could signiﬁcantly affect the Group’s ﬁnancial position and results and for this reason, these risks are

systematically identiﬁed and monitored, in order to detect potential negative effects in advance and take the necessary

actions to mitigate them, primarily through its operating and ﬁnancing activities and if required, through the use of

derivative ﬁnancial instruments in accordance with its established risk management policies.

The Group’s policy permits derivatives to be used only for managing the exposure to ﬂuctuations in foreign currency

exchange rates and interest rates as well as commodities prices connected with future cash ﬂows and assets and

liabilities, and not for speculative purposes.

The Group utilizes derivative ﬁnancial instruments designated as fair value hedges mainly to hedge:

the foreign currency exchange rate risk on ﬁnancial instruments denominated in foreign currency; and

the interest rate risk on ﬁxed rate loans and borrowings.

The instruments used for these hedges are mainly foreign currency forward contracts, interest rate swaps and

combined interest rate and foreign currency ﬁnancial instruments.

The Group uses derivative ﬁnancial instruments as cash ﬂow hedges for the purpose of pre-determining:

the exchange rate at which forecasted transactions denominated in foreign currencies will be accounted for;

the interest paid on borrowings, both to match the ﬁxed interest received on loans (customer ﬁnancing activity), and

to achieve a targeted mix of ﬂoating versus ﬁxed rate funding structured loans; and

the price of certain commodities.

The foreign currency exchange rate exposure on forecasted commercial ﬂows is hedged by foreign currency swaps

and forward contracts. Interest rate exposures are usually hedged by interest rate swaps and, in limited cases, by

forward rate agreements. Exposure to changes in the price of commodities is generally hedged by using commodity

swaps and commodity options. In addition, in order to manage the Group’s foreign currency risk related to its

investments in foreign operation, the Group enters into net investment hedges, in particular foreign currency swaps

and forward contracts. Counterparties to these agreements are major ﬁnancial institutions.

Information on the fair value of derivative ﬁnancial instruments held at the balance sheet date is provided in Note 16,

Derivative financial assets and liabilities.

2018

ANNUAL REPORT

269

Quantitative information on foreign currency exchange rate risk

The Group is exposed to risk resulting from changes in foreign currency exchange rates, which can affect its earnings

and equity. In particular:

where a Group company incurs costs in a currency different from that of its revenues, any change in exchange rates

can affect the operating results of that company.

the principal exchange rates to which the Group is exposed are:

EUR/U.S.$, relating to sales and purchases in U.S.$ made by Italian companies (primarily for Maserati and Alfa

Romeo vehicles) and to sales and purchases in Euro made by FCA US;

U.S.$/CAD, primarily relating to FCA Canada’s sales of U.S. produced vehicles, net of FCA US sales of Canadian

produced vehicles;

CNY, in relation to sales in China originating from FCA US and from Italian companies (primarily for Maserati and

Alfa Romeo vehicles);

GBP, AUD, MXN, CHF, and ARS in relation to sales in the UK, Australian, Mexican, Swiss and Argentinian markets;

PLN and TRY, relating to manufacturing costs incurred in Poland and Turkey;

JPY mainly in relation to purchase of parts from Japanese suppliers and sales of vehicles in Japan; and

U.S.$/BRL, EUR/BRL, relating to Brazilian manufacturing operations and the related import and export ﬂows.

The Group’s policy is to use derivative ﬁnancial instruments to hedge a percentage of certain exposures subject to

foreign currency exchange rate risk for the upcoming 12 months (including such risk before or beyond that date where

it is deemed appropriate in relation to the characteristics of the business) and to hedge the exposure resulting from

ﬁrm commitments unless not deemed appropriate.

Group companies may have trade receivables or payables denominated in a currency different from their respective

functional currency. In addition, in a limited number of cases, it may be convenient from an economic point of view, or

it may be required under local market conditions, for Group companies to obtain ﬁnancing or use funds in a currency

different from their respective functional currency. Changes in exchange rates may result in exchange gains or losses

arising from these situations. The Group’s policy is to hedge, whenever deemed appropriate, the exposure resulting

from receivables, payables and securities denominated in foreign currencies different from the respective Group

companies’ functional currency.

Certain of the Group’s companies are located in countries which are outside of the Eurozone, in particular the U.S.,

Brazil, Canada, Poland, Serbia, Turkey, Mexico, Argentina, the Czech Republic, India, China, Australia and South

Africa. As the Group’s reporting currency is the Euro, the income statements of those entities that have a reporting

currency other than the Euro are translated into Euro using the average exchange rate for the period. In addition, the

assets and liabilities of these consolidated companies are translated into Euro at the period-end foreign exchange

rate. The effects of these changes in foreign exchange rates are recognized directly in the Cumulative translation

adjustments reserve included in Other comprehensive income. Changes in exchange rates may lead to effects on the

translated balances of revenues, costs and assets and liabilities reported in Euro, even when corresponding items are

unchanged in the respective local currency of these companies.

The Group monitors its principal exposure to conversion exchange risk and, in certain circumstances, enters into

derivatives for the purpose of hedging the speciﬁc risk.

There have been no substantial changes in 2018 in the nature or structure of exposure to foreign currency exchange

rate risk or in the Group’s hedging policies.

The potential loss in fair value of derivative ﬁnancial instruments held for foreign currency exchange rate risk

management (currency swaps/forwards) at December31, 2018 resulting from a 10 percent change in the exchange

rates would have been approximately €704 million (€1,010 million at December31, 2017).

270

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ANNUAL REPORT

Consolidated

Financial Statements

Notes to the Consolidated

Financial Statements

This analysis assumes that a hypothetical, unfavorable 10 percent change in exchange rates as at year-end is applied

in the measurement of the fair value of derivative ﬁnancial instruments. Receivables, payables and future trade ﬂows

whose hedging transactions have been analyzed were not included in this analysis. It is reasonable to assume that

changes in market exchange rates will produce the opposite effect, of an equal or greater amount, on the underlying

transactions that have been hedged.

Quantitative information on interest rate risk

The manufacturing companies and treasuries of the Group make use of external borrowings and invest in monetary

and ﬁnancial market instruments. In addition, Group companies sell receivables resulting from their trading activities

on a continuing basis. Changes in market interest rates can affect the cost of the various forms of ﬁnancing, including

the sale of receivables, or the return on investments and the employment of funds, thus negatively impacting the net

ﬁnancial expenses incurred by the Group.

In addition, the ﬁnancial services companies provide loans (mainly to customers and dealers), ﬁnancing themselves

using various forms of direct debt or asset-backed ﬁnancing (e.g. factoring of receivables). Where the characteristics

of the variability of the interest rate applied to loans granted differ from those of the variability of the cost of the

ﬁnancing obtained, changes in the current level of interest rates can affect the operating result of those companies and

the Group as a whole.

In order to manage these risks, the Group uses interest rate derivative ﬁnancial instruments, mainly interest rate swaps

and forward rate agreements, when available in the market, with the objective of mitigating, under economically

acceptable conditions, the potential variability of interest rates on the Group’s Net proﬁt.

In assessing the potential impact of changes in interest rates, the Group segregates ﬁxed rate ﬁnancial instruments

(for which the impact is assessed in terms of fair value) from ﬂoating rate ﬁnancial instruments (for which the impact is

assessed in terms of cash ﬂows).

The ﬁxed rate ﬁnancial instruments used by the Group consist principally of part of the portfolio of the ﬁnancial services

companies (principally customer ﬁnancing and ﬁnancial leases) and part of debt (including subsidized loans and notes).

The potential loss in fair value of ﬁxed rate ﬁnancial instruments (including the effect of interest rate derivative ﬁnancial

instruments) held at December31, 2018, resulting from a hypothetical 10 percent change in market interest rates,

would have been approximately €83 million (approximately €71 million at December31, 2017).

Floating rate ﬁnancial instruments consist principally of cash and cash equivalents, loans provided by the ﬁnancial

services companies to the sales network and part of debt. The effect of the sale of receivables is also considered in

the sensitivity analysis as well as the effect of hedging derivative instruments.

A hypothetical 10 percent change in short-term interest rates at December31, 2018, applied to ﬂoating rate ﬁnancial

assets and liabilities, operations for the sale of receivables and derivative ﬁnancial instruments, would have resulted

in increased net ﬁnancial expenses before taxes, on an annual basis, of approximately €25 million (€27 million at

December31, 2017).

This analysis is based on the assumption that there is an unfavorable change of 10 percent proportionate to interest

rate levels across homogeneous categories. A homogeneous category is deﬁned on the basis of the currency in which

the ﬁnancial assets and liabilities are denominated. In addition, the sensitivity analysis applied to ﬂoating rate ﬁnancial

instruments assumes that cash and cash equivalents and other short-term ﬁnancial assets and liabilities which expire

during the projected 12-month period will be renewed or reinvested in similar instruments, bearing the hypothetical

short-term interest rates.

2018

ANNUAL REPORT

271

Quantitative information on commodity price risk

The Group has entered into derivative contracts for certain commodities to hedge its exposure to commodity price risk

associated with buying raw materials and energy used in its normal operations.

In connection with the commodity price derivative contracts outstanding at December31, 2018, a hypothetical

10 percent change in the price of the commodities at that date would have caused a fair value loss of €91 million

(€51 million at December31, 2017). Future trade ﬂows whose hedging transactions have been analyzed were not

considered in this analysis. It is reasonable to assume that changes in commodity prices will produce the opposite

effect, of an equal or greater amount, on the underlying transactions that have been hedged.

31. SUBSEQUENT EVENTS

The Group has evaluated subsequent events through February22, 2019, which is the date the ﬁnancial statements

were authorized for issuance.

On February 14, 2019, FCA Italy and Groupe PSA announced a signed agreement to extend the Sevel cooperation

agreement to 2023 and increase production capacity from 2019. The terms of the new agreement also include

continued manufacture by Sevel of Fiat Ducato, Peugeot Boxer and Citroën Jumper large vans as well as additional

versions to cover the needs of the Opel and Vauxhall brands.

Company

Financial Statements

AT DECEMBER 31, 2018

Index to the Company Financial Statements

Income Statement

________________________________________________________________________________ 274

Statement of Financial Position

____________________________________________________________________ 275

Notes to the Company Financial Statements

_________________________________________________________ 276

274

2018

ANNUAL REPORT

Company Financial

Statements

Income Statement

(in € million)

Years Ended December 31

Note

2018 2017

Other operating income

33 61

Personnel costs

(12) (12)

Other operating costs

(168) (166)

Net ﬁnancial expenses

(168) (281)

Proﬁt before taxes (315) (398)

Income tax beneﬁt

14 12

Result from investments

3,624 3,667

Net proﬁt from continuing operations 3,323 3,281

Proﬁt from discontinued operations 285 210

Net proﬁt € 3,608 € 3,491

The accompanying notes are an integral part of the Company Financial Statements.

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275

Company Financial

Statements

Statement

of Financial Position

Statement of Financial Position

(in € million - before appropriation of results)

At December 31

Note

2018 2017

Assets

Property, plant and equipment

€ 26 € 27

Investments in Group companies and other equity investments

31,530 27,323

Other ﬁnancial assets

3,380 3,228

Total Non-current assets 34,936 30,578

Current ﬁnancial assets

3 239

Trade receivables

15 15

Other current receivables

205 329

Cash and cash equivalents

1 1

Total Current assets 224 584

Total Assets € 35,160 € 31,162

Equity and Liabilities

Equity

Share capital € 19 € 19

Capital reserves 5,920 5,817

Legal reserves 13,319 11,825

Retained proﬁt/(loss) 1,836 (333)

Proﬁt for the year 3,608 3,491

Total Equity 24,702 20,819

Liabilities

Provisions for employee beneﬁts and other provisions

8 39

Non-current debt

3,864 3,742

Other non-current liabilities

10 11

Total Non-current liabilities 3,882 3,792

Provisions for employee beneﬁts and other current provisions

2 2

Trade payables

16 7

Current debt

6,320 6,142

Other debt

238 400

Total Current liabilities 6,576 6,551

Total Equity and liabilities € 35,160 € 31,162

The accompanying notes are an integral part of the Company Financial Statements.

276

2018

ANNUAL REPORT

Company Financial

Statements

Notes to the Company

Financial Statements

Notes to the Company Financial Statements

PRINCIPAL ACTIVITIES

The FCA merger

On January 29, 2014, the Board of Directors of Fiat SpA (“Fiat”) approved a proposed corporate reorganization

resulting in the formation of Fiat Chrysler Automobiles N.V. (“FCA” or the “Company”) as a fully integrated global

automaker. The Board determined that a redomiciliation into the Netherlands with a listing on the NYSE and an

additional listing on the Mercato Telematico Azionario (“MTA”) would be the structure most suitable to Fiat’s proﬁle and

its strategic and ﬁnancial objectives. FCA’s principal executive ofﬁces were established in London, United Kingdom.

FCA was incorporated as a public limited liability company (naamloze vennootschap) under the laws of the

Netherlands on April 1, 2014, under the name Fiat Investments N.V.. On June 15, 2014, the Board of Directors of Fiat

approved the merger plan of Fiat into Fiat Investments N.V., and, at the extraordinary general meeting held on August

1, 2014, the shareholders of Fiat approved the merger that was completed and became effective on October 12,

2014. The merger, which took the form of a reverse merger, resulted in Fiat Investments N.V. being the surviving entity

which was then renamed Fiat Chrysler Automobiles N.V.. On October 13, 2014, FCA common shares commenced

trading on the NYSE and on the MTA.

Magneti Marelli Discontinued Operations

On April 5, 2018, the FCA Board of Directors announced that it had authorized FCA management to develop and

implement a plan to separate the Magneti Marelli business from the Group.

On October, 22, 2018, FCA announced that it has entered into a deﬁnitive agreement to sell its Magneti Marelli

business to CK Holdings, Ltd. Subject to regulatory approvals and other customary closing conditions, the transaction

is expected to close in the second quarter of 2019. Refer to Note 3 - Scope of consolidation to the Consolidated

Financial Statements included elsewhere in this document for additional information.

As a consequence of the agreement above, the results of Magneti Marelli have been excluded from continuing

operations, and are shown as a single line item in the Proﬁt from discontinued operations line item for the years ended

December 31, 2018 and 2017.

ACCOUNTING POLICIES

Basis of preparation

The 2018 Company Financial Statements represent the separate ﬁnancial statements of the parent company, Fiat Chrysler

Automobiles N.V., and have been prepared in accordance with the legal requirements of Title 9, Book 2 of the Dutch Civil

Code. Section 362 (8), Book 2, Dutch Civil Code, allows companies that apply IFRS as adopted by the European Union

in their consolidated ﬁnancial statements to use the same measurement principles in their company ﬁnancial statements.

The accounting policies are described in a speciﬁc section, Significant accounting policies, of the Consolidated Financial

Statements included in this Annual Report. However, as allowed by the law, investments in subsidiaries, joint ventures and

associates are accounted for using the net equity value in the Company Financial Statements.

Format of the ﬁnancial statements

Given the activities carried out by FCA, presentation of the Company Income Statement is based on the nature of

revenues and expenses. The Consolidated Income Statement for FCA is classiﬁed according to function (also referred

to as the “cost of sales” method), which is considered more representative of the format used for internal reporting and

management purposes and is in line with international practice in the industry.

2018

ANNUAL REPORT

277

FCA ﬁnancial statements are prepared in Euros, also the Company’s functional currency, representing the currency in

which the main transactions of the Company are denominated.

The Statements of Income and of Financial Position and Notes to the Financial Statements are presented in millions of

Euros, except where otherwise stated.

As parent company, FCA has also prepared consolidated ﬁnancial statements for FCA Group for the year ended

December 31, 2018.

New standards

The Company adopted IFRS 9 Financial Instruments and IFRS 15 Revenues from contracts with customers from

January 1, 2018.

The adoption of IFRS 15 did not affect the manner and timing of recognition of the Company’s revenues, deriving only

from service activities to subsidiaries that continue to be recognized when the services are transferred to customers

and Company’s performance obligations towards them are met.

IFRS 9 - Financial Instruments introduces new criteria for the classiﬁcation and measurement of ﬁnancial assets, for

the impairment of ﬁnancial assets and for hedge accounting. In accordance with the transitional provisions in IFRS 9,

the Company did not restate prior periods. For hedge accounting, the Company applied the standard prospectively.

The main changes from the adoption of IFRS 9 are described below:

According to IFRS 9 ﬁnancial assets are measured at amortized cost, or at fair value through proﬁt or loss or at fair

value through the income statement according to their contractual characteristics and the business model used

for their management. The classiﬁcation and measurement of ﬁnancial liabilities according to IFRS 9 is substantially

unchanged compared to IAS 39. The application of the new classiﬁcation measurement criteria of ﬁnancial assets

did not result in any reclassiﬁcation for the Company as of January 1, 2018.

The accounting for impairment of ﬁnancial assets is based on an “expected credit loss” (ECL) impairment model,

replacing the incurred loss method under IAS 39. Expected losses will be recorded on annual basis or taking

into account the contractual duration of the ﬁnancial activity. The application of these new rules did not have any

signiﬁcant effect on the Company’s ﬁnancial statements and on the date of ﬁrst application of the standard.

For ﬁnancial guarantee contracts, IFRS 9 retains the same deﬁnition and initial recognition requirements as IAS 39

but introduces different subsequent measurement requirements. On subsequent measurement ﬁnancial guarantees

contacts are measured at the ‘higher of’:

The ECL allowance as deﬁned above, and

The amount initially recognized (i.e. fair value) less any cumulative amount of income amortization recognized.

This new measurement criteria did not lead to any signiﬁcant effect in the Company’s ﬁnancial statements.

Amounts due from Group companies

Amounts due from group companies are stated initially at fair value and subsequently at amortized cost. Amortized

cost is determined using the effective interest rate method. The Company recognizes a credit loss for ﬁnancial assets

(such as a loan) based on an ECL which will occur in the next twelve months or, after a signiﬁcant decrease in credit

quality or when the simpliﬁed model can be used, based on the entire remaining loan term. Recognition of an ECL

for intercompany receivables could result in differences between equity recognized in the consolidated and separate

Company ﬁnancial statements that would be reversedin proﬁt and loss.

278

2018

ANNUAL REPORT

Company Financial

Statements

Notes to the Company

Financial Statements

COMPOSITION AND PRINCIPAL CHANGES

1. Result from investments

The following table summarizes the Result from investments:

Years Ended December 31

2018 2017

(€ million)

Share of the proﬁt/(loss) of Group companies € 3,623 € 3,617

Gains from disposal of investments — 49

Dividends from other companies 1 1

Total Result from investments € 3,624 € 3,667

Result from investments primarily related to the Company’s share in the net proﬁt or loss of subsidiaries and associates.

The share of the proﬁt of Magneti Marelli was recognized within the line item Proﬁt from discontinued operations within

the Income Statement.

For the year ended December 31, 2017, gains from disposal of investments consisted of the gain realized on disposal

of Italiana Editrice S.p.A., a subsidiary involved in the publishing business.

2. Other operating income

The following table summarizes Other operating income:

Years Ended December 31

2018 2017

(€ million)

Revenues from services € 33 € 31

Other revenues and income from third parties — 30

Total Other operating income € 33 € 61

Revenues from services consisted of services rendered to the principal subsidiaries of the Group, substantially in line

with 2018.

Other revenues and income from third parties reﬂected the portion paid to FCA NV of the reimbursement from the ﬁnal

settlement of claims for the Tianjin (China) port explosions, which occurred in the third quarter of 2015 (refer to Note

28, Segment reporting, within the Consolidated Financial Statements).

3. Personnel costs

Personnel costs during the year ended December 31, 2018, of €12 million (€12 million in 2017) primarily related to

wages and salaries. The average number of employees in 2018 was 46 (48 in 2017), based in the United Kingdom and

Italy (all wholly outside the Netherlands).

4. Other operating costs

Other operating costs primarily includes costs for services rendered by Group companies (support and consulting in

administration, IT systems, press activities, payroll, security and facility management), costs for legal, administrative,

ﬁnancial and IT services in addition to the compensation component from Share-based compensation plans

representing the notional cost of the Long Term Incentive Plan awarded to the Chief Executive Ofﬁcer and Executives

(net of the portion already attributed to the relevant subsidiaries), which was recognized directly in the equity reserve,

as reported in Note 18, Share-based compensation, within the Consolidated Financial Statements.

2018

ANNUAL REPORT

279

5. Net ﬁnancial expenses

The following table summarizes Net ﬁnancial expenses:

Years Ended December 31

2018 2017

(€ million)

Financial income € 183 € 194

Financial expense (332) (457)

Currency exchange gains/(losses) 35 (101)

Net (losses)/gains on derivative ﬁnancial instruments (54) 83

Total Net ﬁnancial expenses € (168) € (281)

Financial income relates to interest on loans extended to Fiat Chrysler Automobiles North America Holdings LLC (“FCA

NAH LLC”), as included within Other ﬁnancial assets and Current ﬁnancial assets. The decrease in ﬁnancial income

related primarily to foreign exchange differences following the revaluation of the 2018 average exchange rate of the

Euro against the U.S.$

Financial expense relates to interest payable on the intercompany debt included within Current debt, in addition to

the interest on the unsecured senior debt securities of U.S. $3.0 billion issued in April 2015 and €1.25 billion issued in

March 2016. The decrease in ﬁnancial expense related to both the lower average debt and the reduction in the interest

rates during 2018 as compared to 2017.

Currency exchange gain of €35 million for the year ended December31, 2018 reﬂected the net impact of revaluation

of the U.S.$ year end spot rate against the Euro on loans extended to FCA NAH LLC and the unsecured senior debt

securities issued in April 2015, both denominated in U.S.$, described above. These Net gains were partially offset by

€54 million Net losses on derivative instruments entered into to hedge the foreign currency ﬂuctuations.

6. Income tax beneﬁt

In 2018 and 2017, income taxes were a beneﬁt of €14 million and €12 million respectively, which are primarily related

to compensation receivable for tax losses carried forward contributed to the Group’s tax consolidation schemes in

Italy and in the United Kingdom.

The Company reported losses for tax purposes as the result from investments is not considered for tax purposes.

7. Property, plant and equipment

At December 31, 2018, the carrying amount of property, plant and equipment was €26 million (€27 million at

December 31, 2017), consisting of the gross carrying amount of assets of €71 million (€70 million at December 31,

2017) and accumulated depreciation of €45 million (€43 million at December 31, 2017), of which €24 million related

to the Company’s property in Turin (€25 million at December 31, 2017). No property was subject to liens, pledged as

collateral or restricted in use.

Depreciation of property, plant and equipment is recognized in the Income statement within Other operating costs.

280

2018

ANNUAL REPORT

Company Financial

Statements

Notes to the Company

Financial Statements

8. Investments in Group companies and other equity investments

The following table summarizes Investments in Group companies and other equity investments:

At December 31

2018 2017 Change

(€ million)

Investments in Group companies € 31,512 € 27,300 € 4,212

Other equity investments 18 23 (5)

Total Investments in Group companies and other equity investments € 31,530 € 27,323 € 4,207

Investments in Group companies were subject to the following changes during 2018 and 2017:

2018 2017

(€ million)

Balance at beginning of year € 27,300 € 25,087

Net acquisition/(disposal) of subsidiaries from/to Group companies — 383

Net contributions made to subsidiaries 3,108 125

Dividends received from subsidiaries (3,043) (264)

Share of the proﬁt of continuing operations 3,623 3,617

Share of the proﬁt of discontinued operations 285 210

Cumulative translation adjustments and other OCI movements 140 (2,031)

Other 99 173

Balance at end of year € 31,512 € 27,300

The increase in Investments in Group companies in 2018 primarily related to the Share of the proﬁt of Group

companies of €3,908 million (including discontinued operations) and net contributions made to subsidiaries of €3,108

million, primarily to FCA Italy S.p.A. for €2,711 million, partially offset by dividends received from FCA North America

Holdings LLC and Fiat Chrysler UK LLP of €3,043 million.

The increase in Investments in Group companies in 2017 primarily related to the Share of the proﬁt of Group

companies of €3,827 million (including the discontinued operations), net acquisitions from Group companies of €383

million and net contributions made to subsidiaries of €125 million, partially offset by cumulative translation adjustments

and other OCI movements of €2,031 million and dividends received from FCA North America Holdings LLC and Fiat

Chrysler UK LLP of €264 million.

9. Other ﬁnancial assets

At December 31, 2018, Other ﬁnancial assets amounted to €3,380 million (€3,228 million at December 31, 2017),

primarily represented by U.S. $3.9 billion of intercompany loans extended to FCA NAH LLC.

The €152 million decrease in Other ﬁnancial assets was fully attributable to foreign exchange differences due to the

revaluation of the U.S.$ year end spot rate against the Euro.

In January 2015, a loan of U.S. $881.6 million, expiring December 2022, was extended to fund the acquisition of

certain subsidiaries based in the U.S. The carrying amount of €770 million at December 31, 2018 (€735 million at

December 31, 2017), related to the outstanding principal only, with no accrued interest receivable due.

In April 2015, a further U.S. $2,970 million was extended in two loans of $1,485 million, expiring in April 2020 and April

2023. The carrying amount of €2,594 million at December 31, 2018, related to the outstanding principal amount only,

with no accrued interest receivable due (€2,476 million at December 31, 2017).

These loans were hedged into Euro by currency swaps with Fiat Chrysler Finance S.p.A. and Fiat Chrysler Finance

Europe S.A., resulting in €0.2 million of intercompany derivative liabilities at December 31, 2018 included within Other

ﬁnancial liabilities (€0.4 million at December 31, 2017).

2018

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281

10. Current ﬁnancial assets

At December 31, 2018, Current ﬁnancial assets amounted to €3 million primarily related to intercompany derivative

assets with Fiat Chrysler Finance Europe S.A.

At December 31, 2017, Current ﬁnancial assets were €239 million, primarily related to a short-term intercompany

deposit of €201 million with Fiat Chrysler Finance Europe S.A.

11. Trade receivables

At December 31, 2018, trade receivables totaled €15 million, almost entirely related to Group companies.

The carrying amount of trade receivables is deemed to approximate their fair value. All trade receivables are due within

one year and there are no overdue balances.

12. Other current receivables

At December 31, 2018, Other current receivables amounted to €205 million, a net decrease of €124 million as

compared to December 31, 2017, and consisted of the following:

At December 31

2018 2017 Change

(€ million)

Receivable from Group companies for consolidated Italian corporate tax € 69 € 153 € (84)

VAT receivables 87 134 (47)

Italian corporate tax receivables 17 19 (2)

Other 32 23 9

Total Other current receivables € 205 € 329 € (124)

Receivables from Group companies for consolidated Italian corporate tax relates to taxes calculated on the taxable

income contributed by Italian subsidiaries participating in the domestic tax consolidation program.

VAT receivables relate primarily to VAT credits for Italian subsidiaries participating in the VAT tax consolidation.

Italian corporate tax receivables include credits transferred to FCA N.V. by Italian subsidiaries participating in the

domestic tax consolidation program in 2018 and prior years.

13. Cash and cash equivalents

At December 31, 2018, Cash and cash equivalents totaled €1 million (€1 million as at December 31, 2017) and is

primarily represented by amounts held in Euro. The carrying amount of Cash and cash equivalents is deemed to be in

line with their fair value.

Credit risk associated with Cash and cash equivalents is considered limited as the counterparties are leading national

and international banks.

282

2018

ANNUAL REPORT

Company Financial

Statements

Notes to the Company

Financial Statements

14. Equity

Changes in Shareholders’ equity during 2018 were as follows:

(€ million)

Capital

Reserves

Legal

Reserves:

Cumulative

translation

adjustment

reserve /

OCI

Legal

Reserves:

Other

Retained

proﬁt/

(loss)

Proﬁt/

(loss) for

the year

Total

equity

At December 31, 2016 € 19 € 5,766 € 2,070 € 10,866 € (1,356) € 1,803 € 19,168

Allocation of prior year result — — — — 1,803 (1,803) —

Share-based compensation — 115 — — — — 115

Net proﬁt for the year — — — — — 3,491 3,491

Current period change in OCI, net of taxes — — (1,839) — — — (1,839)

Legal Reserve — — — 728 (728) — —

Other changes — (64) — — (52) — (116)

At December 31, 2017 19 5,817 231 11,594 (333) 3,491 20,819

Allocation of prior year result — — — — 3,491 (3,491) —

Share-based compensation — 82 — — — — 82

Net proﬁt for the year — — — — — 3,608 3,608

Current period change in OCI, net of taxes — — 257 — — — 257

Legal Reserve — — — 1,237 (1,237) — —

Other changes — 21 — — (85) — (64)

At December 31, 2018 € 19 € 5,920 € 488 € 12,831 € 1,836 € 3,608 € 24,702

Shareholders’ equity increased by €3,883 million in 2018, primarily due to proﬁt for the year of €3,608 million, and

movements in OCI of €257 million, relating primarily to the remeasurement of deﬁned beneﬁt plans.

Shareholders’ equity increased by €1,651 million in 2017, primarily due to proﬁt for the year of €3,491 million and

movements in OCI of €1,839 million, relating to foreign exchange differences and the remeasurement of deﬁned

beneﬁt plans.

Share capital

At December 31, 2018, the fully paid-up share capital of FCA amounted to €19 million (€19 million at December 31,

2017) and consisted of 1,550,617,563 common shares and 408,941,767 special voting shares, all with a par value of

€0.01 each (1,540,089,690 common shares and 408,941,767 special voting shares at December 31, 2017).

Capital reserves

At December 31, 2018, capital reserves amounting to €5,920 million (€5,817 million at December 31, 2017) consisted

mainly of the effects of the Merger, resulting in a different par value of FCA common shares (€0.01 each) as compared

to Fiat S.p.A. ordinary shares (€3.58 each) where the consequent difference between the share capital before and

after the Merger was recognized as an increase to the capital reserves. In addition, capital reserves include the impact

of conversion in 2016 of the Mandatory Convertible Securities issued in 2014.

2018

ANNUAL REPORT

283

Legal reserves

Pursuant to Dutch law, limitations exist relating to the distribution of shareholders’ equity up to at least the total

amount of the legal reserve. By their nature, unrealized losses relating to OCI components reduce shareholders’ equity

and thereby distributable amounts.

At December 31, 2018, legal reserves amounted to €12,831 million (€11,594 million at December 31, 2017) and

mainly related to development expenditures capitalized by subsidiaries of €10,405 million (€9,697 million at December

31, 2017), the earnings of subsidiaries subject to certain restrictions to distributions to the parent company of €2,422

million (€1,893 million at December 31, 2017), and the reserve in respect of special voting shares of €4 million (€4

million at December 31, 2017). Legal reserves also include unrealized foreign currency translation gains and losses

and net gains from cash ﬂow hedges of €1,056 million. Other OCI components primarily include unrealized losses of

€567 million related to deﬁned beneﬁt plans.

Dividends

Refer to Note 26, Equity within the Consolidated Financial Statements included elsewhere in this report for additional

detail on the proposed annual ordinary dividend distribution to holders of FCA common shares.

15. Provisions for employee beneﬁts and other provisions

At December 31, 2018, provisions for employee beneﬁts and other provisions totaled €8 million, (€39 million at December

31, 2017) with the decrease primarily attributable to beneﬁts related to the former CEO reclassiﬁed to other payables.

At December 31, 2017, provisions consisted primarily of unfunded post-employment beneﬁts accruing to employees,

former employees and Directors under supplemental company or individual agreements.

16. Non-current debt

At December 31, 2018, non-current debt totaled €3,864 million, representing an increase of €122 million from

December 31, 2017, and consisted of the following:

At December 31

2018 2017 Change

(€ million)

Third-party debt:

- Unsecured senior debt securities € 3,848 € 3,726 € 122

Total third-party debt € 3,848 € 3,726 € 122

Intercompany debt:

- Intercompany ﬁnancial payables € 16 € 16 € —

Total intercompany debt € 16 € 16 € —

Total Non-current debt € 3,864 € 3,742 € 122

At December 31, 2018, Non-current debt of €3,864 million (€3,742 million at December 31, 2017), primarily related

to the €1,250 million note issued in March 2016 and the U.S. $3.0 billion unsecured senior debt notes issued in

April 2015. The increase of €122 million as compared to December 31, 2017 was almost fully attributable to foreign

exchange differences following the revaluation U.S. Dollar year end spot rate against the Euro.

As described in more detail in Note 21 - Debt, to the Consolidated Financial Statements, FCA issued a 3.75 percent

note at par in March 2016 with a principal value of €1,250 million due March 2024, under the Global Medium Term

Note (“GMTN”) Programme.

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Company Financial

Statements

Notes to the Company

Financial Statements

In April 2015, FCA issued €1.4 billion (U.S.$1.5 billion) principal amount of 4.5 percent unsecured senior debt

securities due April 15, 2020 (the “2020 Notes”) and €1.4 billion (U.S.$1.5 billion) principal amount of 5.25 percent

unsecured senior debt securities due April 15, 2023 (the “2023 Notes”) at par. The 2020 Notes and the 2023

Notes, collectively referred to as “the Notes”, rank pari passu in right of payment with respect to all of FCA’s existing

and future senior unsecured indebtedness and senior in right of payment to any of FCA’s future subordinated

indebtedness and existing indebtedness, which is by its terms subordinated in right of payment to the Notes. Interest

on the 2020 Notes and the 2023 Notes is payable semi-annually in April and October.

17. Other non-current liabilities

At December 31, 2018, other non-current liabilities totaled €10 million:

At December 31

2018 2017 Change

(€ million)

Other non-current liabilities € 10 € 11 € (1)

Total Other non-current liabilities € 10 € 11 € (1)

Other non-current liabilities relate to non-current post-employment beneﬁts, being the present value of future beneﬁts

payable to a former CEO and management personnel that have left the Company.

18. Provisions for employee beneﬁts and other current provisions

Employee beneﬁt provisions primarily reﬂect the best estimate for variable components of compensation:

At December 31

2018 2017 Change

(€ million)

Provisions for employee beneﬁts and other current provisions € 2 € 2 € —

Total Provisions for employee beneﬁts and other current provisions € 2 € 2 € —

19. Trade payables

At December 31, 2018, trade payables totaled €16 million, a increase of €9 million from December 31, 2017, and

consisted of the following:

At December 31

2018 2017 Change

(€ million)

Trade payables due to third parties € 11 € 3 € 8

Intercompany trade payables 5 4 1

Total trade payables € 16 € 7 € 9

Trade payables are due within one year and their carrying amount at the reporting date is deemed to approximate their

fair value.

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285

20. Current debt

At December 31, 2018, current debt totaled €6,320 million, a €178 million increase over December 31, 2017 and

related to the following:

At December 31

2018 2017 Change

(€ million)

Intercompany debt:

- Current account with Fiat Chrysler Finance S.p.A. € 134 € 99 € 35

- Current account with Fiat Chrysler Finance Europe S.A. 6,121 5,981 140

Total intercompany debt € 6,255 € 6,080 € 175

Third party debt:

- Accrued interest payable 65 62 3

Total third party debt € 65 € 62 € 3

Total current debt € 6,320 € 6,142 € 178

Current intercompany debt of €6,255 million (€6,080 million at December 31, 2017) is denominated in Euro and the

carrying amount approximates fair value.

Current account with Fiat Chrysler Finance Europe S.A. represents the overdraft as part of the Group’s centralized

treasury management.

Accrued interest payable of €65 million (€62 million at December 31, 2017) relates to the unsecured senior debt

securities referred to in Note 16, Non-current debt.

21. Other debt

At December 31, 2018, Other debt totaled €238 million, a net decrease of €162 million over December 31, 2017, and

included the following:

At December 31

2018 2017 Change

(€ million)

Intercompany other debt:

- Consolidated Italian corporate tax € 65 € 149 € (84)

- Consolidated VAT 130 239 (109)

- Other 3 2 1

Total intercompany other debt € 198 € 390 € (192)

Other debt and taxes payable:

- Taxes payable 2 1 1

- Accrued expenses 3 4 (1)

- Other payables 35 5 30

Total Other debt and taxes payable € 40 € 10 € 30

Total Other debt € 238 € 400 € (162)

At December 31, 2018, intercompany debt relating to consolidated VAT of €130 million (€239 million at December 31,

2017) consisted of VAT credits of Italian subsidiaries transferred to FCA as part of the consolidated VAT regime.

Intercompany debt relating to consolidated Italian corporate tax of €65 million (€149 million at December 31, 2017)

consisted of compensation payable for tax losses and Italian corporate tax credits contributed by Italian subsidiaries

participating in the domestic tax consolidation program for 2018, for which the Italian branch of FCA N.V. is the

consolidating entity.

Other debt and taxes payable are all due within one year and their carrying amount is deemed to approximate their

fair value.

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Company Financial

Statements

Notes to the Company

Financial Statements

22. Guarantees granted, commitments and contingent liabilities

Guarantees granted

At December 31, 2018, guarantees issued totaled €6,679 million (€9,318 million at December 31, 2017) wholly

provided on behalf of Group companies. The decrease of €2,639 million as compared to 31 December 2017 related

principally to the repayment of bonds from Fiat Chrysler Finance Europe S.A.

The main guarantees outstanding at 31 December 2018 were as follows:

€3,914 million for bonds issued;

€1,125 million for borrowings, of which €413 million in favor of the subsidiaries in Brazil mainly related to the

construction of the new plant in Pernambuco and the remaining primarily to Fiat Chrysler Finance S.p.A; and

€1,639 million for VAT reimbursements related to the VAT consolidation scheme in Italy.

In addition, in 2005, in relation to the advance received by FCA Partecipazioni S.p.A. on the consideration for the

sale of the aviation business, FCA as the successor of Fiat S.p.A. is jointly and severally liable with the fully owned

subsidiary FCA Partecipazioni S.p.A. to the purchaser, Avio Holding S.p.A., should FCA Partecipazioni S.p.A. fail to

honor (following either an arbitration award or an out-of-court settlement) undertakings provided in relation to the sale

and purchase agreement signed in 2003.

Other commitments, contractual rights and contingent liabilities

FCA has important commitments and rights derived from outstanding agreements in addition to contingent liabilities

as described in the notes to the Consolidated Financial Statements at December 31, 2018, to which reference should

be made.

23. Audit fees

The following table reports fees paid to the independent auditor Ernst & Young Accountants LLP, or entities in their

network, for audit and other services:

Years Ended December 31

(€ thousand)

2018 2017

Audit fees € 18,607 € 18,601

Audit-related fees 50 398

Tax fees 346 100

Total € 19,003 € 19,099

Audit fees of Ernst & Young Accountants LLP amounted €260 thousand. No other services were performed by Ernst

and Young Accountants LLP.

24. Board remuneration

Detailed information on Board of Directors compensation (including their shares and share awards) is included in the

REMUNERATION REPORT section of this report.

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287

25. Subsequent events

The Group has evaluated subsequent events through February22, 2019, which is the date the ﬁnancial statements

were authorized for issuance, as described in Note 31, Subsequent Events, within the Consolidated Financial

Statements.

February22, 2019

The Board of Directors

John Elkann

Michael Manley

John Abbott

Andrea Agnelli

Tiberto Brandolini d’Adda

Glenn Earle

Valerie A. Mars

Ruth J. Simmons

Ronald L. Thompson

Michelangelo A. Volpi

Patience Wheatcroft

Ermenegildo Zegna

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2018

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289

Other Information

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2018

ANNUAL REPORT

Additional Information for Netherlands

Corporate Governance

Independent Auditor’s Report

The report of the Company’s independent auditor, Ernst & Young Accountants LLP, the Netherlands, is set forth

following this Annual Report.

Dividends

Dividends will be determined in accordance with the article 23 of the Articles of Association of Fiat Chrysler

Automobiles N.V. The relevant provisions of the Articles of Association read as follows:

1. The Company shall maintain a special capital reserve to be credited against the share premium exclusively for the

purpose of facilitating any issuance or cancellation of special voting shares. The special voting shares shall not

carry any entitlement to the balance of the special capital reserve. The Board of Directors shall be authorized to

resolve upon (i) any distribution out of the special capital reserve to pay up special voting shares or (ii) re-allocation

of amounts to credit or debit the special capital reserve against or in favor of the share premium reserve.

2. The Company shall maintain a separate dividend reserve for the special voting shares. The special voting shares

shall not carry any entitlement to any other reserve of the Company. Any distribution out of the special voting rights

dividend reserve or the partial or full release of such reserve will require a prior proposal from the Board of Directors

and a subsequent resolution of the meeting of holders of special voting shares.

3. From the proﬁts shown in the annual accounts, as adopted, such amounts shall be reserved as the Board of

Directors may determine.

4. The proﬁts remaining thereafter shall ﬁrst be applied to allocate and add to the special voting shares dividend

reserve an amount equal to one percent (1%) of the aggregate nominal value of all outstanding special voting

shares. The calculation of the amount to be allocated and added to the special voting shares dividend reserve

shall occur on a time-proportionate basis. If special voting shares are issued during the ﬁnancial year to which the

allocation and addition pertains, then the amount to be allocated and added to the special voting shares dividend

reserve in respect of these newly issued special voting shares shall be calculated as from the date on which such

special voting shares were issued until the last day of the ﬁnancial year concerned. The special voting shares shall

not carry any other entitlement to the proﬁts.

5. Any proﬁts remaining thereafter shall be at the disposal of the general meeting of Shareholders for distribution of

proﬁts on the common shares only, subject to the provision of paragraph 8 of this article.

6. Subject to a prior proposal of the Board of Directors, the general meeting of Shareholders may declare and pay

distribution of proﬁts and other distributions in United States Dollars. Furthermore, subject to the approval of the

general meeting of Shareholders and the Board of Directors having been designated as the body competent

to pass a resolution for the issuance of shares in accordance with Article 6, the Board of Directors may decide

that a distribution shall be made in the form of shares or that Shareholders shall be given the option to receive a

distribution either in cash or in the form of shares.

7. The Company shall only have power to make distributions to Shareholders and other persons entitled to

distributable proﬁts to the extent the Company’s equity exceeds the sum of the paid in and called up part of the

share capital and the reserves that must be maintained pursuant to Dutch law and the Company’s Articles of

Association. No distribution of proﬁts or other distributions may be made to the Company itself for shares that the

Company holds in its own share capital.

8. The distribution of proﬁts shall be made after the adoption of the annual accounts, from which it appears that the

same is permitted.

Other Information

Additional Information

for Netherlands

Corporate Governance

2018

ANNUAL REPORT

291

9. The Board of Directors shall have power to declare one or more interim distributions of proﬁts, provided that

the requirements of paragraph 7 hereof are duly observed as evidenced by an interim statement of assets and

liabilities as referred to in Section 2:105 paragraph 4 of the Dutch Civil Code and provided further that the policy of

the Company on additions to reserves and distributions of proﬁts is duly observed. The provisions of paragraphs 2

and 3 hereof shall apply mutatis mutandis.

10. The Board of Directors may determine that distributions are made from the Company’s share premium reserve

or from any other reserve provided that payments from reserves may only be made to the Shareholders that are

entitled to the relevant reserve upon the dissolution of the Company.

11. Distributions of proﬁts and other distributions shall be made payable in the manner and at such date(s) - within four

weeks after declaration thereof - and notice thereof shall be given as the general meeting of Shareholders, or the

Board of Directors in the case of interim distributions of proﬁts, shall determine.

12. Distributions of proﬁts and other distributions, which have not been collected within ﬁve years and one day after

the same have become payable, shall become the property of the Company.

Disclosures pursuant to Decree Article 10 EU-Directive on Takeovers

In accordance with the Dutch Besluit artikel 10 overnamerichtlijn (the Decree), the Company makes the following

disclosures:

a. For information on the capital structure of the Company, the composition of the issued share capital and the

existence of the two classes of shares, please refer to Note 14, Equity to the Company Financial Statements

in this Annual Report. For information on the rights attached to the common shares, please refer to the Articles

of Association which can be found on the Company’s website. To summarize, the rights attached to common

shares comprise pre-emptive rights upon issue of common shares, the entitlement to attend the general meeting

of Shareholders and to speak and vote at that meeting and the entitlement to distributions of such amount of the

Company’s proﬁt as remains after allocation to reserves. For information on the rights attached to the special

voting shares, please refer to the Articles of Association and the Terms and Conditions for the Special Voting

Shares which can both be found on the Company’s website and more in particular to the paragraph “Loyalty

Voting Structure” of this Annual Report in the chapter “Corporate Governance”. As at December31, 2018, the

issued share capital of the Company consisted of 1,550,617,563 common shares, representing 79 percent of the

aggregate issued share capital, and 408,941,767 special voting shares, representing 21 percent of the aggregate

issued share capital.

b. The Company has imposed no limitations on the transfer of common shares. The Articles of Association provide in

Article 13 for transfer restrictions for special voting shares.

c. For information on participations in the Company’s capital in respect of which pursuant to Sections 5:34, 5:35 and

5:43 of the Dutch Financial Supervision Acts (Wet op het ﬁnancieel toezicht) notiﬁcation requirements apply,

please refer to the section “Major Shareholders” of this Annual Report. There you will ﬁnd a list of Shareholders

who are known to the Company to have holdings of 3 percent or more at the stated date.

d. No special control rights or other rights accrue to shares in the capital of the Company.

e. The Company does not operate an employee share participation scheme as mentioned in article 1 sub 1(e) of the

Decree.

f. No restrictions apply to voting rights attached to shares in the capital of the Company, nor are there any deadlines

for exercising voting rights. The Articles of Association allow the Company to cooperate in the issuance of

registered depositary receipts for common shares, but only pursuant to a resolution to that effect of the Board of

Directors. The Company is not aware of any depository receipts having been issued for shares in its capital.

g. The Company is not aware of the existence of any agreements with Shareholders which may result in restrictions

on the transfer of shares or limitation of voting rights.

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h. The rules governing the appointment and dismissal of members of the Board of Directors are stated in the Articles

of Association of the Company. All members of the Board of Directors are appointed by the general meeting of

Shareholders. The term of ofﬁce of all members of the Board of Directors is for a period of approximately one year

after appointment, with such a period expiring on the day the ﬁrst Annual General Meeting of Shareholders is held

in the following calendar year. The general meeting of Shareholders has the power to suspend or dismiss any

member of the Board of Directors at any time. The rules governing an amendment of the Articles of Association are

stated in the Articles of Association and require a resolution of the general meeting of Shareholders which can only

be passed pursuant to a prior proposal of the Board of Directors.

i. The general powers of the Board of Directors are stated in the Articles of Association of the Company. For a

period of ﬁve years from October 12, 2014, the Board of Directors has been irrevocably authorized to issue

shares and rights to subscribe for shares up to the maximum aggregate amount of shares as provided for in

the Company’s authorized share capital as set out in Article 4.1 of the Articles of Association, as amended

from time to time. The Board of Directors has also been designated for the same period as the authorized body

to limit or exclude the rights of pre-emption of shareholders in connection with the authority of the Board of

Directors to issue common shares and grant rights to subscribe for common shares as referred to above. In the

event of an issuance of special voting shares, shareholders have no right of pre-emptions. The Company has

the authority to acquire fully paid-up shares in its own share capital, provided that such acquisition is made for

no consideration. Further rules governing the acquisition of shares by the Company in its own share capital are

set out in article 8 of the Articles of Association.

j. The Company is not a party to any signiﬁcant agreements which will take effect, be altered or terminated upon

a change of control of the Company as a result of a public offer within the meaning of Section 5:70 of the Dutch

Financial Supervision Acts (Wet op het financieel toezicht), provided that some of the loan agreements guaranteed

by the Company and certain bonds guaranteed by the Company contain clauses that, as it is customary for

such ﬁnancial transactions, may require early repayment or termination in the event of a change of control of the

guarantor or the borrower. In certain cases, that requirement may only be triggered if the change of control event

coincides with other conditions, such as a rating downgrade.

k. Under the terms of the Company’s Equity Incentive Plan (EIP) and employment agreements entered into with

certain executive ofﬁcers, executives may be entitled to receive severance payments of up to two times annual

cash compensation and accelerated vesting of awards under the EIP if, within twenty-four (24) months of a

Change of Control (as deﬁned therein), the executive’s employment is involuntarily terminated by the Company

(other than for Cause -as deﬁned therein-) or is terminated by the participant for Good Reason (as deﬁned therein).

Other Information

Additional Information

for Netherlands

Corporate Governance

2018

ANNUAL REPORT

293

Additional Information for U.S. Listing Purposes

Contractual Obligations

The following table summarizes payments due under our signiﬁcant contractual commitments as of December31, 2018:

Payments due by period

(€ million) Total

Lessthan

1year 1-3years 3-5years

Morethan

5years

Long-term debt

(1)

€ 11,331 € 2,860 € 3,412 € 3,601 € 1,458

Capital lease obligations

(2)

266 58 90 44 74

Interest on other liabilities

(3)

1,695 594 699 340 62

Operating lease obligations

(4)

1,027 325 331 172 199

Unconditional minimum purchase obligations

(5)

1,951 804 857 248 42

Purchase obligations

(6)

1,950 1,583 367 — —

Pension contribution requirements

(7)

70 70 — — —

Total € 18,290 € 6,294 € 5,756 € 4,405 € 1,835

(1)

Amounts presented relate to the principal amounts of long-term debt and exclude the related interest expense that will be paid when due,

fair value adjustments, discounts, premiums and loan origination fees. For additional information see Note 21, Debt, within the Consolidated

Financial Statements included elsewhere in this report.

(2)

Capital lease obligations consist mainly of industrial buildings and plant, machinery and equipment used in our business. The amounts reported

include the minimum future lease payments and payment commitments due under such leases. See Note 21, Debt, within the Consolidated

Financial Statements included elsewhere in this report.

(3)

Amounts include interest payments based on contractual terms and current interest rates on our debt and capital lease obligations. Interest

rates based on variable rates included above were determined using the current interest rates in effect at December31, 2018.

(4)

Operating lease obligations mainly relate to leases for commercial and industrial properties used in our business. The amounts reported above

include the minimum rental and payment commitments due under such leases.

(5)

Unconditional minimum purchase obligations relate to our unconditional purchase obligations to purchase a fixed or minimum quantity of

goods and/or services from suppliers with fixed and determinable price provisions. From time to time, in the ordinary course of our business,

we enter into various arrangements with key suppliers in order to establish strategic and technological advantages.

(6)

Purchase obligations are comprised of (i)the repurchase price guaranteed to certain customers on sales with a buy-back commitment in an

aggregate amount of €1,336 million, (ii)commitments to purchase tangible fixed assets, mainly in connection with planned capital expenditure

of various group companies, in an aggregate amount of approximately €539 million, and (iii) commitments to purchase intangible assets relating

to regulatory emissions credits for an aggregate amount of approximately €75 million.

(7)

Pension contribution requirements are based on the estimate of our minimum funding requirements under our funded pension plans. We

may elect to make contributions in excess of the minimum funding requirements. The Group contributions to pension plans for 2019 are

expected to be €508 million, of which €479 million relate to the U.S. and Canada, with €438 million being discretionary contributions and €41

million will be made to satisfy minimum funding requirements. Our minimum funding requirements after 2019 will depend on several factors,

including investment performance and interest rates. Therefore, the above excludes payments beyond 2019, since we cannot predict with

reasonable reliability the timing and amounts of future minimum funding requirements. Refer to Note 19, Employee benefits liabilities, within

the Consolidated Financial Statements included elsewhere in this report for expected benefit payments for the Group’s pension plans and for

the Group’s unfunded health care and life insurance plans.

Product warranties, recall campaigns and product liabilities

The contractual obligations set forth above do not include payments for product warranty and recall campaign costs. We

issue various types of product warranties under which we generally guarantee the performance of products delivered for a

certain period of time. The estimated future costs of product warranties are principally based on assumptions regarding the

lifetime warranty costs of each vehicle line and each model year of that vehicle line, as well as historical claims experience

for the Group’s vehicles. We also periodically initiate voluntary service and recall actions to address various customer

satisfaction, safety and emissions issues related to the vehicles that we sell. In NAFTA, we accrue estimated costs for recalls

at the time of sale, which are based on historical claims experience as well as an additional actuarial analysis that gives

greater weight to the more recent calendar year trends in recall campaign activity. In other regions and sectors, however,

there generally is not sufﬁcient historical data to support the application of an actuarial-based estimation technique. As

a result, estimated recall costs for the other regions and sectors are accrued at the time when they are probable and

reasonably estimable, which typically occurs once it is determined a speciﬁc recall campaign is approved and is announced.

Estimates of the future costs of all these actions are inevitably imprecise due to numerous uncertainties, including the

enactment of new laws and regulations, the number of vehicles affected by a service or recall action and the nature of the

corrective action. It is reasonably possible that the ultimate costs of these services and recall actions may require us to make

expenditures in excess of established reserves over an extended period of time and in a range of amounts that cannot be

reasonably estimated. At December31, 2018, our product warranty and recall campaigns provision was €6,760 million.

Other Information

Additional Information

for U.S. Listing Purposes

294

2018

ANNUAL REPORT

Signiﬁcant Vehicle Assembly Plants

The following table provides information about our signiﬁcant vehicle assembly plants as of December 31, 2018,

excluding joint ventures, of which the largest by region are Belvidere (U.S.), Betim (Brazil) and Cassino (Italy).

Each of the assembly plants listed below have a covered area of more than 100,000 square meters:

Country Location

NAFTA

U.S. Belvidere, Illinois

U.S. JeffersonNorth, Michigan

U.S. Sterling Heights, Michigan

U.S. Toledo North, Ohio

U.S. ToledoSupplierPark, Ohio

U.S. Warren Truck, Michigan

Mexico Toluca, Estado de México

Mexico Saltillo, Coahuila

Canada Brampton, Ontario

Canada Windsor, Ontario

LATAM

Brazil Betim, Minas Gerais

Brazil Goiana, Pernambuco

Argentina Cordoba

EMEA

Italy Cassino

Italy Melﬁ

Italy Pomigliano

Italy Turin (Miraﬁori)

Poland Tychy

Serbia Kragujevac

We have three vehicle assembly plants for Maserati in Italy (including two plants owned by FCA Italy), thirteen plants for

Comau and ﬁve for Teksid.

Our Share Information

On October 13, 2014, our common shares began trading on the NYSE under the symbol “FCAU” and on the MTA

under the symbol “FCA”. Prior to October 13, 2014, our ordinary shares were listed and traded on the MTA under the

symbol “Fiat”.

Dividend Policy

Refer to Note 26, Equity within the Consolidated Financial Statements included elsewhere in this report for additional

detail on the proposed annual ordinary dividend distribution to holders of FCA common shares.

For additional information on distribution of proﬁts, refer to ADDITIONAL INFORMATION FOR NETHERLANDS

CORPORATE GOVERNANCE - Dividends above.

Other Information

Additional Information

for U.S. Listing Purposes

2018

ANNUAL REPORT

295

Principal Accountant Fees and Services

EY S.p.A., the member ﬁrms of Ernst& Young and their respective afﬁliates (collectively, the “Ernst& Young Entities”)

were appointed to serve as our independent registered public accounting ﬁrm for the years ended December31, 2018

and 2017. We incurred the following fees from the Ernst& Young Entities for professional services for the years ended

December31, 2018 and 2017, respectively:

Years Ended December 31

(€ thousands)

2018 2017

Audit fees € 18,607 € 18,601

Audit-related fees 50 398

Tax fees 346 100

Total € 19,003 € 19,099

“Audit fees” are the aggregate fees billed by the Ernst& Young Entities for the audit of our consolidated annual ﬁnancial

statements, reviews of interim ﬁnancial statements and attestation services that are provided in connection with statutory

and regulatory ﬁlings or engagements. “Audit-related fees” are fees charged by the Ernst& Young Entities for assurance

and related services that are reasonably related to the performance of the audit or review of our ﬁnancial statements and

are not reported under “Audit fees”. This category comprises fees for the audit of employee beneﬁt plans and pension

plans, agreed-upon procedure engagements and other attestation services subject to regulatory requirements.

Audit Committee’s pre-approval policies and procedures

Our Audit Committee nominates and engages our independent registered public accounting ﬁrm to audit our consolidated

ﬁnancial statements. Our Audit Committee has a policy requiring management to obtain the Audit Committee’s approval

before engaging our independent registered public accounting ﬁrm to provide any other audit or permitted non-audit

services to us or our subsidiaries. Pursuant to this policy, which is designed to ensure that such engagements do not impair

the independence of our independent registered public accounting ﬁrm, the Audit Committee reviews and pre-approves (if

appropriate) speciﬁc audit and non-audit services in the categories Audit Services, Audit-Related Services, Tax Services,

and any other services that may be performed by our independent registered public accounting ﬁrm.

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TAXATION

Material U.S. Federal Income Tax Consequences

This section describes the material U.S. federal income tax consequences of owning FCA stock. It applies solely

to persons that hold shares as capital assets for U.S. federal income tax purposes. This section does not apply to

members of a special class of holders subject to special rules, including:

a dealer in securities or foreign currencies;

a regulated investment company;

a trader in securities that elects to use a mark-to-market method of accounting for securities holdings;

a tax-exempt organization;

a bank, ﬁnancial institution, or insurance company;

a person liable for alternative minimum tax;

a person that actually or constructively owns 10 percent or more, by vote or value, of FCA;

a person that holds shares as part of a straddle or a hedging, conversion, or other risk reduction transaction for U.S.

federal income tax purposes;

a person that acquired shares pursuant to the exercise of employee stock options or otherwise as compensation; or

a person whose functional currency is not the U.S. Dollar.

This section is based on the Internal Revenue Code of 1986, as amended, the Code, its legislative history, existing and

proposed regulations, published rulings and court decisions, as well as on applicable tax treaties, all as of the date

hereof. These laws are subject to change, possibly on a retroactive basis.

If an entity or arrangement treated as a partnership for U.S. federal income tax purposes holds shares, the U.S. federal

income tax treatment of a partner will generally depend on the status of the partner and the tax treatment of the

partnership. A partner in an entity treated as a partnership for U.S. federal income tax purposes holding shares should

consult its tax advisors with regard to the U.S. federal income tax treatment of the ownership of FCA stock.

No statutory, judicial or administrative authority directly discusses how the ownership of FCA stock should be treated

for U.S. federal income tax purposes. As a result, the U.S. federal income tax consequences of the ownership of FCA

stock are uncertain. Shareholders should consult their own tax advisors regarding the U.S. federal, state and local and

foreign and other tax consequences of owning and disposing of FCA stock in their particular circumstances.

For the purposes of this discussion, a “U.S. Shareholder” is a beneﬁcial owner of shares that is:

an individual that is a citizen or resident of the United States;

a corporation, or other entity taxable as a corporation, created or organized under the laws of the United States;

an estate whose income is subject to U.S. federal income tax regardless of its source; or

a trust if a U.S. court can exercise primary supervision over the trust’s administration and one or more U.S. persons

are authorized to control all substantial decisions of the trust.

Other Information

Additional Information

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Tax Consequences of Owning FCA Stock

Taxation of Dividends

Under the U.S. federal income tax laws, and subject to the discussion of PFIC taxation below, a U.S. Shareholder must

include in its gross income the gross amount of any dividend paid by FCA to the extent of its current or accumulated

earnings and proﬁts (as determined for U.S. federal income tax purposes). Dividends will be taxed as ordinary income to

the extent that they are paid out of FCA’s current or accumulated earnings and proﬁts. Dividends paid to a non-corporate

U.S. Shareholder by certain “qualiﬁed foreign corporations” that constitute qualiﬁed dividend income are taxable to the

shareholder at the preferential rates applicable to long-term capital gains provided that the shareholder holds the shares

for more than 60 days during the 121-day period beginning 60 days before the ex-dividend date and meets other holding

period requirements. For this purpose, stock of FCA is treated as stock of a qualiﬁed foreign corporation if FCA is eligible

for the beneﬁts of an applicable comprehensive income tax treaty with the United States or if such stock is listed on an

established securities market in the United States. The common shares of FCA are listed on the NYSE and FCA expects

to be eligible for the beneﬁts of such a treaty. Accordingly, subject to the discussion of PFIC taxation below, dividends FCA

pays with respect to the shares will constitute qualiﬁed dividend income, assuming the holding period requirements are met.

A U.S. Shareholder must include any foreign tax withheld from the dividend payment in this gross amount even though

the shareholder does not in fact receive the amount withheld. The dividend is taxable to a U.S. Shareholder when the

U.S. Shareholder receives the dividend, actually or constructively.

The dividend will not be eligible for the dividends-received deduction allowed to U.S. corporations in respect of

dividends received from other U.S. corporations.

Distributions in excess of current and accumulated earnings and proﬁts, as determined for U.S. federal income tax

purposes, will be treated as a non-taxable return of capital to the extent of the U.S. Shareholder’s basis in the shares of

FCA stock, causing a reduction in the U.S. Shareholder’s adjusted basis in FCA stock, and thereafter as capital gain.

Subject to certain limitations, any non-U.S. tax withheld and paid over to a non-U.S. taxing authority is eligible for credit

against a U.S. Shareholder’s U.S. federal income tax liability except to the extent a refund of the tax withheld is available to

the U.S. Shareholder under non-U.S. tax law or under an applicable tax treaty. The amount allowed to a U.S. Shareholder

as a credit is limited to the amount of the U.S. Shareholder’s U.S. federal income tax liability that is attributable to income

from sources outside the U.S. and is computed separately with respect to different types of income that the U.S.

Shareholder receives from non-U.S. sources. Subject to the discussion below regarding Section904(h) of the Code,

dividends paid by FCA will be foreign source income and depending on the circumstances of the U.S. Shareholder, will be

either “passive” or “general” income for purposes of computing the foreign tax credit allowable to a U.S. Shareholder.

Under Section904(h) of the Code, dividends paid by a foreign corporation that is treated as 50 percent or more

owned, by vote or value, by U.S. persons may be treated as U.S. source income (rather than foreign source

income) for foreign tax credit purposes, to the extent the foreign corporation earns U.S. source income. In certain

circumstances, U.S. Shareholders may be able to choose the beneﬁts of Section904(h)(10) of the Code and elect

to treat dividends that would otherwise be U.S. source dividends as foreign source dividends, but in such a case the

foreign tax credit limitations would be separately determined with respect to such “resourced” income. In general,

therefore, the application of Section904(h) of the Code may adversely affect a U.S. Shareholder’s ability to use foreign

tax credits. FCA does not believe that it is 50 percent or more owned by U.S. persons, but this conclusion is a factual

determination and is subject to change; no assurance can therefore be given that FCA may not be treated as 50

percent or more owned by U.S. persons for purposes of Section904(h) of the Code. U.S. Shareholders are strongly

urged to consult their own tax advisors regarding the possible impact if Section904(h) of the Code should apply.

Taxation of Capital Gains

Subject to the discussion of PFIC taxation below, a U.S. Shareholder that sells or otherwise disposes of its FCA

common shares will recognize capital gain or loss for U.S. federal income tax purposes equal to the difference

between the U.S. Dollar value of the amount that the U.S. Shareholder realizes and the U.S. Shareholder’s tax basis

in those shares. Capital gain of a noncorporate U.S. Shareholder is generally taxed at preferential rates where the

property is held for more than one year. The gain or loss will be U.S. source income or loss for foreign tax credit

limitation purposes. The deduction of capital losses is subject to limitations.

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Loyalty Voting Structure

NO STATUTORY, JUDICIAL OR ADMINISTRATIVE AUTHORITY DIRECTLY DISCUSSES HOW THE RECEIPT,

OWNERSHIP OR DISPOSITION OF SPECIAL VOTING SHARES SHOULD BE TREATED FOR U.S. FEDERAL

INCOME TAX PURPOSES AND AS A RESULT, THE U.S. FEDERAL INCOME TAX CONSEQUENCES ARE

UNCERTAIN. ACCORDINGLY, WE URGE U.S. SHAREHOLDERS TO CONSULT THEIR TAX ADVISOR AS TO THE

TAX CONSEQUENCES OF THE RECEIPT, OWNERSHIP AND DISPOSITION OF SPECIAL VOTING SHARES.

If a U.S. Shareholder receives special voting shares after requesting all or some of the number of its FCA common

shares be registered on the Loyalty Register, the tax consequences of the receipt of special voting shares is unclear.

While distributions of stock are tax-free in certain circumstances, the distribution of special voting shares would be

taxable if it were considered to result in a “disproportionate distribution.” A disproportionate distribution is a distribution

or series of distributions, including deemed distributions, that have the effect of the receipt of cash or other property by

some shareholders of FCA and an increase in the proportionate interest of other shareholders of FCA in FCA’s assets or

earnings and proﬁts. It is possible that the distribution of special voting shares to a U.S. Shareholder that has requested

all or some of the number of its FCA common shares be registered on the Loyalty Register and a distribution of cash

in respect of FCA common shares could be considered together to constitute a “disproportionate distribution.” Unless

FCA has not paid cash dividends in the 36 months prior to a U.S. Shareholder’s receipt of special voting shares and FCA

does not intend to pay cash dividends in the 36 months following a U.S. Shareholder’s receipt of special voting shares,

FCA intends to treat the receipt of special voting shares as a distribution that is subject to tax as described above in

“Consequences of Owning FCA Stock—Taxation of Dividends.” The amount of the dividend should equal the fair market

value of the special voting shares received. For the reasons stated above, FCA believes and intends to take the position

that the value of each special voting share is minimal. However, because the fair market value of the special voting shares

is factual and is not governed by any guidance that directly addresses such a situation, the IRS could assert that the

value of the special voting shares (and thus the amount of the dividend) as determined by FCA is incorrect.

Ownership of Special Voting Shares

FCA believes that U.S. Shareholders holding special voting shares should not have to recognize income in respect of

amounts transferred to the special voting shares dividend reserve that are not paid out as dividends. Section305 of

the Code may, in certain circumstances, require a holder of preferred shares to recognize income even if no dividends

are actually received on such shares if the preferred shares are redeemable at a premium and the redemption

premium results in a “constructive distribution.” Preferred shares for this purpose refer to shares that do not participate

in corporate growth to any signiﬁcant extent. FCA believes that Section305 of the Code should not apply to any

amounts transferred to the special voting shares dividend reserve that are not paid out as dividends so as to require

current income inclusion by U.S. Shareholders because, among other things, (i)the special voting shares are not

redeemable on a speciﬁc date and a U.S. Shareholder is only entitled to receive amounts in respect of the special

voting shares upon liquidation, (ii)Section305 of the Code does not require the recognition of income in respect of

a redemption premium if the redemption premium does not exceed a de minimis amount and, even if the amounts

transferred to the special voting shares dividend reserve that are not paid out as dividends are considered redemption

premium, the amount of the redemption premium is likely to be “de minimis” as such term is used in the applicable

Treasury Regulations. FCA therefore intends to take the position that the transfer of amounts to the special voting

shares dividend reserve that are not paid out as dividends does not result in a “constructive distribution,” and this

determination is binding on all U.S. Shareholders of special voting shares other than a U.S. Shareholder that explicitly

discloses its contrary determination in the manner prescribed by the applicable regulations. However, because the

tax treatment of the loyalty voting structure is unclear and because FCA’s determination is not binding on the IRS, it is

possible that the IRS could disagree with FCA’s determination and require current income inclusion in respect of such

amounts transferred to the special voting shares dividend reserve that are not paid out as dividends.

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Disposition of Special Voting Shares

The tax treatment of a U.S. Shareholder that has its special voting shares redeemed for zero consideration after

removing its common shares from the Loyalty Register is unclear. It is possible that a U.S. Shareholder would

recognize a loss to the extent of the U.S. Shareholder’s basis in its special voting shares, which should equal (i)if the

special voting shares were received in connection with the Merger, the basis allocated to the special voting shares,

and (ii)if the special voting shares were received after the requisite holding period on the Loyalty Register, the amount

that was included in income upon receipt. Such loss would be a capital loss and would be a long-term capital loss if a

U.S. Shareholder has held its special voting shares for more than one year. It is also possible that a U.S. Shareholder

would not be allowed to recognize a loss upon the redemption of its special voting shares and instead a U.S.

Shareholder should increase the basis in its FCA common shares by an amount equal to the basis in its special voting

shares. Such basis increase in a U.S. Shareholder’s FCA common shares would decrease the gain, or increase the

loss, that a U.S. Shareholder would recognize upon the sale or other taxable disposition of its FCA common shares.

THE U.S. FEDERAL INCOME TAX TREATMENT OF THE LOYALTY VOTING STRUCTURE IS UNCLEAR AND U.S.

SHAREHOLDERS ARE URGED TO CONSULT THEIR TAX ADVISORS IN RESPECT OF THE CONSEQUENCES OF

ACQUIRING, OWNING, AND DISPOSING OF SPECIAL VOTING SHARES.

PFIC Considerations—Consequences of Holding FCA Stock

FCA believes that shares of its stock are not stock of a PFIC for U.S. federal income tax purposes, but this conclusion is

based on a factual determination made annually and thus is subject to change. As discussed in greater detail below, if

shares of FCA stock were to be treated as stock of a PFIC, gain realized (subject to the discussion below regarding a mark-

to-market election) on the sale or other disposition of shares of FCA stock would not be treated as capital gain, and a U.S.

Shareholder would be treated as if such U.S. Shareholder had realized such gain and certain “excess distributions” ratably

over the U.S. Shareholder’s holding period for its shares of FCA stock and would be taxed at the highest tax rate in effect

for each such year to which the gain was allocated, together with an interest charge in respect of the tax attributable to each

such year. With certain exceptions, a U.S. Shareholder’s shares of FCA stock would be treated as stock in a PFIC if FCA

were a PFIC at any time during such U.S. Shareholder’s holding period in the shares. Dividends received from FCA would

not be eligible for the special tax rates applicable to qualiﬁed dividend income if FCA were treated as a PFIC in the taxable

years in which the dividends are paid or in the preceding taxable year (regardless of whether the U.S. holder held shares of

FCA stock in such year) but instead would be taxable at rates applicable to ordinary income.

FCA would be a PFIC with respect to a U.S. Shareholder if for any taxable year in which the U.S. Shareholder held

shares of FCA stock, after the application of applicable “look-through rules”:

75 percent or more of FCA’s gross income for the taxable year consists of “passive income” (including dividends,

interest, gains from the sale or exchange of investment property and rents and royalties other than rents and

royalties which are received from unrelated parties in connection with the active conduct of a trade or business, as

deﬁned in applicable Treasury Regulations); or

at least 50 percent of its assets for the taxable year (averaged over the year and determined based upon value)

produce or are held for the production of passive income.

Because the determination whether a foreign corporation is a PFIC is primarily factual and there is little administrative

or judicial authority on which to rely to make a determination, the IRS might not agree that FCA is not a PFIC.

Moreover, no assurance can be given that FCA would not become a PFIC for any future taxable year if there were to

be changes in FCA’s assets, income or operations.

If FCA were to be treated as a PFIC for any taxable year (and regardless of whether FCA remains a PFIC for

subsequent taxable years), each U.S. Shareholder that is treated as owning FCA stock for purposes of the PFIC rules

(i) would be liable to pay U.S. federal income tax at the highest applicable income tax rates on (a) ordinary income

upon the receipt of excess distributions (the portion of any distributions received by the U.S. Shareholder on FCA

stock in a taxable year in excess of 125 percent of the average annual distributions received by the U.S. Shareholder in

the three preceding taxable years or, if shorter, the U.S. Shareholder’s holding period for the FCA stock) and (b) on any

gain from the disposition of FCA stock, plus interest on such amounts, as if such excess distributions or gain had been

recognized ratably over the U.S. Shareholder’s holding period of the FCA stock, and (ii) may be required to annually ﬁle

Form 8621 with the IRS reporting information concerning FCA.

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If FCA were to be treated as a PFIC for any taxable year and provided that FCA common shares are treated as

“marketable stock” within the meaning of applicable Treasury Regulations, which FCA believes will be the case, a U.S.

Shareholder may make a mark-to-market election. Under a mark-to-market election, any excess of the fair market

value of the FCA common shares at the close of any taxable year over the U.S. Shareholder’s adjusted tax basis in

the FCA common shares is included in the U.S. Shareholder’s income as ordinary income. These amounts of ordinary

income would not be eligible for the favorable tax rates applicable to qualiﬁed dividend income or long-term capital

gains. In addition, the excess, if any, of the U.S. Shareholder’s adjusted tax basis at the close of any taxable year over

the fair market value of the FCA common shares is deductible in an amount equal to the lesser of the amount of the

excess or the amount of the net mark-to-market gains that the U.S. Shareholder included in income in prior years.

A U.S. Shareholder’s tax basis in FCA common shares would be adjusted to reﬂect any such income or loss. Gain

realized on the sale, exchange or other disposition of FCA common shares would be treated as ordinary income, and

any loss realized on the sale, exchange or other disposition of FCA common shares would be treated as ordinary

loss to the extent that such loss does not exceed the net mark-to-market gains previously included by the U.S.

Shareholder. It is not expected that the special voting shares would be treated as “marketable stock” and eligible for

the mark-to-market election.

The adverse consequences of owning stock in a PFIC could also be mitigated if a U.S. Shareholder makes a valid

“qualiﬁed electing fund” election, or QEF election, which, among other things, would require a U.S. Shareholder to

include currently in income its pro rata share of the PFIC’s net capital gain and ordinary earnings, based on earnings

and proﬁts as determined for U.S. federal income tax purposes. Because of the administrative burdens involved, FCA

does not intend to provide information to its shareholders that would be required to make such election effective.

A U.S. Shareholder which holds FCA stock during a period when FCA is a PFIC will be subject to the foregoing rules

for that taxable year and all subsequent taxable years with respect to that U.S. Shareholder’s holding of FCA stock,

even if FCA ceases to be a PFIC, subject to certain exceptions for U.S. Shareholders which made a mark-to-market

or QEF election. U.S. Shareholders are strongly urged to consult their tax advisors regarding the PFIC rules, and the

potential tax consequences to them if FCA were determined to be a PFIC.

Medicare Tax on Net Investment Income

A U.S. person that is an individual or estate, or a trust that does not fall into a special class of trusts that is

exempt from such tax, is subject to a 3.8 percent tax, the Medicare tax, on the lesser of (i)the U.S. person’s “net

investment income” (or undistributed net investment income in the case of an estate or trust) for the relevant

taxable year and (ii)the excess of the U.S. person’s modiﬁed adjusted gross income for the taxable year over a

certain threshold (which in the case of individuals is between U.S.$125,000 and U.S.$250,000, depending on the

individual’s circumstances). A shareholder’s net investment income generally includes its dividend income and

its net gains from the disposition of shares, unless such dividends or net gains are derived in the ordinary course

of the conduct of a trade or business (other than a trade or business that consists of certain passive or trading

activities). If a shareholder is a U.S. person that is an individual, estate or trust, the shareholder is urged to consult

the shareholder’s tax advisors regarding the applicability of the Medicare tax to the shareholder’s income and gains

in respect of the shareholder’s investment in FCA stock.

Information with Respect to Foreign Financial Assets

Owners of “speciﬁed foreign ﬁnancial assets” with an aggregate value in excess of U.S.$50,000, (and in some cases,

a higher threshold) may be required to ﬁle an information report with respect to such assets with their tax returns.

“Speciﬁed foreign ﬁnancial assets” include any ﬁnancial accounts maintained by foreign ﬁnancial institutions, as

well as any of the following, but only if they are held for investment and not held in accounts maintained by ﬁnancial

institutions: (i)stocks and securities issued by non-U.S. persons; (ii)ﬁnancial instruments and contracts that have

non-U.S. issuers or counterparties; and (iii)interests in foreign entities. U.S. Shareholders are urged to consult their tax

advisors regarding the application of this legislation to their ownership of FCA stock.

Other Information

Additional Information

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Backup Withholding and Information Reporting

Information reporting requirements for a noncorporate U.S. Shareholder, on IRS Form 1099, will apply to:

dividend payments or other taxable distributions made to such U.S. Shareholder within the U.S.; and

the payment of proceeds to such U.S. Shareholder from the sale of FCA stock effected at a U.S. ofﬁce of a broker.

Additionally, backup withholding (currently at a 24 percent rate) may apply to such payments to a non-corporate U.S.

Shareholder that:

fails to provide an accurate taxpayer identiﬁcation number;

is notiﬁed by the IRS that such U.S. Shareholder has failed to report all interest and dividends required to be shown

on such U.S. Shareholder’s federal income tax returns; or

in certain circumstances, fails to comply with applicable certiﬁcation requirements.

A person may obtain a refund of any amounts withheld under the backup withholding rules that exceed the person’s

income tax liability by properly ﬁling a refund claim with the IRS.

Material Netherlands Tax Consequences

This section describes solely the material Dutch tax consequences of the acquisition, ownership and disposal of FCA

common shares and, if applicable, FCA special voting shares by Non-resident holders of such shares (as deﬁned

below). It does not consider every aspect of Dutch taxation that may be relevant to a particular holder of FCA common

shares and, if applicable, FCA special voting shares in special circumstances or who is subject to special treatment

under applicable law. Shareholders and any potential investor should consult their own tax advisors regarding the

Dutch tax consequences of acquiring, owning and disposing of FCA common shares and, if applicable, FCA special

voting shares in their particular circumstances.

Where in this section English terms and expressions are used to refer to Dutch concepts, the meaning to be attributed

to such terms and expressions shall be the meaning to be attributed to the equivalent Dutch concepts under Dutch

tax law. Where in this section the terms “the Netherlands” and “Dutch” are used, these refer solely to the European

part of the Kingdom of the Netherlands. This summary also assumes that the board shall control the conduct of the

affairs of FCA and shall procure that FCA is organized in accordance with the facts, based upon which the competent

authorities of the United Kingdom and The Netherlands have ruled that FCA should be treated as solely resident of the

United Kingdom for the application of the tax treaty as concluded between the United Kingdom and The Netherlands.

A change in facts and circumstances based upon which the ruling was issued may invalidate the contents of this

section, which will not be updated to reﬂect any such change.

This description is based on the tax law of the Netherlands (unpublished case law not included) as it stands at the date

of this Form. The law upon which this description is based is subject to change, possibly with retroactive effect. Any

such change may invalidate the contents of this description, which will not be updated to reﬂect such change.

Where in this Dutch taxation discussion reference is made to “a holder of FCA common shares and, if applicable, FCA

special voting shares”, that concept includes, without limitation:

1. an owner of one or more FCA common shares and/or FCA special voting shares who in addition to the title to such

FCA common shares and/or FCA special voting shares, has an economic interest in such FCA common shares

and/or FCA special voting shares;

2. a person who or an entity that holds the entire economic interest in one or more FCA common shares and/or FCA

special voting shares;

3. a person who or an entity that holds an interest in an entity, such as a partnership or a mutual fund, that is

transparent for Dutch tax purposes, the assets of which comprise one or more FCA common shares and/or FCA

special voting shares, within the meaning of 1. or 2. above; or

4. a person who is deemed to hold an interest in FCA common shares and/or FCA special voting shares, as

referred to under 1. to 3., pursuant to the attribution rules of article 2.14a, of the Dutch Income Tax Act 2001 (Wet

inkomstenbelasting 2001), with respect to property that has been segregated, for instance in a trust or a foundation.

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Scope of the summary

The summary of Dutch taxes set out in this section “Material Dutch tax consequences” only applies to a holder of

FCA common shares and, if applicable FCA special voting shares who is a Non-Resident holder of such shares. For

the purpose of this summary a holder of FCA common shares and, if applicable FCA special voting shares is a Non-

Resident holder of such shares if such holder is neither a resident nor deemed to be resident in The Netherlands for

purposes of Dutch income tax or corporation tax as the case may be.

This summary does not describe the tax considerations for holders of FCA common shares and, if applicable FCA

special voting shares who are individuals and derive beneﬁts from FCA common shares and, if applicable FCA special

voting shares that are a remuneration or deemed to be a remuneration in connection with past, present or future

employment performed in The Netherlands or management activities and functions or membership of a management

board (bestuurder) or a supervisory board (commissaris) of a Netherlands resident entity by such holder or certain

individuals related to such holder (as deﬁned in The Dutch Income Tax Act 2001).

Taxes on income and capital gains

A Non-Resident holder (as deﬁned above) of FCA common shares and, if applicable, FCA special voting shares will not

be subject to any Dutch taxes on income or capital gains in respect of any beneﬁts derived or deemed to be derived

by such holder from such holder’s FCA common shares and, if applicable, FCA special voting shares, including any

capital gain realized on the disposal thereof, unless:

such holder derives proﬁts from an enterprise directly, or pursuant to a co-entitlement to the net value of such

enterprise, other than as a holder of securities, which enterprise either is managed in the Netherlands or carried

on, in whole or in part, through a permanent establishment or a permanent representative which is taxable in the

Netherlands, and such holder’s FCA common shares and, if applicable, FCA special voting shares are attributable

to such enterprise; or

such holder is an individual and such holder derives beneﬁts from FCA common shares and, if applicable,

FCA special voting shares that are taxable as beneﬁts from miscellaneous activities (resultaat uit overige

werkzaamheden) in the Netherlands. Such holder may, inter alia, derive, or be deemed to derive, beneﬁts from

FCA common shares and, if applicable, FCA special voting shares that are taxable as beneﬁts from miscellaneous

activities if such holder’s investment activities go beyond the activities of an active portfolio investor, for instance in

the case of use of insider knowledge or comparable forms of special knowledge.

Beneﬁts derived or deemed to be derived from certain miscellaneous activities by a child or a foster child who is under

eighteen years of age are attributed to the parent who exercises, or the parents who exercise, authority over the child,

irrespective of the country of residence of the child.

Dividend withholding tax

FCA is generally required to withhold Dutch dividend withholding tax at a rate of 15 percent from dividends distributed

by it. However, the competent authorities of the United Kingdom and The Netherlands have ruled that FCA is resident

of the United Kingdom for the application of the tax treaty as concluded between The Netherlands and the United

Kingdom. Consequently payments made by FCA on the common shares and or the special voting shares to non-

resident shareholders may be made free from Dutch dividend withholding tax.

Gift and inheritance taxes

If a holder of FCA common shares and, if applicable, FCA special voting shares disposes of FCA common shares and,

if applicable, FCA special voting shares by way of gift, in form or in substance, or if a holder of FCA common shares

and, if applicable, FCA special voting shares who is an individual dies, no Dutch gift tax or Dutch inheritance tax, as

applicable, will be due, unless:

the donor is, or the deceased was, resident or deemed to be resident in the Netherlands for purposes of Dutch gift

tax or Dutch inheritance tax, as applicable; or

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the donor made a gift of FCA common shares and, if applicable, FCA special voting shares, then became a resident

or deemed resident of the Netherlands, and died as a resident or deemed resident of the Netherlands within 180

days of the date of the gift.

For purposes of the above, a gift of FCA common shares and, if applicable, FCA special voting shares made under a

condition precedent is deemed to be made at the time the condition precedent is satisﬁed.

Value Added Tax

No Dutch value added tax will arise in respect of any payment in consideration for the issue of FCA common shares

and, if applicable, FCA special voting shares.

Registration taxes and duties

No Dutch registration tax, transfer tax, stamp duty or any other similar documentary tax or duty, other than court fees,

is payable in the Netherlands by a holder in respect of or in connection with (i)the subscription, issue, placement or

allotment of FCA common shares and, if applicable, FCA special voting shares, (ii)the enforcement by way of legal

proceedings (including the enforcement of any foreign judgment in the courts of the Netherlands) of the documents

relating to the issue of FCA common shares and, if applicable, FCA special voting shares or the performance by FCA

of FCA’s obligations under such documents, or (iii)the transfer of FCA common shares and, if applicable, FCA special

voting shares.

Material UK Tax Consequences

This section describes the material United Kingdom tax consequences of the ownership of FCA common shares for

U.S. Shareholders. It does not purport to be a complete analysis of all potential UK tax consequences of holding FCA

common shares. This section is based on current UK tax law and what is understood to be the current practice of

H.M. Revenue and Customs, as well as on applicable tax treaties. This law and practice and these treaties are subject

to change, possibly on a retroactive basis.

This section applies only to shareholders of FCA that are U.S. Shareholders, that are not resident or domiciled in the

UK, that are not individuals temporarily non-resident in the UK for a period of up to ﬁve years, that hold their shares

as an investment (other than through an individual savings account), and that are the absolute beneﬁcial owner of

both the shares and any dividends paid on them. This section does not apply to members of any special class of

shareholders subject to special rules, such as:

a pension fund;

a charity;

persons acquiring their shares in connection with an ofﬁce or employment;

a dealer in securities;

an insurance company; or

a collective investment scheme.

In addition, this section may not apply to:

any shareholders that, either alone or together, with one or more associated persons, such as personal trusts and

connected persons, control directly or indirectly at least ten percent of the voting rights or of any class of share

capital of FCA; or

any person holding shares as a borrower under a stock loan or an interim holder under a repo.

Shareholders should consult their own tax advisors on the UK tax consequences of owning and disposing of FCA

common shares in their particular circumstances.

304

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ANNUAL REPORT

Tax Consequences of Owning FCA Common Shares

Taxation of Dividends

Dividend payments may be made without withholding or deduction for or on account of UK income tax.

A U.S. Shareholder will not be liable to account for income or corporation tax in the UK on dividends paid on the

shares unless the shareholder carries on a trade (or profession or vocation) in the UK and the dividends are either a

receipt of that trade or, in the case of corporation tax, the shares are held by or for a UK permanent establishment

through which the trade is carried on (unless, if certain conditions are met, the trade is carried on through an

independent broker or investment manager).

Taxation of Capital Gains

A disposal of FCA common shares by a shareholder that is not resident in the United Kingdom for tax purposes will

not give rise to a chargeable gain or allowable loss unless that shareholder carries on a trade, profession or vocation

in the United Kingdom through a branch, agency or permanent establishment (excluding, if certain conditions are met,

an independent broker or investment manager) and has used, held or acquired FCA common shares for the purposes

of that trade, profession or vocation or that branch, agency or permanent establishment.

Stamp Duty and Stamp Duty Reserve Tax

No liability to UK stamp duty or Stamp Duty Reserve Tax (“SDRT”) will arise on the issue of FCA common shares to

shareholders. FCA will not maintain any share register in the UK and, accordingly, (i)UK stamp duty will not normally

be payable in connection with a transfer of common shares, provided that the instrument of transfer is executed and

retained outside the UK and no other action is taken in the UK by the transferor or transferee, and (ii)no UK SDRT will

be payable in respect of any agreement to transfer FCA common shares.

Tax Consequences of Participating in the Loyalty Voting Structure

A U.S. Shareholder that would not be subject to tax on dividends or capital gains in respect of FCA common shares

will not be subject to tax in respect of the special voting shares.

FCA will not maintain any share register in the UK and, accordingly, no liability to UK stamp duty or SDRT will arise to

shareholders on the issue or repurchase of special voting shares.

Other Information

Additional Information

for U.S. Listing Purposes

2018

ANNUAL REPORT

305

Exhibits

Exhibit

Number Description of Documents

1.1 English translation of the Articles of Association of Fiat Chrysler Automobiles N.V. (incorporated by reference to Exhibit 3.1 to

Amendment No. 3 to Registration Statement on Form F-1, ﬁled with the SEC on December 4, 2014, File No. 333-199285)

1.2 English translation of the Deed of Incorporation of Fiat Chrysler Automobiles N.V. (incorporated by reference to Exhibit3.2 to

Registration Statement on Form F-4, ﬁled with the SEC on July3, 2014, File No. 333-197229)

2.1 Terms and Conditions of the Global Medium Term Notes (incorporated by reference to Exhibit4.1 to Registration Statement on

Form F-4, ﬁled with the SEC on July3, 2014, File No.333-197229)

2.2 Deed of Guarantee, dated as of March 19, 2013, by Fiat S.p.A. in favor of the Relevant Account Holders and the holders for

the time being of the Global Medium Term Notes and the interest coupons appertaining to the Global Medium Term Notes

(incorporated by reference to Exhibit4.2 to Registration Statement on Form F-4, ﬁled with the SEC on July3, 2014, File No.

333-197229)

2.3 Indenture, dated as of April 14, 2015, between Fiat Chrysler Automobiles N.V. and The Bank of New York Mellon, as Trustee,

relating to senior debt securities (incorporated by reference to Exhibit 4.1 to Report on Form 6-K, ﬁled with the SEC on April 16,

2015, File No. 001-36676)

2.4 Form of 4.500% Global Security for Exchange Notes due 2020 (incorporated by reference to Exhibit 4.3 to Registration

Statement on Form F-4, ﬁled with the SEC on May 19, 2015, File No. 333-204303)

2.5 Form of 5.250% Global Security for Exchange Notes due 2023 (incorporated by reference to Exhibit 4.4 to Registration

Statement on Form F-4, ﬁled with the SEC on May 19, 2015, File No. 333-204303)

There have not been ﬁled as exhibits to this Form 20-F certain long-term debt instruments, none of which relates to

indebtedness that exceeds 10% of the consolidated assets of Fiat Chrysler Automobiles N.V. Fiat Chrysler Automobiles N.V.

agrees to furnish the Securities and Exchange Commission, upon its request, a copy of any instrument deﬁning the rights of

holders of long-term debt of Fiat Chrysler Automobiles N.V. and its consolidated subsidiaries.

4.1 Fiat Chrysler Automobiles N.V. Equity Incentive Plan (incorporated by reference to Exhibit 4.2 to Registration Statement on

Form S-8, ﬁled with the SEC on January 12, 2015, File No. 333-201440)

4.2 Fiat Chrysler Automobiles N.V. Remuneration Policy (incorporated by reference to Exhibit 4.3 to Registration Statement on

Form S-8, ﬁled with the SEC on January 12, 2015, File No. 333-201440)

8.1 Subsidiaries

12.1 Section 302 Certiﬁcation of the Chief Executive Ofﬁcer

12.2 Section 302 Certiﬁcation of the Chief Financial Ofﬁcer

13.1 Certiﬁcation of the Chief Executive Ofﬁcer Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the

Sarbanes-Oxley Act of 2002

13.2 Certiﬁcation of the Chief Financial Ofﬁcer Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the

Sarbanes-Oxley Act of 2002

23 Consent of Independent Registered Public Accounting Firm

101.INS XBRL Instance Document

101.SCH XBRL Taxonomy Extension Schema Document

101.CAL XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF XBRL Taxonomy Extension Deﬁnition Linkbase Document

101.LAB XBRL Taxonomy Extension Label Linkbase Document

101.PRE XBRL Taxonomy Extension Presentation Linkbase Document

306

2018

ANNUAL REPORT

Company Financial

Statements

Notes to the Company

Financial Statements

2018

ANNUAL REPORT

Company Financial

Statements

Notes to the Company

Financial Statements

307

Independent

Auditor’s Report

308

2018

ANNUAL REPORT

Independent Auditor’s Report

To: the shareholders and audit committee of Fiat Chrysler Automobiles N.V.

Report on the audit of the ﬁnancial statements 2018 included in the annual report

Our opinion

We have audited the ﬁnancial statements 2018 of Fiat Chrysler Automobiles N.V. (the Company), incorporated

in Amsterdam, the Netherlands. The ﬁnancial statements include the consolidated ﬁnancial statements and the

Company ﬁnancial statements (collectively referred to as the Financial statements).

In our opinion:

The accompanying consolidated ﬁnancial statements give a true and fair view of the ﬁnancial position of

FiatChrysler Automobiles N.V. as at December 31, 2018 and of its result and its cash ﬂows for 2018 in accordance

with International Financial Reporting Standards as adopted by the European Union (EU-IFRS) and with Part 9 of

Book 2 of the Dutch Civil Code

The accompanying Company ﬁnancial statements give a true and fair view of the ﬁnancial position of Fiat Chrysler

Automobiles N.V. as at December 31, 2018 and of its result for 2018 in accordance with Part 9 of Book 2 of the

Dutch Civil Code

The consolidated ﬁnancial statements comprise:

The consolidated statement of ﬁnancial position as at December 31, 2018

The following statements for 2018: consolidated income statement, the consolidated statements of comprehensive

income, cash ﬂows and changes in equity

The notes comprising a summary of the signiﬁcant accounting policies and other explanatory information

The Company ﬁnancial statements comprise:

The Company statement of ﬁnancial position as at December 31, 2018

The Company income statement for 2018

The notes comprising a summary of the accounting policies and other explanatory information

Basis for our opinion

We conducted our audit in accordance with Dutch law, including the Dutch Standards on Auditing. Our responsibilities

under those standards are further described in the “Our responsibilities for the audit of the ﬁnancial statements”

section of our report.

We are independent of Fiat Chrysler Automobiles N.V. in accordance with the EU Regulation on speciﬁc requirements

regarding statutory audit of public-interest entities, the Wet toezicht accountants organisaties (Wta, Audit ﬁrms

supervision act), the Verordening inzake de onafhankelijkheid van accountants bij assurance-opdrachten (ViO, Code

of Ethics for Professional Accountants, a regulation with respect to independence) and other relevant independence

regulations in the Netherlands. Furthermore we have complied with the Verordening gedrags - en beroepsregels

accountants (VGBA, Dutch Code of Ethics).

We believe the audit evidence we have obtained is sufﬁcient and appropriate to provide a basis for our opinion.

2018

ANNUAL REPORT

309

Materiality

Materiality €370 million (2017: €400 million)

Benchmark applied 5% of Adjusted EBIT (earnings before interest and income taxes)

Explanation Based on our professional judgement we consider Adjusted EBIT as an appropriate benchmark to determine

materiality as we believe this is an important measure of the Company’s performance.

Last year, the applied Adjusted EBIT included a forward looking element while this year it is based on the actual

Adjusted EBIT reported.

We have also taken misstatements into account and/or possible misstatements that in our opinion are material for the

users of the ﬁnancial statements for qualitative reasons.

We agreed with the audit committee that misstatements in excess of €20 million, which are identiﬁed during the audit,

would be reported to them, as well as smaller misstatements that in our view must be reported on qualitative grounds.

Scope of the group audit

Fiat Chrysler Automobiles N.V. is the parent of a group of entities. The ﬁnancial information of this group is included

in the consolidated ﬁnancial statements of Fiat Chrysler Automobiles N.V. The Company is organized along operating

segments and has identiﬁed ﬁve reportable segments being NAFTA, EMEA, LATAM, APAC, and Maserati, along with

certain other corporate functions and unallocated items which are not included within the reportable segments.

Our group audit mainly focused on signiﬁcant group entities. Group entities are considered signiﬁcant components

either because of their individual ﬁnancial signiﬁcance or because they are likely to include signiﬁcant risks of material

misstatement due to their speciﬁc nature or circumstances. All such signiﬁcant group entities (comprising 41 entities)

were included in the scope of our group audit.

Accordingly, we identiﬁed 5 of Fiat Chrysler Automobiles N.V.’s group entities, which, in our view, required an audit

of their complete ﬁnancial information due to their overall size and their risk characteristics. Speciﬁc scope audit

procedures on certain balances and transactions were performed on 19 entities. Other procedures are performed on

a further 17 entities. The remaining 291 components which are not included in our group scope have been subject to

risk assessment analytics.

In establishing the overall approach to the audit, we determined the type of work that is needed to be done by us,

as group auditors, or by component auditors from Ernst & Young Global member ﬁrms and operating under our

instructions. The following matters are audited directly by the group audit team:

The group consolidation, ﬁnancial statements and disclosures and the audit of the key audit matters:

Valuation of goodwill and other non-current assets with indeﬁnite useful lives, with particular reference to APAC

goodwill,

Recoverability of non-current assets with deﬁnite useful lives with particular reference to EMEA,

Income taxes with focus on recoverability of the Italian deferred tax assets

The two other key audit matters, provision for NAFTA product warranty and recall campaigns and US emission

investigations were audited by the US component team under our direction and supervision.

The group engagement team visited at least once the local management and their auditors of the components

which are signiﬁcant based on size and their related risk: FCA US, FCA Italy and FCA Brasil. For each of these

locations we reviewed the audit ﬁles of the component auditor and determined the sufﬁciency and appropriateness

of the work performed.

310

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ANNUAL REPORT

Independent Auditor’s Report

The group engagement team visited FCA management in China for CHRYSLER GR. (CHINA) LTD, FCA AUTOM

FINANCE CO LTDand MASERATI(CHINA)CARS CO. In addition, we have visited their component auditors as part

of our direction and supervision of the group audit.

All component audit teams included in the group scope received detailed instructions from the group engagement

team including key risk areas and signiﬁcant accounts and the group engagement team reviewed their deliverables.

In total these procedures represent 100% of the group’s total assets and 100% of revenues.

Full scope Speciﬁc scope Other procedures including risk assessment analytics

By performing the procedures mentioned above at group entities, together with additional procedures at group level,

we have been able to obtain sufﬁcient and appropriate audit evidence about the group’s ﬁnancial information to

provide an opinion about the consolidated ﬁnancial statements.

Our key audit matters

Key audit matters are those matters that, in our professional judgement, were of most signiﬁcance in our audit of the

ﬁnancial statements. We have communicated the key audit matters to the audit committee. The key audit matters are

not a comprehensive reﬂection of all matters discussed.

These matters were addressed in the context of our audit of the ﬁnancial statements as a whole and in forming our

opinion thereon, and we do not provide a separate opinion on these matters. This year two new key audit matters

related to the recoverability of non-current assets with deﬁnite useful lives with particular reference to EMEA and the

US emissions investigations have been added.

Revenues Total Assets

2018

ANNUAL REPORT

311

Valuation of goodwill and other non-current assets with indeﬁnite useful lives, with particular reference to APAC goodwill

Risk At December 31, 2018 the recorded amount of goodwill and other non-current assets with indeﬁnite useful

lives was €10,834 million and €3,136 million respectively. These amounts have primarily been allocated to the

Company’s four cash generating units (‘CGU’) that align with the mass market operating segments (NAFTA,

APAC, LATAM and EMEA) as set out in note 9. The amount of goodwill allocated to APAC was €1.1 billion.

The Company’s assessment of the recoverable amount of each CGU involves judgement about the future

performance of the business and the discount rates applied to future cash ﬂow forecasts.

Speciﬁcally for APAC, expected future cash ﬂows are sensitive to certain assumptions, primarily the expected

margins for the terminal period which directly impact the valuation of goodwill.

Considering the level of judgement and complexity of the assumptions applied in estimating the recoverable

amount we have determined that this area constitutes a signiﬁcant risk.

Our audit approach We designed and performed the following audit procedures to be responsive to this risk:

• We obtained an understanding of the impairment assessment processes and evaluated the design and tested

the effectiveness of controls in this area relevant to our audit.

• We validated that the level at which goodwill and other non-current assets are tested continues to be

appropriate. We tested the carrying amounts included in the impairment tests.

• We evaluated whether the impairment methodology applied by the Company is in line with the requirements

per IAS 36, Impairment of Assets

• We obtained an understanding of the work performed by the management specialists used for the valuation.

• We performed procedures to assess the reasonableness of cash ﬂow forecasts including comparisons to

industry forecasts and sector data.

In addition, we:

• Reconciled the cash ﬂow forecasts for each CGU to the Group’s business plan for the period 2019-2022.

• Evaluated the appropriateness of the use of these forecasts in light of the historical accuracy of the Company’s

forecasts.

• Tested the operational margins, discount rates and long term growth rates applied within the model were

assessed by EY valuation specialists who independently performed their own calculations and also performed

sensitivity analyses of key assumptions for each CGU to determine which changes could materially impact the

valuation of the recoverable amount.

Finally, we reviewed the adequacy of the disclosures made in Note 2, Basis of preparation by the Company in

this area, in particular focusing on whether any reasonable possible changes in key assumptions will lead to an

impairment of goodwill.

Key observations Based on the results of our work, we agree with the Company’s conclusion that no impairment of goodwill is

required in the current year.

With regards to APAC, as the carrying amount of goodwill is sensitive to certain assumptions, primarily the

expected margins for the terminal period, we agree with the additional disclosure made in the consolidated

ﬁnancial statements.

312

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Independent Auditor’s Report

Income taxes - recoverability of the Italian deferred tax assets

Risk At December 31, 2018, the Company had deferred tax assets on deductible temporary differences of €6,064

million which were recognized and €898 million which were not recognized. At the same date the Company

also had deferred tax assets in respect of tax losses carried forward of €976 million which were recognized and

€3,987 million which were not recognized. The recognized and unrecognized amounts related to Italy are €884

million and €2,486 million respectively.

The recognition and recoverability of the deferred tax assets in Italy were signiﬁcant to our audit because the

amounts are material and the assessment of the amounts of deferred tax assets to be recognized involves

judgements and estimates in relation to future taxable proﬁts and hence the capacity to utilize available tax assets

in both these tax jurisdictions.

The disclosures in relation to income taxes are included in note 7.

Our audit approach We designed the following audit procedures to be responsive to this risk:

• We obtained an understanding of the income taxes process, and evaluated the design and tested the

effectiveness of controls in this area relevant to our audit.

• We evaluated the forecast periods selected in determining the likelihood of the Group generating suitable future

proﬁts to support the recognition of the deferred tax assets.

• We have evaluated the Company’s assumptions and sensitivities in relation to the likelihood of generating

sufﬁcient future taxable income, taking into account local tax regulations.

• We evaluated the historical accuracy of forecasting taxable proﬁts for this tax jurisdiction, the integrity of the

forecast models and consistency of the projections with both other forecasts made by the Company and with

ﬁndings from other areas of our audit.

• We considered the appropriateness of the Company’s disclosures in respect of deferred tax.

• We involved EY tax specialists to assist both the Group and component audit teams in performing these

procedures.

Key observations Based on the procedures performed, we concluded that the deferred tax asset balance for the Italian tax

jurisdiction, at December 31, 2018, is materially correct.

Provision for NAFTA product warranty and recall campaigns

Risk At December 31, 2018 the provisions for product warranties and recall campaigns amounted to €6,760 million

with the most signiﬁcant amounts related to the NAFTA segment.

The Company establishes provisions for product warranty obligations, including the estimated cost of service and

recall actions in the NAFTA region, at the time the vehicle is sold.

The estimated future costs of these actions are principally based on assumptions regarding the lifetime warranty

costs of each vehicle line and each model year of that vehicle line, as well as historical claims experience for the

vehicles. Estimates of the future costs of these actions are inevitably imprecise due to numerous uncertainties,

especially related to the NAFTA region’s warranty and campaign provisions, including the recent enactment of

new laws and regulations, the number of vehicles affected by a service or recall action and the nature of the

corrective action that may result in adjustments to the established reserves. Costs associated with these actions

are recorded in cost of sales in the Consolidated Income Statements.

Due to the size and the uncertainty and potential volatility of these estimated future costs and other factors, such

as recently introduced new laws and regulations, changes in assumptions used could materially affect the result

of the company’s operations.

The disclosures on warranty provisions are included in note 20.

Our audit approach We designed the following audit procedures to be responsive to this risk:

• We obtained an understanding of the warranty process, evaluated the design of, and performed tests of

controls in this area.

• We involved EY actuaries to evaluate the appropriateness of the Company’s methodology, evaluate and test

the basis for the assumptions developed and used in the determination of the warranty provisions, and to

perform sensitivity analyses to evaluate the judgements made by management.

• EY actuaries determined their own independent range for the provision for the NAFTA product warranty and

recall campaigns amount.

• We performed other substantive audit procedures to validate the data applied in the model including warranty

payments made in the year and third party conﬁrmations in respect of the completeness and accuracy of

current year claims.

Finally, we reviewed the adequacy of the disclosures made by the Company in this area.

Key observations Based on the results of our procedures, including our assessment that the Company’s provision was within the

range of possible outcomes independently determined by EY actuaries, we are satisﬁed that the NAFTA product

warranty and recall campaigns provision is appropriate at December 31, 2018.

2018

ANNUAL REPORT

313

Recoverability of non-current assets with deﬁnite useful lives with particular reference to EMEA

Risk At December 31, 2018 the non-current assets with deﬁnite useful lives amounted to €38,056 million. Non-current

assets with deﬁnite useful lives include property, plant and equipment (€26,307 million), intangible assets (€11,749

million). Intangible assets with deﬁnite useful lives mainly consist of capitalized development expenditures primarily

related to NAFTA and EMEA.

The recoverability of non-current assets with deﬁnite useful lives is based on the estimated future cash ﬂows,

using the Company’s current business plan, of the cash generating units to which the assets relate. The

Company’s business plan could change in response to evolving requirements and emerging technologies, which

may result in changes to Company’s estimated future cash ﬂows and could affect the recoverability of Company’s

non-current assets with deﬁnite useful lives.Any change in recoverability would be accounted for at the time such

change to the business plan occurs.

As a result of the operational and ﬁnancial performance in EMEA, the Company performed an impairment

assessment on the non-current assets with deﬁnite useful lives of EMEA region.

Due to the size and the uncertainty and potential volatility of the estimated future volumes, contribution margin

and other factors, such as new laws and regulations, used in the impairment test, any change in the assumptions

used could materially affect the result of the company’s operations.

The disclosures on non-current assets with deﬁnite useful lives are included in note 10 and 11.

Our audit approach We designed the following audit procedures to be responsive to this risk:

• We obtained an understanding of the impairment assessment processes and evaluated whether the

impairment methodology applied by the Company is in line with the requirements per IAS 36, Impairment of

Assets.

• We involved our EY valuation specialists, to test the methodology used in performing the impairment test as of

December 31, 2018, including:

- Assessment of the impairment test model and evaluation of the discount rates applied within the model and

development of EY independent calculations.

- Sensitivity analyses of key assumptions for each platform and alternative scenarios, to determine which

changes could materially impact the valuation of the recoverable amount.

• We evaluated the other key assumption applied in determining the recoverable amount with particular

reference to volume, contribution margin, D&A, capex and contributory charge.

• We validated that the CGUs (i.e., platforms) identiﬁed continue to be appropriate in the current year and tested

the allocation of asset to the carrying value of each platform.

• We performed procedures to assess the reasonableness of cash ﬂow forecasts for each platform, including

comparisons to industry forecasts and sector data.

• We analyzed the consistency and reconciliation of the forecasted cash ﬂow by platform to the EMEA regional

business plan as used in the goodwill impairment analysis.

• We evaluated the appropriateness of the use of these forecasts in light of the historical accuracy of the

Company’s forecasts.

• We performed controls and substantive testing over the Prospective Financial Information used for the

purposes of the impairment assessment.

• We reviewed any subsequent events which might signiﬁcantly impact the impairment conclusions reached.

Finally, we reviewed the adequacy of the disclosures made by the Company in this area, which is disclosed in

Note 2, Basis of preparation.

Key observations We concur with the Company’s methodology used in performing the impairment test of EMEA segment as of

December 31, 2018.

As the recoverability of the carrying amount of non-current assets with deﬁnite lives in EMEA depend on the

development and launch of additional vehicles, we agree with the additional disclosure made in the consolidated

ﬁnancial statements.

314

2018

ANNUAL REPORT

Independent Auditor’s Report

US emissions investigations

Risk On January 10, 2019, the Company announced that FCA US reached ﬁnal settlements on civil, environmental

and consumer claims with the U.S. Environmental Protection Agency (“EPA”), U.S. Department of Justice, the

California Air Resources Board, the State of California, 49 other States, U.S. Customs and Border Protection and

in connection with a putative class action on behalf of consumers, for which the Company has accrued €748

million.

The Company remains subject to diesel emissions-related investigations by the U.S. Securities and Exchange

Commission and the U.S. Department of Justice, Criminal Division. In addition, the Company remains subject

to a number of related private lawsuits and the potential for additional claims by consumers who choose not to

participate in the class action settlement.

The US emissions investigation was elevated to a signiﬁcant risk during our audit due to the material impact to

the ﬁnancial statements coupled with the uncertainty associated to the timing of the negotiations between the

Company and the several counterparties, which might impact the determination of a reasonable range and the

related accounting of the provision in the correct period.

Although the Company reached an agreement to settle certain aspects of this litigation in January 2019, and the

related level of uncertainty and management judgement has been reduced to a lower level, the US emissions

investigation was a matter that was of most signiﬁcance in the audit of the consolidated ﬁnancial statements as of

and for the year ended December 31, 2018.

The disclosures on the US emissions investigation are included in note 25.

Our audit approach We designed the following audit procedures to be responsive to this risk:

General litigation matters:

• We obtained an understanding of the Company’s process, evaluated the design of, and performed tests of

controls in this area.

• Performed controls and substantive testing over the underlying calculations and supporting documentation.

• We obtained internal and external legal opinions which supports management position.

• We inquired with management, internal and external legal counsel to test the conclusions reached.

• We use EY specialists in certain litigation matters.

With respect to the US emission settlement and related charge:

• We monitored the progress of the US investigation and related settlement discussions through our 2018 audit

opinion date including obtaining and reviewing written communications between regulators and the Company.

• We discussed the status and progression of the US investigation with the Company’s internal and external

counsel through the 2018 audit opinion date.

• We reviewed the settlement amounts from the January 2019 subsequent event as compared to the September

30, 2018 provision, including the additional charge of €35 million ($41 million).

• We reviewed the tax treatment of the various components of the settlement.

• We monitored and evaluated management’s conclusions regarding the accounting impact of investigation

on the consolidated ﬁnancial statements, including review of the Company’s accounting position paper and

settlement agreements.

With respect to the open matters associated with the emissions investigation:

• We continued our shadow review with the help of EY specialists, including a review of correspondence with

the various regulators and reviewing documentation submitted to the regulators in response to the ongoing

investigation through the issuance of our auditor’s reports

Finally, we reviewed the adequacy of the disclosures made by the Company in this area.

Key observations Based on the procedures performed, we concur with the provisions for legal proceedings and disputes as of

December 31, 2018.

With regards to the US Emissions investigations, we agree with the accounting for the settlements and the related

charge as well as the disclosures made in the ﬁnancial statements on the open matters associated with the US

emissions investigations.

2018

ANNUAL REPORT

315

Report on other information included in the annual report

In addition to the ﬁnancial statements and our auditor’s report thereon, the annual report contains other information

that consists of:

The board report

Other information pursuant to Part 9 of Book 2 of the Dutch Civil Code

Based on the following procedures performed, we conclude that the other information:

Is consistent with the ﬁnancial statements and does not contain material misstatements

Contains the information as required by Part 9 of Book 2 of the Dutch Civil Code

We have read the other information. Based on our knowledge and understanding obtained through our audit of the

ﬁnancial statements or otherwise, we have considered whether the other information contains material misstatements.

By performing these procedures, we comply with the requirements of Part 9 of Book 2 of the Dutch Civil Code and the

Dutch Standard 720. The scope of the procedures performed is substantially less than the scope of those performed

in our audit of the ﬁnancial statements.

Management is responsible for the preparation of the other information, including the board report in accordance with

Part 9 of Book 2 of the Dutch Civil Code and other information as required by Part 9 of Book 2 of the Dutch Civil Code.

Report on other legal and regulatory requirements

Engagement

We were initially engaged by the audit committee of Fiat Chrysler Automobiles N.V. on October 28, 2014 to perform

the audit of its 2014 ﬁnancial statements and have continued as its statutory auditor since then.

No prohibited non-audit services

We have not provided prohibited non-audit services as referred to in Article 5(1) of the EU Regulation on speciﬁc

requirements regarding statutory audit of public-interest entities.

Description of responsibilities for the ﬁnancial statements

Responsibilities of management and the audit committee for the financial statements

Management is responsible for the preparation and fair presentation of the ﬁnancial statements in accordance with

EU-IFRS and Part 9 of Book 2 of the Dutch Civil Code. Furthermore, management is responsible for such internal

control as management determines is necessary to enable the preparation of the ﬁnancial statements that are free

from material misstatement, whether due to fraud or error.

As part of the preparation of the ﬁnancial statements, management is responsible for assessing the Company’s ability

to continue as a going concern. Based on the ﬁnancial reporting frameworks mentioned, management should prepare

the ﬁnancial statements using the going concern basis of accounting unless management either intends to liquidate

the Company or to cease operations, or has no realistic alternative but to do so. Management should disclose events

and circumstances that may cast signiﬁcant doubt on the company’s ability to continue as a going concern in the

ﬁnancial statements.

The audit committee is responsible for overseeing the company’s ﬁnancial reporting process.

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Independent Auditor’s Report

Our responsibilities for the audit of the financial statements

Our objective is to plan and perform the audit engagement in a manner that allows us to obtain sufﬁcient and

appropriate audit evidence for our opinion.

Our audit has been performed with a high, but not absolute, level of assurance, which means we may not detect all

material errors and fraud during our audit.

Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could

reasonably be expected to inﬂuence the economic decisions of users taken on the basis of these ﬁnancial statements.

The materiality affects the nature, timing and extent of our audit procedures and the evaluation of the effect of

identiﬁed misstatements on our opinion.

We have exercised professional judgement and have maintained professional skepticism throughout the audit, in

accordance with Dutch Standards on Auditing, ethical requirements and independence requirements. Our audit

included among others:

Identifying and assessing the risks of material misstatement of the ﬁnancial statements, whether due to fraud or

error, designing and performing audit procedures responsive to those risks, and obtaining audit evidence that

is sufﬁcient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement

resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional

omissions, misrepresentations, or the override of internal control

Obtaining an understanding of internal control relevant to the audit in order to design audit procedures that are

appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the

Company’s internal control

Evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates and

related disclosures made by management

Concluding on the appropriateness of management’s use of the going concern basis of accounting, and based

on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast

signiﬁcant doubt on the Company’s ability to continue as a going concern. If we conclude that a material uncertainty

exists, we are required to draw attention in our auditor’s report to the related disclosures in the ﬁnancial statements

or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence

obtained up to the date of our auditor’s report. However, future events or conditions may cause a Company to

cease to continue as a going concern

Evaluating the overall presentation, structure and content of the ﬁnancial statements, including the disclosures

Evaluating whether the ﬁnancial statements represent the underlying transactions and events in a manner that

achieves fair presentation

Because we are ultimately responsible for the opinion, we are also responsible for directing, supervising and

performing the group audit. In this respect we have determined the nature and extent of the audit procedures to be

carried out for group entities. Decisive were the size and/or the risk proﬁle of the group entities or operations. On this

basis, we selected group entities for which an audit or review had to be carried out on the complete set of ﬁnancial

information or speciﬁc items.

We communicate with the audit committee regarding, among other matters, the planned scope and timing of the

audit and signiﬁcant audit ﬁndings, including any signiﬁcant ﬁndings in internal control that we identify during our audit.

In this respect we also submit an additional report to the audit committee in accordance with Article 11 of the EU

Regulation on speciﬁc requirements regarding statutory audit of public-interest entities. The information included in

this additional report is consistent with our audit opinion in this auditor’s report.

We provide the audit committee with a statement that we have complied with relevant ethical requirements regarding

independence, and to communicate with them all relationships and other matters that may reasonably be thought to

bear on our independence, and where applicable, related safeguards.

2018

ANNUAL REPORT

317

From the matters communicated with the audit committee, we determine the key audit matters: those matters that

were of most signiﬁcance in the audit of the ﬁnancial statements. We describe these matters in our auditor’s report

unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, not

communicating the matter is in the public interest.

Rotterdam, February 22, 2019

Ernst & Young Accountants LLP

Signed by Pieter Laan

318

2018

ANNUAL REPORT

2018

ANNUAL REPORT

319

Form 20-F

Cross Reference

320

2018

ANNUAL REPORT

Form 20-F Cross Reference

The table below sets out the location within the document of the information required by the SEC for Annual Reports

on Form 20-F. The exact location is included in the column “Cross Reference”. The column “Page” refers to the

starting page of the section (or sub-section) for reference only.

Item Section Cross Reference Page

Part I

Item 1. Identity of Directors, Senior Management and Advisers Not applicable

Item 2. Offer Statistics and Expected Timetable Not applicable

Item 3. Key Information

A. Selected Financial Data Selected Financial Data 16

B. Capitalization and Indebtedness Not applicable

C. Reasons for the Offer and Use of Proceeds Not applicable

D. Risk Factors Risk Factors 81

Item 4. Information on the Company

A. History and Development of the Company Group Overview 18

B. Business Overview Group Overview 18

Overview of Our Business 21

Sales Overview 29

Results by Segment 59

Note 25 (Guarantees granted, commitments and contingent

Liabilities) to the Consolidated Financial Statements

250

Environmental and Other Regulatory Matters 36

C. Organization Structure Note 3 (Scope of consolidation) to the Consolidated

Financial Statements

198

D. Property, Plant and Equipment Property, Plant and Equipment 26

Signiﬁcant Vehicle Assembly Plants 294

Item 4A. Unresolved Staff Comments None

Item 5. Operating and Financial Review MD&A Overview 43

Our Business Plan 20

Trends, Uncertainties and Opportunities 43

Note 2 (Basis of preparation - Use of estimates) to the

Consolidated Financial Statements

172

Non-GAAP Financial Measures 47

A. Operating Results Result of Operations 50

B. Liquidity and Capital Resources Liquidity and Capital Resources 67

C. Research and Development, Patents and Licenses, etc. Research and Development 22

D. Trend Information Trends, Uncertainties and Opportunities 43

E. Off-Balance Sheet Arrangements Note 25 (Guarantees granted, commitments and contingent

Liabilities) to the Consolidated Financial Statements

250

F. Tabular Disclosure of Contractual Obligations Contractual Obligations 293

Note 25 (Guarantees granted, commitments and contingent

Liabilities) to the Consolidated Financial Statements

250

G. Safe Harbor Forward-Looking Statements 14

Item 6. Directors, Senior Management and Employees

A. Directors and Senior Management Board of Directors 96

Senior Management 106

B. Compensation Remuneration Report 132

C. Board Practices The Audit Committee 104

The Compensation Committee 104

The Governance and Sustainability Committee 105

D. Employees Employees 27

E. Share Ownership Directors’ Share Ownership 103

2018

ANNUAL REPORT

321

Item Section Cross Reference Page

Item 7. Major Shareholders and Related Party Transactions

A. Major Shareholders Major Shareholders 19

B. Related Party Transactions Note 24 (Related party transactions) to the Consolidated

Financial Statements

246

C. Interests of Experts and Counsel Not applicable

Item 8. Financial Information

A. Consolidated Statements and Other Financial Information Consolidated Financial Statements 165

Sales Overview 29

Note 25 (Guarantees granted, commitments and contingent

Liabilities) to the Consolidated Financial Statements

250

Our Share Information 294

B. Signiﬁcant Changes Presentation of Financial and Other Data 14

Item 9. The Offer and Listing

A. Offer and Listing Details Our Share Information 294

B. Plan of Distribution Not applicable

C. Markets Our Share Information 294

D. Selling Shareholders Not applicable

E. Dilution Not applicable

F. Expenses of the Issue Not applicable

Item 10. Additional Information

A. Share Capital Not applicable

B. Memorandum and Articles of Association Articles of Association and Information on FCA Shares 108

C. Material Contracts Note 18 (Share-based compensation) to the Consolidated

Financial Statements

223

Note 21 (Debt) to the Consolidated Financial Statements 236

Note 26 (Equity) to the Consolidated Financial Statements 255

D. Exchange Controls Articles of Association and Information on FCA Shares 108

E. Taxation Taxation 296

F. Dividends and Paying Agents Not applicable

G. Statements of Experts Not applicable

H. Documents on Display Documents on Display 13

I. Subsidiary Information Not applicable

Item 11. Quantitative and Qualitative Disclosures Note 30 (Qualitative and quantitative information on

ﬁnancial risks) to the Consolidated Financial Statements

266

Item 12. Description of Securities Other than Equity Securities

A. Debt Securities Not applicable

B. Warrants and Rights Not applicable

C. Other Securities Not applicable

D. American Depositary Shares Not applicable

Part II

Item 13. Defaults, Dividend Arrearages and Delinquencies Not applicable

Item 14. Material Modiﬁcations to the Rights of Security Holders and

Use of Proceeds

Not applicable

Item 15. Controls and Procedures Controls and Procedures 159

Item 16A. Audit Committee Financial Expert The Audit Committee 104

Item 16B. Code of Ethics Code of Conduct 124

Item 16C. Principal Accountant Fees and Services Principal Accountant Fees and Services 295

Item 16D. Exemptions from the Listing Standards for Audit Committees None

Item 16E. Purchases of Equity Securities by the Issuer and Afﬁliated

Purchasers

None

Item 16F. Change in the Registrant’s Certifying Accountant Not applicable

Item 16G. Corporate Governance Differences between Dutch Corporate Governance

Practices and NYSE Listing Standard

126

Item 16H. Mine Safety Disclosure Not applicable

Part III

Item 17. Financial Statements Consolidated Financial Statements 165

Item 18. Financial Statements Consolidated Financial Statements 165

Item 19. Exhibits Exhibits 305

322

2018

ANNUAL REPORT

2018

ANNUAL REPORT

323

Signatures

The registrant hereby certiﬁes that it meets all of the requirements for ﬁling on Form 20-F and that it has duly caused

and authorized the undersigned to sign this annual report on its behalf.

FIAT CHRYSLER AUTOMOBILES N.V.

(Registrant)

By: /s/ Richard K. Palmer

Name: RichardK.Palmer

Title: Chief Financial Ofﬁcer

Date: February 22, 2019

2018

ANNUAL REPORT

325

Contact

Corporate Ofﬁce:

25 St James’s Street, London SW1A 1HA - U.K.

Tel. +44 (0) 207 7660311

326

2018

ANNUAL REPORT

Printing

Graphic design and editorial coordination

Sunday

Turin, Italy

Printing

Graf Art - Ofﬁcine Graﬁche Artistiche

Venaria (TO), Italy

Printed in Italy

April 2019

Fiat Chrysler Automobiles N.V.

Registered Office: Amsterdam, The Netherlands

Amsterdam Chamber of Commerce: 60372958

Corporate Office: 25 St James’s Street, London SW1A 1HA U.K.