Fiat Chrysler Automobiles N.V.
Annual Report 2017

Plain-text annual report

2017 ANNUAL REPORT 3 Table of contents Table of contents Board of Directors and Auditor ...................... 5 Consolidated Financial Statements at December 31, 2017 ................................ 135 Letter from the Chairman and the CEO ......... 7 Consolidated Income Statement ...................... 136 Board Report ................................................ 11 Consolidated Statement of Comprehensive Income/(Loss) ..................... 137 Certain Defined Terms ....................................... 12 Consolidated Statement of Financial Position ... 138 Selected Financial Data ..................................... 13 Consolidated Statement of Cash Flows ............ 139 Risk Factors ...................................................... 16 Consolidated Statement of Changes in Equity .. 140 Overview ........................................................... 32 Notes to the Consolidated Financial Statements .. 141 Our Business Plan ............................................. 34 Company Financial Statements ................ 233 Overview of Our Business .................................. 35 Income Statement ............................................ 234 Operating Results .............................................. 44 Statement of Financial Position ......................... 235 Subsequent Events and 2018 Guidance ............ 76 Notes to the Company Financial Statements .... 236 Major Shareholders ........................................... 78 Other Information ............................................. 246 Corporate Governance ...................................... 79 Non-Financial Information ................................ 104 Appendix - FCA Companies at December 31, 2017 ............................... 251 Remuneration of Directors ............................... 122 Independent Auditor’s Report .................. 269 2017 | ANNUAL REPORT5 Board of Directors and Auditor Board of Directors and Auditor BOARD OF DIRECTORS Chairman John Elkann(3) Chief Executive Officer Sergio Marchionne Directors 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 (1) Member of the Audit Committee. (2) Member of the Compensation Committee. (3) Member of the Governance and Sustainability Committee. 2017 | ANNUAL REPORT6 2017 | ANNUAL REPORT7 Letter from the Chairman and the CEO Letter from the Chairman and the CEO FCA posted another record performance in 2017, achieving ambitious financial targets and providing further evidence that we deliver on our promises. We have now reached or exceeded all key financial goals for the first four years of the current five-year plan while also adhering to the principles of sustainability that will help ensure a vibrant and responsible future for our Group. We improved Adjusted EBIT by 16 percent to €7.1 billion, with Group margin increasing to 6.4 percent from 5.5 percent in 2016. Every one of our segments was profitable and showed improvement over the prior year. Adjusted net profit climbed 50 percent to €3.8 billion and Net profit nearly doubled to €3.5 billion. We also generated €1.6 billion in cash flows from industrial operating activities which contributed to Net industrial debt being reduced by almost half, to €2.4 billion at year-end. Worldwide combined shipments came in at 4.7 million units and net revenues were €111 billion, both in line with 2016. Looking at our mass-market operations by region, NAFTA continued its margin improvement, reaching 7.9 percent up from 7.4 percent the prior year. Adjusted EBIT was up 2 percent to €5.2 billion. These results were achieved despite a 7 percent decrease in shipments primarily attributable to a planned reduction in Jeep fleet sales and the impact of discontinued vehicles. We are implementing a significant realignment of our manufacturing footprint in response to a continued shift in demand towards trucks and SUVs. LATAM posted robust growth driven by new products and improving conditions in the key Brazilian market. Shipments in the region increased by 14 percent, revenues by 29 percent and Adjusted EBIT reached €151 million up from €5 million the previous year. In APAC, the continued ramp-up of Jeep production through our Chinese joint venture, along with the launch of the Alfa Romeo Giulia and Stelvio as well as the start of production of the all-new Jeep Compass in India, helped drive a 24 percent increase in combined shipments. Adjusted EBIT increased 64 percent to €172 million due to the final insurance recoveries from the 2015 Tianjin port explosions in China. In EMEA, the positive earnings trend continued with Adjusted EBIT up 36 percent to €735 million and margin increasing by 70 basis points to 3.2 percent. This reflected higher volumes primarily attributable to the all-new Jeep Compass and Alfa Romeo Stelvio, as well as the Fiat Tipo family, and continued cost efficiencies. Maserati’s Adjusted EBIT climbed 65 percent to €560 million and margin grew to 13.8 percent, up from 9.7 percent the year before. Shipments grew by 22 percent, primarily driven by an increase in global sales of the Levante which were partially offset by lower volumes for the Ghibli and Quattroporte. Magneti Marelli, Comau and Teksid all increased net revenues, reflecting higher volumes across all three businesses. The Components segment achieved a 20 percent increase in Adjusted EBIT to €536 million and continued its margin improvement, reaching 5.3 percent compared with 4.6 percent in 2016. On the product side, we increased our competitiveness with several key vehicle launches. Alfa Romeo launched the Stelvio, its first-ever SUV, and completed the introduction of the Giulia in all major global premium markets. Both models represent a significant step in establishing a global presence for the brand. Alfa Romeo also announced its return to Formula 1 for the 2018 championship season, after a more than 30 years absence from the sport. In India, we launched the all-new Jeep Compass, which is produced locally at our Ranjangaon joint-venture plant. The Compass is now built in North America, Brazil, China and India reflecting the global expansion of the Jeep brand. We also began production of the all-new 2018 Jeep Wrangler, updating this iconic model with a host of innovative technologies which will include an all-new advanced 2.0L turbo engine with our new eTorque mild hybrid system and a new 8-speed automatic transmission. The Cordoba Plant in Argentina began producing the all-new Fiat Cronos sedan, for distribution in markets across Latin America, which completes the renewal of our Fiat passenger car line-up in the region. 2017 | ANNUAL REPORT8 Letter from the Chairman and the CEO We began 2018 with the reveal of the all-new Ram 1500 truck and new Jeep Cherokee at the North American International Auto Show in Detroit. FCA continues to look to the future and the emerging breakthrough technologies that will help reshape personal transportation. We further strengthened our partnership with Waymo, Google’s self-driving car company, and in early 2018 we announced an agreement to supply thousands more Chrysler Pacifica Hybrid minivans to Waymo to support the launch of the world’s first driverless ride-hailing service. In 2017, we also signed a memorandum of understanding with BMW Group, Intel and Mobileye to develop a world leading, state-of-the-art autonomous driving platform. These partnerships are vital to leveraging each other’s capabilities and resources and achieving the synergies and economies of scale needed to advance autonomous driving technologies. We continue to make significant progress since the unveiling of our five-year strategic plan in 2014, and in our guidance for 2018 we have confirmed all key targets for the fifth and final year of the Plan. These targets include Adjusted EBIT in excess of €8.7 billion, Adjusted net profit of approximately €5 billion, with Net revenues at around €125 billion. Over the last four years we have followed a disciplined and rigorous strategy to reduce our Net industrial debt. Our goal is by the end of 2018 to have a Net industrial cash position of around €4.0 billion. This significant accomplishment will further reinforce FCA’s rightful position as a leader in the global automotive business. As we pursue this profitable growth, we remain dedicated to a culture of sustainability aimed at balancing our social and environmental responsibilities with our financial objectives. This fundamental value guides the way we conduct our business and recognizes our responsibility to the greater community around us. We are fully aware that, throughout the value chain, our activities can have a direct or indirect impact on our stakeholders. We also know that the need to transition to a more sustainable future is one of the major challenges facing the world today. That is why FCA is committed to operating responsibly, including making its contribution by supporting the United Nations Sustainable Development Goals. Our Group adheres to the internationally-recognized principles for the respect and support of fundamental human rights in every geographic area where FCA operates, and expects its suppliers, contractors and other business partners to adhere to the same standards. Among our 2017 sustainability initiatives, we implemented about 5,000 environmental projects at our plants around the world, reducing our carbon footprint and leading to about €68 million in savings. More than 2 billion m3 of water was saved at FCA plants, with a recycling index that reached almost 100 percent. Globally, our plants also reduced CO2 emissions by 2.2 percent during the year. Through continuous improvements over the years, FCA automotive plants in Italy and Brazil purchase 100 percent renewable energy. Along with zero waste-to-landfill and water recycling at 99 percent, the Jeep plant in Pernambuco, Brazil, has also achieved carbon neutral status through the use of renewable energy, cleaner fuels, and initiatives to compensate residual CO2 emissions. Our transmission plant in Verrone, Italy, earned the prestigious international “Lean & Green Management Award” based on its optimum integration of environmental and energy issues and innovative manufacturing solutions, guided by our World Class Manufacturing system. Our employees worldwide continued to contribute to their communities, volunteering thousands of hours to support a wide range of social projects. An integral part of our long-term business plan is a commitment to improve fuel economy and reduce emissions. FCA was a pioneer in natural gas vehicles in Europe and has been in a leading position in the field for more than 20 years. Following the introduction of the industry’s first electrified minivan, the Chrysler Pacifica Hybrid, the recently revealed all-new Jeep Wrangler and all-new Ram 1500 will both be available with our eTorque mild hybrid system and other advanced fuel-saving technologies as well as weighing significantly less than their predecessor generation models. 2017 | ANNUAL REPORT9 We also strive to offer our employees a diverse and inclusive work environment and we are proud that several third- party organizations have recognized our efforts in this area. The culture within our global organization is based on a firm belief that profitability and sustainability are not mutually exclusive. For us, success extends beyond the bottom line to include the needs of local communities and all stakeholders inside and outside the Group. Through values that balance both business and environmental aspects, we are constantly working to ensure that our activities, and the results we achieve, can deliver long-term value. Something that distinguishes us as a Group is our refusal to accept mediocrity. This also means embracing the responsibility of building a secure future, not only for our enterprise but also for society as a whole. We want to thank everyone in the FCA organization for their contribution to meeting the challenges and leveraging the opportunities that are a constant part of our business. We have dared to dream big, and our success to date is a tribute to the purpose and passion they bring to work every day. We also wish to extend our deepest thank you to all of our shareholders and stakeholders for your support as we continue on our global venture together. Whether you have been with us for many years or just a few months, your trust is fundamental, and it will enable FCA to continue to pursue its founding commitment: to deliver with determination, integrity and accountability. February 20, 2018 /s/ John Elkann John Elkann CHAIRMAN /s/ Sergio Marchionne Sergio Marchionne CHIEF EXECUTIVE OFFICER 2017 | ANNUAL REPORTBoard Report Certain Defined Terms ____________________________________________________________________________ 12 Selected Financial Data ___________________________________________________________________________ 13 Risk Factors _____________________________________________________________________________________ 16 Overview ________________________________________________________________________________________ 32 Our Business Plan ________________________________________________________________________________ 34 Overview of Our Business _________________________________________________________________________ 35 Operating Results ________________________________________________________________________________ 44 Subsequent Events and 2018 Guidance _____________________________________________________________ 76 Major Shareholders _______________________________________________________________________________ 78 Corporate Governance ____________________________________________________________________________ 79 Non-Financial Information _________________________________________________________________________ 104 Remuneration of Directors _________________________________________________________________________ 122 12 Board Report Certain Defined Terms 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. 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 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 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. 2017 | ANNUAL REPORT13 Board Report Selected Financial Data 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, 2017 and 2016 and for the years ended December 31, 2017, 2016 and 2015, included elsewhere in this report; and the Consolidated Financial Statements of FCA for the years ended December 31, 2014 and 2013, which are not included in this report. This data should be read in conjunction with Risk Factors, Operating Results and the Consolidated Financial Statements and related notes included elsewhere in this report. 2017 | ANNUAL REPORT14 Board Report Selected Financial Data CONSOLIDATED INCOME STATEMENT DATA Net revenues Profit before taxes Net profit from continuing operations Profit from discontinued operations, net of tax Net profit Net profit attributable to: Owners of the parent Non-controlling interests Earnings per share from continuing operations Basic earnings per share Diluted earnings per share Earnings per share from discontinued operations Basic earnings per share Diluted earnings per share Earnings per share from continuing and discontinued operations Basic earnings per share Diluted earnings per share Other Statistical Information (unaudited): 2017 2016 2015(1) 2014(1) 2013(1) (€ million, except per share amounts) Years ended December 31 € 110,934 € 111,018 € 110,595 € € € € € € € € € € € € 6,161 3,510 € € 3,106 1,814 € € — € — € 3,510 3,491 19 2.27 2.24 € € € € € 1,814 1,803 11 1.19 1.18 € € € € € — € — € — € — € 2.27 2.24 € € 1.19 1.18 € € 259 93 284 377 334 43 0.05 0.05 0.17 0.17 0.22 0.22 € € € € € € € € € € € € € 93,640 783 359 273 632 568 64 0.27 0.27 0.20 0.20 0.47 0.46 € € € € € € € € € € € € € 84,530 649 2,050 243 2,293 1,246 1,047 0.85 0.84 0.18 0.17 1.03 1.01 Shipments (in thousands of units) 4,423 4,482 4,602 4,601 4,345 (1) The operating results of FCA for the years ended December 31, 2015, 2014 and 2013 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, 2014 and 2013. 2017 | ANNUAL REPORT15 CONSOLIDATED STATEMENT OF FINANCIAL POSITION DATA Cash and cash equivalents Total assets Debt Total equity Equity attributable to owners of the parent Non-controlling interests Share capital Shares issued (in thousands): Fiat S.p.A Ordinary FCA Common(2) Special Voting(3) At December 31 2017 2016 2015(1) 2014 2013 (€ million, except shares issued data) € € € € € € € 12,638 € 17,318 € 20,662 € 22,840 96,299 € 104,343 € 105,753 € 101,149 17,971 20,987 20,819 168 19 € € € € € 24,048 19,353 19,168 185 19 € € € € € 27,786 16,968 16,805 163 17 € € € € € 33,724 14,377 14,064 313 17 € € € € € € € 19,455 87,543 30,283 12,913 8,655 4,258 4,477 — — — — 1,250,688 1,540,090 1,527,966 1,288,956 1,284,919 408,942 408,942 408,942 408,942 — — (1) 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 Statements of Financial Position at December 31, 2014 and 2013. (2) Book value per common share at December 31, 2017 was €13.52. (3) Refer to Note 26, Equity, within our Consolidated Financial Statements included elsewhere in this report. 2017 | ANNUAL REPORT16 Board Report Risk Factors 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 62 percent of our total U.S. retail vehicle shipments in 2017. 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 2017 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. For additional information on factors affecting vehicle profitability, see Operating Results. 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. 2017 | ANNUAL REPORT17 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, 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, 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, in June 2016, a majority of voters in the United Kingdom voted in favor of withdrawing from the European Union in a national referendum. The terms of a UK withdrawal, commonly referred to as “Brexit”, are subject to a negotiation period that could last up to two years from March 2017 when the government of the United Kingdom formally initiated the withdrawal process, or longer if extended by mutual agreement. During this time, the government of the United Kingdom may also revoke its notification to leave the European Union. The referendum has created significant uncertainty about the future relationship between the United Kingdom and the European Union, which is also subject to negotiation, including with respect to the laws and regulations that will apply as the United Kingdom determines which European Union-derived laws to replace or replicate. The referendum has also given rise to calls for the governments of other European Union member states to consider withdrawal. 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 were to default on its debt or withdraw from the euro currency, or, in a more extreme circumstance, the euro currency were to be dissolved entirely, the impact on markets around the world, and on the Company’s global business, could be immediate and significant. In the United States, changes in policy positions by the current presidential administration may 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. For example, although we recently announced our intent to move production to the U.S. in 2020, our heavy-duty pickup trucks are currently assembled in Mexico and imported into the U.S. Any new policies and any steps we may take to address such new policies could have a material adverse effect on our business, financial condition and results of operations. These developments have also introduced an elevated level of economic and policy uncertainty, which could cause financial and capital markets within and outside the U.S. and Europe to constrict, thereby negatively impacting our ability to finance our business. It also could cause a substantial dip in consumer and business confidence and spending that could negatively impact sales of vehicles. Any one of these impacts could have a material adverse effect on our business, financial condition and results of operations. In addition, in July 2017 the Brazilian tax authorities issued an instruction that could affect our ability to apply federal tax credits generated in certain operations to offset federal taxes arising from other operations. In December 2017, we obtained a preliminary court ruling allowing us to immediately resume application of the impacted federal tax credits. While we believe that it is more likely than not that there will be no significant impact from the Brazilian tax authorities’ instruction, given the current economic conditions in Brazil, new tax laws may be introduced or changes to the application of existing tax laws may occur that could have a material adverse effect on our business, financial condition and results of operations. 2017 | ANNUAL REPORT18 Board Report Risk Factors We may be unsuccessful in efforts to increase the growth of some of our brands that we believe have global appeal and reach. The growth strategies reflected in our 2014-2018 Business Plan announced in May 2014 and updated in January 2016 (our “Business Plan”) include expanding global sales of the Jeep brand through localized production in Asia, Europe and Latin America, the launch of new large utility vehicle models in North America, the reintroduction in North America and expansion in Europe and Asia of our Alfa Romeo brand including the development of an all-new platform and new powertrains, as well as the further expansion of our Maserati brand portfolio. These strategies, particularly with respect to the Alfa Romeo brand, have required and will continue to require significant investments in products, powertrains, production facilities and distribution networks. If we are unable to introduce vehicles that appeal to consumers in these markets and achieve our brand expansion strategies, 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 controlled 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. 2017 | ANNUAL REPORT19 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. 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 will become effective on April 1, 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. However, the market availability and pricing of CAFC and NEV credits is unclear at this time. 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 currently cooperating with diesel emissions investigations by several governmental agencies and are subject to a number of related private lawsuits. We have received inquiries from several regulatory authorities as they examine the on-road tailpipe emissions of several automakers’ vehicles. We are, when jurisdictionally appropriate, cooperating with a number of governmental agencies and authorities. In particular, 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 reported by KBA, 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 (“BMVI”), 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, which was borne out in material Italy provided during the mediation process. In addition, at the request of the French Consumer Protection Agency, the French public prosecutor has been investigating diesel vehicles of a number of automakers including FCA, regarding whether the sale of those vehicles violated French consumer protection laws. The results of these inquiries cannot be predicted at this time; however, the intervention by a number of governmental agencies and authorities has required significant management time, which may divert attention from other key aspects of our business plan, or may lead to further enforcement actions as well as penalties or obligations to modify or recall vehicles, any of which may have a material adverse effect on our business, results of operations and reputation. 2017 | ANNUAL REPORT20 Board Report Risk Factors On January 12, 2017, the U.S. Environmental Protection Agency (“EPA”) and the California Air Resource Board issued Notices of Violation related to certain software-based features in the emissions control systems in approximately 100,000 2014-2016 model year light-duty Ram 1500 and Jeep Grand Cherokee diesel vehicles. On May 23, 2017, the Environmental and Natural Resources Division of the U.S. Department of Justice (“DOJ-ENRD”) filed a civil lawsuit against us in connection with the concerns raised by the EPA. The complaint alleges that software-based features were not disclosed to the EPA as required during the vehicle emissions certification process, resulting in violations of the Clean Air Act. The complaint also alleges that certain of the software features bypass, defeat or render inoperative the vehicles’ emission control systems, causing the vehicles to emit higher levels of oxides of nitrogen (NOx) during certain normal real world driving conditions than during federal emissions tests. A number of private lawsuits relating to the vehicles have been filed in U.S. state and federal courts principally on behalf of consumers asserting fraud, violation of consumer protection laws, and other civil claims, including a putative class action that is proceeding in U.S. federal court in the Northern District of California, and a number of other governmental agencies and authorities including the U.S. Department of Justice, the U.S. Securities and Exchange Commission and various states Attorneys General have commenced related investigations. We are unable to predict the outcome of these investigations and litigation at this stage and due to the range of possible outcomes, we are unable to reliably estimate a range of probable losses. 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. 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. In particular, our Chief Executive Officer, Sergio Marchionne, is critical to the execution of our strategic direction and implementation of our Business Plan. Although Mr. Marchionne has indicated his intention to remain as our Chief Executive Officer through the period of our Business Plan, he has communicated that he plans to retire in the first half of 2019. 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. 2017 | ANNUAL REPORT21 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. Compliance with U.S. regulatory requirements for product recalls has also received heightened scrutiny. In connection with the failure in three specified campaigns to provide an adequate remedy, and noncompliance with various reporting requirements under the National Traffic and Motor Vehicle Safety Act of 1966 and the Transportation Recall Enhancement, Accountability and Documentation (TREAD) Act, FCA US entered into a consent order with NHTSA in 2015 (the “Consent Order”) to pay substantial civil penalties and to engage an independent monitor to review and assess FCA US’s compliance with its obligations under the Consent Order. FCA US is obligated to remedy the defects in the vehicles subject to the recalls cited in the Consent Order, and in certain instances, FCA US has been required to buy back vehicles as an additional alternative to a repair remedy. Failure to comply with the terms of the Consent Order may result in additional fines and penalties much of which have been deferred pending the independent monitor’s and NHTSA’s ongoing assessment of FCA US’s compliance with terms of the Consent Order. Further, the monitor’s term will continue for the duration of the Consent Order. There can be no assurance that we will not be subject to additional regulatory inquiries and consequences in the future. 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, 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. 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. 2017 | ANNUAL REPORT22 Board Report Risk Factors 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 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 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. Our business operations and reputation may be impacted by various types of claims, lawsuits, and other contingent obligations. 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, 2017 | ANNUAL REPORT23 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 currently cooperating with diesel emissions investigations by several governmental agencies and are subject to a number of related private lawsuits.” 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 interconnected and increasingly complex systems that control various vehicle processes including engine, transmission, safety, steering, brakes, window and door lock functions. These systems are susceptible to cybercrime, including threats of intentional disruption and theft of personal information, which are increasing in terms of sophistication and frequency. 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. 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), which will go into effect in the European Union in May 2018, allows for the assessment of fines of up to 4% of annual worldwide revenue in the event of certain types of data breaches. 2017 | ANNUAL REPORT24 Board Report Risk Factors 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 in the event we choose to separate a portion of our Components segment from the Group. In 2017, we announced that we are considering the separation of a portion of our Components segment from the Group, with a final decision likely to be announced in the first half of 2018. Any such separation may not result in an improvement in our financial condition and could have 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, GAC Fiat Chrysler Automobiles Co. (“GAC FCA JV”), our joint venture with Guangzhou Automobile Group Co., Ltd., has commenced local production of the Jeep Cherokee, Jeep Renegade and the all- new Jeep Compass 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 shareholder 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. 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 2017 | ANNUAL REPORT25 arrangements with these suppliers that assure access to these raw materials, and in some cases this access may be affected by factors 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 of certain raw materials in the future. 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, 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. 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. 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. 2017 | ANNUAL REPORT26 Board Report Risk Factors 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 United Kingdom 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 United Kingdom (“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 its 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. 2017 | ANNUAL REPORT27 Although it has been accepted that our “central management and control” is in the UK, we would 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. The UK’s controlled foreign company taxation rules may reduce net returns to shareholders. On the assumption that we continue to be resident for tax purposes in the UK, we will be subject to the UK controlled foreign company (“CFC”) rules. The CFC rules can subject UK-tax-resident companies (in this case, us) to UK tax on the profits of certain companies not resident for tax purposes in the UK in which they have at least a 25 percent direct or indirect interest. Interests of connected or associated persons may be aggregated with those of the UK-tax- resident company when applying this 25 percent threshold. For a company to be a CFC, it must be treated as directly or indirectly controlled by persons resident for tax purposes in the UK. The definition of control is broad (it includes economic rights) and captures some joint ventures. We expect, however, that our principal operating activities should fall within one or more exemptions from the CFC rules. Although we do not expect the UK’s CFC rules to have an adverse impact on our financial position, the effect of the CFC rules on us is not yet certain. We will continue to monitor developments in this regard and seek to mitigate any adverse UK tax implications which may arise. However, the possibility cannot be excluded that the CFC rules could have a material adverse effect on our business, financial condition and results of operations. 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. 2017 | ANNUAL REPORT28 Board Report Risk Factors 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 that adequate levels of working capital and liquidity are maintained, declines in sales volumes could have a negative impact on the cash-generating capacity of our operating activities. For a discussion of these factors, see Operating Results—Liquidity and Capital Resources. In addition, our current credit rating is below investment grade and any deterioration may significantly affect our funding and prospects. 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 reduced our net indebtedness significantly over the past several years, 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 Operating Results—Liquidity and Capital Resources. 2017 | ANNUAL REPORT29 Restrictions arising out of FCA US’s Tranche B Term Loan may hinder our ability to manage our operations on a consolidated, global basis. FCA US is party to a tranche B term loan maturing on December 31, 2018 (the “Tranche B Term Loan”). The credit agreement that governs the Tranche B Term Loan includes covenants that restrict FCA US’s ability to enter into sale and leaseback transactions, purchase or redeem capital stock, prepay other debt, incur or guarantee additional indebtedness, incur liens, transfer and sell assets or engage in certain business combinations or undertake various other business activities. These restrictive covenants could have an adverse effect on our business by limiting our ability to take advantage of mergers and acquisitions, joint ventures or other corporate opportunities. Additionally, the credit agreement requires FCA US to maintain borrowing base collateral coverage and a minimum liquidity threshold. Future indebtedness may also contain other and more restrictive covenants. A breach of any of the covenants or restrictions in the credit agreement that governs the Tranche B Term Loan could represent an event of default on the indebtedness of FCA US, which could result in foreclosure on pledged properties and trigger a cross-default under certain of our indebtedness. Substantially all of the assets of FCA US and its U.S. subsidiary guarantors are unconditionally pledged as security under the credit agreement that governs its Tranche B Term Loan and could become subject to lenders’ contractual rights if an event of default were to occur. FCA US is an obligor and several of its U.S. subsidiaries are guarantors of FCA US’s Tranche B Term Loan. The obligations under the credit agreement governing the Tranche B Term Loan are secured by senior priority security interests in substantially all of the assets of FCA US and its U.S. subsidiary guarantors. The collateral includes 100 percent of the equity interests in FCA US’s U.S. subsidiaries and 65 percent of the equity interests in certain of its non-U.S. subsidiaries held directly by FCA US and its U.S. subsidiary guarantors. An event of default under the credit agreement that governs FCA US’s Tranche B Term Loan could trigger its lenders’ contractual rights to enforce their security interest in these assets. We may be exposed to shortfalls in our pension plans. Certain of our defined benefit pension plans are currently underfunded. As of December 31, 2017, our defined benefit pension plans were underfunded by approximately €4.3 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. 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. 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. 2017 | ANNUAL REPORT30 Board Report Risk Factors 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 (“NYSE”) and the Mercato Telematico Azionario (“MTA”) 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 15, 2018, Exor N.V., which controls FCA, owns 29.18 percent of the FCA common shares, had a voting interest in FCA of 42.34 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. 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. 2017 | ANNUAL REPORT31 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 United Kingdom for tax purposes, but the relevant tax authorities may treat it as also being tax resident elsewhere.” in the section —Risks Related to Our Business, Strategy and Operations, above. 2017 | ANNUAL REPORT32 Board Report Overview Overview We are a global automotive group engaged in designing, engineering, manufacturing, distributing and selling vehicles, components and production systems worldwide through 159 manufacturing facilities and 87 research and development centers. We have operations in more than 40 countries and sell our vehicles directly or through distributors and dealers in more than 140 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 Magneti Marelli, Teksid and Comau brands. In 2017, we shipped 4.4 million vehicles, had Net revenues of €110.9 billion and Net profit of €3.5 billion. At December 31, 2017, we had available liquidity of €20.4 billion (including €7.6 billion available under undrawn committed credit lines) and we had Net industrial debt of €2.4 billion (See Operating Results—Non-GAAP Financial Measures—Net Debt). 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). Fiat, the predecessor to FCA, was founded as Fabbrica Italiana Automobili Torino on July 11, 1899 in Turin, Italy as an automobile manufacturer. Fiat opened its first factory in 1900 in Corso Dante in Turin with 150 workers producing 24 cars. In 1902 Giovanni Agnelli, Fiat’s founder, became the Managing Director of the company. Beginning in 2008, Fiat worked to expand the scope of its automotive operations, having concluded that significantly greater scale was necessary to enable it to compete effectively in the increasingly competitive global automotive market. 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, formerly known as Chrysler Group LLC, (“FCA US”) agreed to purchase the principal operating assets of Old Carco and to assume certain of Old Carco’s liabilities. Old Carco traced its roots to the company originally founded by Walter P. Chrysler in 1925 that, since that time, expanded through the acquisition of the Dodge and Jeep brands. Following the closing of that transaction in June 2009, Fiat held an initial 20 percent ownership interest in FCA US. 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 an indirect 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”). 2017 | ANNUAL REPORT33 Corporate Reorganization On October 12, 2014, Fiat completed a corporate reorganization resulting in the establishment of FCA NV, organized in the Netherlands, 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 NYSE and on the MTA. As a result, FCA NV, as successor of Fiat S.p.A., is the parent company of the Group. 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. 2017 | ANNUAL REPORT34 Board Report Our Business Plan Our Business Plan In May 2014, we announced our 2014-2018 Business Plan, which focused on: strengthening and differentiating our portfolio of brands, including the globalization of Jeep and Alfa Romeo; volume growth; continued platform convergence and focus on cost efficiencies, as well as enhancing margins and strengthening our capital structure. In January 2016, we updated the plan primarily to respond to changes in customer trends, certain regional political and economic uncertainties, as well as to account for the separation of Ferrari from the Group. In 2017, we continued to make significant strides toward accomplishing these objectives, by: Completing the globalization of Jeep production with the addition of localized production in India; Continuing to grow global Jeep volumes in markets outside NAFTA, as we focused on reducing Jeep fleet volumes in the U.S.; Continued execution of the NAFTA capacity realignment plan with the relocation of Jeep Cherokee assembly in May 2017, production launch of the all-new Jeep Wrangler in December 2017 and preparation for the launch of the all- new Ram 1500 in January 2018; Achieving strong results at Maserati with an Adjusted EBIT margin of 13.8% for the year from 9.7% in 2016; Further globalizing the Alfa Romeo brand with worldwide launches of the all-new Alfa Romeo Giulia and Stelvio; Improving our Group Adjusted EBIT margins 90 basis points from 2016 to 6.4%; and Further reducing Net industrial debt to €2.4 billion from €4.6 billion at December 31, 2016. Notwithstanding the market, competitive and economic changes since May 2014, we have reaffirmed our intent to deliver significant positive operating cash flows in the final year of the Business Plan and reiterated our goal to achieve a Net industrial cash position by the end of 2018. 2017 | ANNUAL REPORT35 Board Report Overview of Our Business Overview of Our Business Our activities are carried out through the following six 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, Australia, South Korea and India) carried out in the region through both subsidiaries and joint ventures, primarily under the Jeep, Fiat, Alfa Romeo, Abarth, Fiat Professional, Dodge 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. (vi) Components: production and sale of lighting components, body control units, suspensions, shock absorbers, electronic systems, and exhaust systems and activities in powertrain (engine and transmissions) components, engine control units, plastic molding components and in the after-market carried out under the Magneti Marelli brand name; cast iron components for engines, gearboxes, transmissions and suspension systems, and aluminum cylinder heads and engine blocks under the Teksid brand name; and design and production of industrial automation systems and related products for the automotive industry under the Comau brand name. We also hold interests in companies operating in other activities and businesses. These activities are grouped under “Other Activities”, which primarily consists of companies that provide services, including accounting, payroll, tax, insurance, purchasing, information technology, facility management and security for the Group, and manage central treasury activities. 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 Renegade, the all-new Jeep Compass and the all-new 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 or the Fiat Toro 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 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. 2017 | ANNUAL REPORT36 Board Report Overview of Our Business Sales Overview New vehicle sales represent sales of FCA vehicles primarily by dealers and distributors, or, in some cases, directly by us, 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 and through our network. 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, as such results are primarily driven by our vehicle shipments to dealers and distributors. For a discussion of our shipments, see Operating Results—Shipment Information. The following table shows new vehicle sales by geographic market for the periods presented. NAFTA LATAM APAC EMEA Total Mass-Market Vehicle Brands Maserati Total Worldwide Years ended December 31 2017 2016 2015 (millions of units) 2.4 0.5 0.3 1.5 4.7 0.05 4.8 2.6 0.5 0.2 1.4 4.7 0.04 4.7 2.6 0.6 0.2 1.3 4.7 0.04 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: NAFTA U.S. Canada Mexico and Other Total Years ended December 31 2017(1),(2) 2016(1),(2) 2015(1),(2),(3) Sales Market Share Sales Market Share Sales Market Share Thousands of units (except percentages) 2,059 267 86 2,412 11.7% 13.0% 5.5% 11.4% 2,244 279 88 2,611 12.6% 14.2% 5.3% 12.2% 2,253 291 87 2,631 12.6% 15.1% 6.3% 12.4% (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. (3) Sales information has been restated to be consistent with reporting methodology disclosed in the FCA US press release issued July 26, 2016. 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: U.S. Automaker GM Ford Toyota FCA Honda Nissan Hyundai/Kia Other Total Years ended December 31 2017 17.1% 14.7% 13.9% 11.7% 9.3% 9.1% 7.3% 16.9% 100.0% 2016 Percentage of industry 17.0% 14.6% 13.7% 12.6% 9.2% 8.8% 8.0% 16.1% 100.0% 2015 17.3% 14.7% 14.0% 12.6% 8.9% 8.3% 7.8% 16.4% 100.0% 2017 | ANNUAL REPORT37 After a sharp decline from 2007 to 2010, the U.S. automotive market sales steadily improved through 2015, remained stable in 2016 and slightly declined in 2017. U.S. industry sales, including medium and heavy-duty vehicles, increased from 10.6 million units in 2009 to 17.9 million units in 2016, before slightly decreasing to 17.6 million units in 2017. The strong recovery in the automotive sector in 2015 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. While these contributing factors remain relatively strong, some of them have begun to moderate in 2016 and 2017, which has resulted in a plateauing of auto sales, albeit at high levels on a historic basis. 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, while overall industry sales in the NAFTA segment generally are more evenly weighted between smaller and larger vehicles. In 2017 we began to distribute the all-new Alfa Romeo Giulia and Stelvio in the NAFTA region. 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. As of December 31, 2017, SCUSA was providing wholesale lines of credit to approximately 9 percent of our dealers in the U.S., while Ally Financial Inc. (“Ally”) was at 35 percent. For the year ended December 31, 2017, we estimate that approximately 85 percent of the vehicles purchased by our U.S. retail customers were financed or leased of which approximately 44 percent financed or leased through SCUSA (26 percent) and Ally (18 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. 2017 | ANNUAL REPORT38 Board Report Overview of Our Business LATAM LATAM Sales and Competition The following table presents mass-market vehicle sales and market share in the LATAM segment for the periods presented: LATAM Brazil Argentina Other LATAM Total Years ended December 31 2017(1) 2016(1) 2015(1) Sales Market Share Sales Market Share Sales Market Share Thousands of units (except percentages) 380 105 28 513 17.5% 12.2% 2.5% 12.4% 365 79 29 473 18.4% 11.6% 2.9% 12.9% 483 74 27 584 19.5% 11.9% 2.7% 14.2% (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: Brazil Automaker GM FCA Volkswagen Ford Other Total Years ended December 31 2016(1) 2015(1) Percentage of industry 17.4% 18.4% 12.1% 9.1% 43.0% 100.0% 15.6% 19.5% 15.2% 10.2% 39.5% 100.0% 2017(1) 18.1% 17.5% 12.5% 9.5% 42.4% 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 13 percent from 2016, to 4.1 million vehicles (cars and light commercial vehicles) in 2017, which was primarily driven by a 9 percent increase in Brazil’s industry vehicle sales reflecting improving market conditions, combined with an increase of 26 percent in Argentina’s industry vehicle sales. Although Group revenues in LATAM increased 29 percent from 2016, the Group’s market share decreased 50 basis points from 12.9 percent to 12.4 percent due to strong competition. In Brazil, overall market share decreased from 18.4 percent to 17.5 percent while in Argentina, overall market share increased to 12.2 percent from 11.6 percent in 2016. Vehicle sales in the LATAM segment leverage the name recognition of Fiat and the relatively urban population of countries like Brazil to offer Fiat brand Segment A and B vehicles in our key markets in the LATAM segment. In Brazil, Fiat also leads the pickup truck market with the Fiat Strada and all-new Fiat Toro at 19.4 percent and 17.9 percent respectively, while Jeep is continuing its momentum in the small and medium SUV segments with the all-new Jeep Compass increasing market share to 12.2 percent and the Jeep Renegade having a segment share of 9.5 percent. LATAM Distribution In the LATAM segment, we generally enter into multiple dealer agreements with a single dealer, covering one or more points of sale. Outside Brazil and Argentina, our major markets, we distribute our vehicles mainly through general distributors and their dealer networks. 2017 | ANNUAL REPORT39 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: APAC China(2) Japan India(3) Australia South Korea APAC 5 major Markets Other APAC Total 2017(1),(4) 2016(1),(4) 2015(1),(4) Sales Market Share Sales Market Share Sales Market Share Thousands of units (except percentages) Years ended December 31 215 21 15 13 8 272 5 277 0.9% 0.5% 0.5% 1.1% 0.5% 0.8% — — 176 20 7 18 7 228 5 233 0.8% 0.5% 0.2% 1.6% 0.4% 0.7% — — 139 17 9 35 7 207 8 215 0.8% 0.4% 0.3% 3.1% 0.4% 0.7% — — (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 sold by our joint ventures 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 year-over-year growth. Industry sales in the five key markets (China, India, Japan, Australia and South Korea) where we compete increased from 16.1 million in 2009 to 33.5 million in 2017, a compound annual growth rate (“CAGR”) of approximately 10 percent. Industry demand increased across the region in 2017 with growth in India (+9 percent) and Japan (+6 percent), with China and Australia flat, offsetting a 3 percent decrease in South Korea. 2017 | ANNUAL REPORT40 Board Report Overview of Our Business 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, the GAC FCA JV was formed for the production of Fiat brand passenger cars due to the demand for mid-size vehicles in China. In 2015, we expanded local production by the GAC FCA JV with the production of the Jeep Cherokee and in 2016, we continued the transition to local SUV production in China with the production of the Jeep Renegade and the all-new Jeep Compass at the Guangzhou plant of the GAC FCA JV. In 2016, the Jeep brand made its return to India, with 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 all-new Jeep Compass was launched in the Ranjangaon, India plant for sale in India and other right-hand drive countries. In other parts of the APAC segment, we distribute vehicles that we manufacture in the U.S. and Europe 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 for the distribution of our vehicles through their networks. 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: EMEA Passenger Cars Italy Germany France Spain UK Other Europe Europe* Other EMEA** Total 2017(1),(2),(3) 2016(1),(2),(3) 2015(1),(2),(3) Sales Market Share Sales Market Share Sales Market Share Thousands of units (except percentages) Years ended December 31 558 104 88 67 60 158 1,035 116 1,151 28.3% 3.0% 4.2% 5.4% 2.4% 3.6% 6.6% — — 528 97 80 60 84 136 985 113 1,098 28.9% 2.9% 4.0% 5.2% 3.1% 3.3% 6.5% — — 446 90 71 47 83 127 864 124 988 28.3% 2.8% 3.7% 4.5% 3.2% 3.3% 6.1% — — * 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. 2017 | ANNUAL REPORT41 2017(1),(2),(3) 2016(1),(2),(3) 2015(1),(2),(3) Years ended December 31 EMEA Group Sales Market Share Group Sales Market Share Group Sales Market Share Light Commercial Vehicles Thousands of units (except percentages) Europe* Other EMEA** Total 260 75 335 11.4% — — 250 69 319 11.6% — — 217 77 294 11.3% — — * 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. The following table summarizes new vehicle market share information and our principal competitors in Europe, our largest market in the EMEA segment: Europe-Passenger Cars Automaker Volkswagen PSA Renault FCA(1) BMW Ford Daimler Toyota GM Other Total Years ended December 31 2017(*) 23.8% 12.1% 10.4% 6.7% 6.7% 6.6% 6.3% 4.6% 3.8% 19.0% 100.0% 2016(*) Percentage of industry 24.1% 9.7% 10.1% 6.6% 6.8% 6.9% 6.2% 4.3% 6.6% 18.7% 100.0% 2015(*) 24.8% 10.4% 9.6% 6.1% 6.6% 7.2% 5.9% 4.3% 6.7% 18.4% 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 2017, the Fiat brand continued its leadership in the European A minicar segment in EU 28+EFTA, with Fiat 500 and Fiat Panda accounting for 29.1 percent of market share in the segment, and Fiat 500 remaining segment leader, with sales up 3.5 percent. The Fiat brand increased its presence also in the medium-compact and compact sedan segments thanks to the ramp up of the Fiat Tipo. Volumes were higher in the light commercial vehicle segment, with industry sales up 6 percent over the prior year to about 2.3 million units. Overall Alfa Romeo sales increased 29.5 percent over 2016, with the all-new Alfa Romeo Stelvio introduced during the year. In Europe, FCA’s sales are largely weighted to passenger cars, with approximately 38.8 percent of our total vehicle sales in the small car segment for 2017, 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 many markets, points of sale tend to be physically small and carry limited inventory. 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 for the distribution of our vehicles through their existing distribution networks. 2017 | ANNUAL REPORT42 Board Report Overview of Our Business 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 in July 2013 we reached an agreement with Crédit Agricole to extend its term through December 31, 2021. 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. We also operate a joint venture, Koc Fiat Kredi, providing financial services 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 all-new 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 2017 accounted for more than 50% of the 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, 2017, 2016 and 2015: China U.S. Europe Top 4 countries(1) Japan Other countries Total As a percentage of 2017 sales 30% As a percentage of 2016 sales 30% As a percentage of 2015 sales 22% 28% 16% 4% 22% 100% 31% 15% 3% 21% 100% 37% 14% 5% 22% 100% (1) Europe Top 4 Countries by sales, includes Italy, UK, Germany and Switzerland. In 2017, a total of 49 thousand Maserati vehicles were sold to retail consumers, an increase of 22 percent compared to 2016, with increased sales in all major regions over the prior year. 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 customers. 2017 | ANNUAL REPORT43 Components We sell components and production systems under the following brands: Magneti Marelli. Founded in 1919 as a joint venture between Fiat and Ercole Marelli, Magneti Marelli is focused on the design and production of state-of-the-art automotive systems and components. Through Magneti Marelli, we design and manufacture automotive lighting systems, powertrain (engines and transmissions) components and engine control units, electronic systems, suspension systems, shock absorbers, exhaust systems, and plastic components and modules. The Automotive Lighting business line, headquartered in Reutlingen, Germany, is dedicated to the development, production and sale of automotive exterior lighting products worldwide. The Powertrain business line is dedicated to the production of engine and transmission components for automobiles, motorbikes and light commercial vehicles and has a global presence due to its own research and development centers, applied research centers and production plants. The Electronic Systems business line provides know-how in the development and production of hardware and software in mechatronics, instrument clusters, telematics and satellite navigation. We also provide aftermarket parts and services and operate in the motor-sport business, in particular electronic and electro- mechanical systems for championship motor-sport racing, under the Magneti Marelli brand. In 2017, Magneti Marelli acquired a stake in LeddarTech, a Canadian company that develops proprietary LiDAR (Light Detection And Ranging) technology for autonomous vehicles and driver assistance systems, for joint development of this technology for autonomous driving. With 85 production facilities and 46 research and development centers (including joint ventures), Magneti Marelli has a presence in 19 countries and supplies all the major OEMs across the globe. In several countries, Magneti Marelli’s activities are carried out through a number of joint ventures with local partners with the goal of entering more easily into new markets by leveraging the partners’ local relationships. Thirty-four percent of Magneti Marelli’s 2017 revenue is derived from sales to the Group. Teksid. Originating from Fiat’s 1917 acquisition of Ferriere Piemontesi, the Teksid brand was established in 1978 and today specializes in castings production. Teksid produces iron engine blocks, cylinder heads, engine components, transmission parts, gearboxes and suspensions. Teksid Aluminum produces aluminum engine blocks and cylinder heads. Forty-four percent of Teksid’s 2017 revenue is derived from sales to the Group. Comau. Founded in 1973, Comau, which originally derived its name from the acronyms of COnsorzio MAcchine Utensili (consortium of machine tools), supplies advanced manufacturing systems through an international network. Comau operates primarily in the field of integrated automation technology, delivering advanced turnkey systems to its customers. Through Comau, we develop and sell a wide range of industrial applications, including robotics, and provide support service and training to customers. Comau’s main activities include innovative and high performance body welding and assembly systems and robotics, powertrain metal-cutting systems, mechanical assembly systems and testing. Comau’s automation technology is primarily used in the automotive industry, and also in other industries. Comau also provides maintenance services in Latin America. Twenty-five percent of Comau’s 2017 revenue is derived from sales to the Group. 2017 | ANNUAL REPORT44 Board Report Operating Results Operating Results Non-GAAP Financial Measures We monitor our operations through the use of several non-generally accepted accounting principles (“non-GAAP”) financial measures: Net debt, Net industrial 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. Net Debt and Net Industrial Debt We believe Net debt is useful in providing a measure of the Group’s total 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 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. Net industrial debt (i.e., Net debt of industrial activities) is management’s primary measure for analyzing our financial leverage and capital structure and is one of the key targets used to measure our performance. Net industrial debt is computed as: debt plus derivative financial liabilities related to industrial activities less (i) cash and cash equivalents, (ii) current available-for-sale and held-for-trading 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 debt. Net industrial debt should not be considered as a substitute for cash flows or other financial measures under IFRS; in addition, Net industrial 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 debt should therefore be evaluated alongside these other measures as reported under IFRS for a complete view of the Company’s capital structure and liquidity. Refer to Operating Results—Liquidity and Capital Markets—Net 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. 2017 | ANNUAL REPORT45 Adjusted EBIT: excludes certain adjustments from Net profit 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). 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 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 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 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. Constant Currency Information: The discussion within Operating Results—Results of Operations 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. 2017 | ANNUAL REPORT46 Board Report Operating Results Shipment Information As discussed in Overview of Our Business, our activities are carried out through six reportable segments: four regional mass-market vehicle segments (NAFTA, LATAM, APAC and EMEA), the Maserati global luxury brand segment and a global Components segment. The following table sets forth our vehicle shipment information by segment (excluding the Components segment). Vehicle shipments are generally aligned with current period production which is driven by our plans to meet consumer demand. Revenue is recognized when the risks and rewards of ownership of a vehicle have been transferred to our customers, which generally corresponds to the date when the vehicles are made available to dealers or distributors, or when the vehicles are released to the carrier responsible for transporting vehicles to dealers or distributors. Revenues related to new vehicle sales with a buy-back commitment, or through the Guaranteed Depreciation Program (“GDP”), under which the Group guarantees the residual value or otherwise assumes responsibility for the minimum resale value of the vehicle, are not recognized at the time of delivery but are accounted for similar to an operating lease and rental income is recognized over the contractual term of the lease on a straight line basis. For a description of our dealers and distributors see Overview of Our Business—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. (thousands of units) NAFTA LATAM APAC EMEA Maserati Total Consolidated shipments Joint venture shipments Total Combined shipments 2017 2,401 521 85 1,365 51 4,423 317 4,740 Years ended December 31 2016 2,587 456 91 1,306 42 4,482 238 4,720 2015 2,726 553 149 1,142 32 4,602 136 4,738 For discussion of shipments for NAFTA, LATAM, APAC, EMEA and Maserati for 2017 as compared to 2016 and for 2016 as compared to 2015, refer to —Results by Segment below. 2017 | ANNUAL REPORT47 Group Results – 2017 compared to 2016 and 2016 compared to 2015 The following is a discussion of the Group’s results of operations for the year ended December 31, 2017 as compared to the year ended December 31, 2016 and for the year ended December 31, 2016 as compared to the year ended December 31, 2015. (€ million) Net revenues Cost of revenues Selling, general and other costs Research and development costs Result from investments Reversal of a Brazilian indirect tax liability Gains on disposal of investments Restructuring costs Net financial expenses Profit before taxes Tax expense Net profit from continuing operations Profit from discontinued operations, net of tax Net profit Net profit attributable to: Owners of the parent Non-controlling interests Years ended December 31 2017 2016 € 110,934 € 111,018 € 93,975 7,385 3,230 410 895 76 95 1,469 6,161 2,651 3,510 — 3,510 3,491 19 € € € 95,295 7,568 3,274 316 — 13 88 2,016 3,106 1,292 1,814 — 1,814 1,803 11 € € € € € € 2015 110,595 97,620 7,576 2,864 143 — — 53 2,366 259 166 93 284 377 334 43 Net revenues (€ million) Net revenues Years ended December 31 2017 vs. 2016 2016 vs. 2015 2017 2016 2015 % Actual % CER % Actual % CER € 110,934 € 111,018 € 110,595 (0.1)% 1.0% 0.4% 1.2% Increase/(Decrease) For a discussion of Net revenues for each of our six reportable segments (NAFTA, LATAM, APAC, EMEA, Maserati and Components) for 2017 as compared to 2016 and for 2016 as compared to 2015, see —Results by Segment below. Cost of revenues (€ million) Cost of revenues Cost of revenues as % of Net revenues 84.7% 85.8% € 93,975 € 95,295 € 97,620 88.3% (1.4)% (0.3)% (2.4)% Years ended December 31 2017 vs. 2016 2016 vs. 2015 Increase/(Decrease) 2017 2016 2015 % Actual % CER % Actual % CER (1.6)% Cost of revenues includes purchases (including commodity costs), labor costs, depreciation, amortization, logistic, product warranty and recall campaign costs. 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 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. 2017 | ANNUAL REPORT48 Board Report Operating Results The decrease in Cost of revenues in NAFTA in 2017 compared to 2016 was primarily due to (i) lower volumes (ii) foreign exchange translation effects, (iii) purchasing savings, and (iv) the charges recognized for the estimated costs of recall campaigns related to an industry-wide recall for airbag inflators manufactured by Takata Corporation, which were predominantly recognized in 2016. These were partially offset by (v) mix, (vi) higher product costs for content enhancements and (vii) increased costs for the capacity realignment plan. The decrease in Cost of revenues in APAC in 2017 compared to 2016 was mainly due to (i) lower volumes due to planned reductions of Jeep imports in China, (ii) vehicle mix, and (iii) the final settlement of insurance recoveries relating to Tianjin, China, port explosions in 2015 (see below). These were partially offset by (iv) higher industrial costs from negative foreign exchange impacts. The increase in Cost of revenues in LATAM in 2017 compared to 2016 was mainly due to (i) higher volumes, (ii) vehicle mix, (iii) foreign exchange translation effects, (iv) higher input cost inflation and (v) higher depreciation and amortization related to new vehicles. The increase in Cost of revenues in EMEA in 2017 compared to 2016 was mainly due to (i) higher volumes and (ii) vehicle mix, which were partially offset by (iii) purchasing and manufacturing efficiencies. The increase in Cost of revenues in Maserati in 2017 compared to 2016 was mainly due to due to (i) higher volumes, partially offset by (ii) foreign exchange translation effects and (iii) lower industrial costs. The decrease in Cost of revenues in 2016 compared to 2015 was primarily related to (i) lower volumes, (ii) purchasing and manufacturing efficiencies, net of higher product costs for content enhancements and (iii) lower warranty costs, which were partially offset by (iv) vehicle mix. The decrease in Cost of revenues was primarily attributable to decreases in NAFTA and APAC, which were partially offset by increases in EMEA and Maserati. Selling, general and other costs (€ million) 2017 2016 2015 % Actual % CER % Actual % CER Years ended December 31 2017 vs. 2016 2016 vs. 2015 Increase/(Decrease) Selling, general and other costs Selling, general and other costs as % of Net revenues € 7,385 € 7,568 € 7,576 (2.4)% (1.6)% (0.1)% 0.9% 6.7% 6.8% 6.9% Selling, general and other costs includes advertising, personnel and administrative costs. Advertising costs amounted to approximately 45 percent, 47 percent and 47 percent of total Selling, general and other costs for the years ended December 31, 2017, 2016 and 2015, respectively. 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 launch costs for Alfa Romeo in NAFTA, APAC and EMEA. Selling, general and other costs in 2016 was consistent with 2015 and primarily reflected (i) higher advertising costs in NAFTA to support product launches, mainly related to the all-new Chrysler Pacifica, (ii) higher advertising costs in EMEA, mainly for new product launches, particularly the Alfa Romeo brand, and (iii) an increase in Maserati for commercial launch activities, which were offset by (iv) lower marketing costs in APAC, which are incurred by the GAC FCA JV as a result of the shift to localized production in China, and (v) lower costs in LATAM primarily driven by continued cost reduction initiatives to right-size to market volume. 2017 | ANNUAL REPORT49 Research and development costs Years ended December 31 2017 vs. 2016 2016 vs. 2015 Increase/(Decrease) (€ million) 2017 2016 2015 % Actual % CER % Actual % CER Research and development expenditures expensed Amortization of capitalized development expenditures Impairment and write-off of capitalized development expenditures Total Research and development costs € 1,696 € 1,661 € 1,449 2.1% 3.4% 14.6% 15.0% 1,424 1,492 1,194 (4.6)% (4.4)% 25.0% 25.5% 110 121 221 (9.1)% (9.9)% (45.2)% (45.2)% € 3,230 € 3,274 € 2,864 (1.3)% (0.7)% 14.3% 14.8% Research and development expenditures expensed as % of Net revenues Amortization of capitalized development expenditures as % of Net revenues Impairment and write-off of capitalized development expenditures as % of Net revenues Total Research and development costs as % of Net revenues Years ended December 31 2017 1.5% 1.3% 0.1% 2.9% 2016 1.5% 1.3% 0.1% 2.9% 2015 1.3% 1.1% 0.2% 2.6% The following table summarizes our research and development expenditures for the years ended December 31, 2017, 2016 and 2015: (€ million) Capitalized development expenditures Research and development expenditures expensed Total Research and development expenditures Capitalized development expenditures as % of Total Research and development expenditures Total Research and development expenditures as % of Net revenues Years ended December 31 Increase/(Decrease) 2017 2,586 1,696 4,282 € € 2016 2,558 1,661 4,219 € € € € 2015 2017 vs. 2016 2016 vs. 2015 2,504 1,449 3,953 1.1% 2.1% 1.5% 2.2% 14.6% 6.7% 60.4% 60.6% 63.3% 3.9% 3.8% 3.6% 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 Non- Financial Information—Research and Development. The decrease in amortization of capitalized development expenditure 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. The increase in amortization of capitalized development expenditures in 2016 compared to 2015 was mainly attributable to the all-new Chrysler Pacifica in NAFTA, the all-new Alfa Romeo Giulia in EMEA and the all-new Maserati Levante. The impairment and write-off of capitalized development expenditures during the year ended December 31, 2016 mainly related to the Group’s realignment to SUV production in China, which resulted in an impairment charge of €90 million for the locally-produced Fiat Viaggio and Ottimo vehicles. 2017 | ANNUAL REPORT50 Operating Results Result from investments (€ million) Result from investments Years ended December 31 Increase/(Decrease) 2017 2016 2015 2017 vs. 2016 2016 vs. 2015 € 410 € 316 € 143 29.7% 121.0% The increase in Result from investments in 2017 compared to 2016, and in 2016 compared to 2015 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 (€ million) Net financial expenses Years ended December 31 Increase/(Decrease) 2017 2016 2015 2017 vs. 2016 2016 vs. 2015 € 1,469 € 2,016 € 2,366 (27.1)% (14.8)% The decrease in Net financial expenses in 2017 compared to 2016, and in 2016 compared to 2015 was primarily due to the continuation of the planned reduction in gross debt. Tax expense (€ million) Tax expense Effective tax rate n.m. = Number is not meaningful. Years ended December 31 Increase/(Decrease) 2017 2016 2015 2017 vs. 2016 2016 vs. 2015 € 2,651 € 1,292 € 43.0% 40.2% 166 54.4% 105.2% n.m. +280 bps -1,420 bps 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 and (iv) a decrease in Brazilian deferred tax assets of €734 million, composed of: €281 million related to the reversal of a 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 subsequent years, largely resulting from increased political uncertainty, and concluded that a portion of the deferred tax asset was no longer recoverable. These items were excluded from Group Adjusted net profit. The increase in the effective tax rate to 43.0 percent in 2017 from 40.2 percent in 2016 was primarily due to (i) reduced generation and usages of tax credits in NAFTA, and (ii) a decrease in Brazilian deferred tax assets, which was partially offset by (iii) tax benefits recorded on changes to prior years’ tax positions. The increase in Tax expense in 2016 compared to 2015 was primarily attributable to higher profits in NAFTA. The decrease in the effective tax rate to 40.2 percent in 2016 from 54.4 percent in 2015 was mainly due to the decreased impact of deferred tax assets not recognized. 2017 | ANNUAL REPORTBoard Report51 Profit from discontinued operations, net of tax (€ million) Years ended December 31 Increase/(Decrease) 2017 2016 2015 2017 vs. 2016 2016 vs. 2015 Profit from discontinued operations, net of tax € — € — € 284 — n.m. n.m. = Number is not meaningful The spin-off of Ferrari was approved on December 3, 2015 and our Ferrari operating segment was presented as a discontinued operation in the Consolidated Financial Statements for the year ended December 31, 2015. The spin-off of Ferrari N.V. from the Group was completed on January 3, 2016. For more information, refer to Note 3, Scope of consolidation, within our Consolidated Financial Statements included elsewhere in this report. Net profit from continuing operations (€ million) Years ended December 31 Increase/(Decrease) 2017 2016 2015 2017 vs. 2016 2016 vs. 2015 Net profit from continuing operations € 3,510 € 1,814 € 93 93.5% n.m. n.m. = Number is not meaningful 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. The increase in Net profit from continuing operations in 2016 compared to 2015 was mainly driven by improved operating performance in 2016 as well as costs recognized in 2015 associated to the NAFTA capacity realignment and change in estimate for future recall campaigns. Adjusted EBIT Years ended December 31 2017 vs. 2016 2016 vs. 2015 Increase/(Decrease) (€ million) Adjusted EBIT 2017 2016 € 7,054 € 6,056 € Adjusted EBIT margin (%) 6.4% 5.5% 2015 4,794 4.3% % Actual 16.5% +90 bps % CER 18.8% % Actual 26.3% — +120 bps % CER 27.4% — The following charts present our Adjusted EBIT walk by segment for 2017 as compared to 2016 and for 2016 as compared to 2015. Adjusted EBIT by segment 2017 compared to 2016 (€ million) 6,056 94 146 67 195 221 91 184 7,054 2016 NAFTA LATAM APAC EMEA Maserati Components Other & Eliminations 2017 2017 | ANNUAL REPORT52 Board Report Operating Results Adjusted EBIT by segment 2016 compared to 2015 (€ million) 683 92 53 4,794 327 234 50 6,056 (177) 2015 NAFTA LATAM APAC EMEA Maserati Components Other & Eliminations 2016 For a discussion of Adjusted EBIT for each of our six reportable segments (NAFTA, LATAM, APAC, EMEA, Maserati and Components) in 2017 as compared to 2016 and for 2016 as compared to 2015, 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) Net profit from continuing operations € Tax expense Net financial expenses Adjustments: Reversal of a Brazilian indirect tax liability Impairment expense Recall campaigns - airbag inflators Restructuring costs Resolution of certain Components legal matters Deconsolidation of Venezuela Costs for recall - contested with supplier NAFTA capacity realignment Tianjin (China) port explosions (insurance recoveries)/costs Gains on disposal of investments Change in estimate for future recall campaign costs NHTSA Consent Order and amendment Currency devaluations Other Total Adjustments Adjusted EBIT 2017 3,510 2,651 1,469 (895) 229 102 95 43 42 — (38) (68) (76) — — — (10) (576) € € 2016 1,814 1,292 2,016 — 225 414 88 — — 132 156 (55) (13) — — 19 (32) 934 € 7,054 € 6,056 € 2015 93 166 2,366 — 118 — 53 — — — 834 142 — 761 144 163 (46) 2,169 4,794 2017 | ANNUAL REPORT53 During the year ended December 31, 2017 Adjusted EBIT excluded adjustments primarily related to: €895 million gain on the reversal of a liability for Brazilian indirect taxes, as reported above; €229 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 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 both 2016 and 2017 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); €95 million restructuring costs, primarily €75 million of workforce restructuring costs related to LATAM; €43 million relating to the resolution of certain Components legal matters; €42 million net loss resulting from deconsolidation of our operations in Venezuela. Refer to Note 3 - Scope of Consolidation; €38 million income related to adjustments to reserves for 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. As a result, in 2015, a total of €834 million, of which €422 million related to tangible asset impairments, €236 million related to the payment of supplemental unemployment benefits due to planned extended downtime at certain plants associated with the implementation of the new manufacturing plan and €176 million related to the impairment of capitalized development costs with no future economic benefit, was recorded during 2015 and excluded from Adjusted EBIT. 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; €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, 2015, a total cost of €142 million was excluded from Adjusted EBIT, of which €89 million that related to incremental incentives for vehicles affected by the explosion was recorded as a reduction to Net revenues and €53 million relating to the write-down of the affected inventory reduced Cost of revenues. 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; and €76 million gain on disposal of investments, primarily related to a €49 million gain on the disposal of the Group’s publishing business. During the year ended December 31, 2016 Adjusted EBIT excluded adjustments primarily related to: €225 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; 2017 | ANNUAL REPORT54 Board Report Operating Results €414 million charge for the estimated costs of recall campaigns related to Takata airbag inflators, referred to above; €88 million restructuring costs, primarily relating to LATAM and Components; €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; €156 million relating to the NAFTA capacity alignment referred to above; and €55 million insurance recoveries relating to the Tianjin port explosions referred to above. During the year ended December 31, 2015 Adjusted EBIT excluded adjustments primarily related to: €118 million charges relating to asset impairments in EMEA and APAC; €53 million restructuring costs, primarily relating to LATAM and Components; €834 million relating to the NAFTA capacity alignment referred to above; €142 million relating to the Tianjin port explosions referred to above; €761 million for estimated future recall campaign costs for vehicles sold in the U.S. and Canada in periods prior to the third quarter of 2015, as a result of increases in both the cost and frequency of recall campaigns and increased regulatory activity across the industry in the U.S. and Canada, an additional actuarial analysis that gave greater weight to the more recent calendar year trends in recall campaign experience was added to the adequacy assessment to estimate future recall costs; €144 million, which was recognized within Selling, general and other costs within the Consolidated Income Statement, as a result of a consent order agreed with the U.S. National Highway Traffic Safety Administration (“NHTSA”), resolving issues raised by the NHTSA with respect to FCA US’s execution of twenty-three recall campaigns in NHTSA’s Special Order issued to FCA US in 2015, and deficiencies identified in FCA US’s Transportation Recall Enhancement, Accountability, and Documentation (TREAD) reporting; and €163 million of currency devaluations, of which €83 million related to the devaluation of the Argentinian Peso resulting from changes in monetary policy and €80 million related to Venezuela as a result of the adoption of the Marginal Currency System (the “SIMADI”) exchange rate at June 30, 2015 and the write-down of inventory to the lower of cost or net realizable value. Adjusted net profit (€ million) Adjusted net profit Years ended December 31 Increase/(Decrease) 2017 2016 2015 2017 vs. 2016 2016 vs. 2015 € 3,770 € 2,516 € 1,708 49.8% 47.3% The increase in Adjusted net profit in 2017 compared to 2016, and in 2016 compared to 2015, was driven by improved operating performance and the reduction in Net financial expenses, which were partially offset by the increase in Tax expense. 2017 | ANNUAL REPORT55 The following table summarizes the reconciliation of Net profit from continuing operations to Adjusted net profit: (€ million) Net profit from continuing operations Adjustments (as above) Tax impact on adjustments Brazil deferred tax assets write-off Reduction of deferred tax assets related to reversal of a Brazilian indirect tax liability Impact of U.S. tax reform Total adjustments, net of taxes Adjusted net profit Years ended December 31 € 2017 3,510 € 2016 1,814 € (576) 14 453 281 88 260 934 (232) — — — 702 € 3,770 € 2,516 € 2015 93 2,169 (554) — — — 1,615 1,708 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. This estimate may change, potentially materially, as a result of regulations or regulatory guidance that may be issued, changes in the interpretations affecting assumptions underlying the estimate, refinement of our calculations and actions that may be taken, including actions in response to the tax reform act. 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. During the year ended December 31, 2015 Adjusted net profit excluded adjustments related to: €554 million gain, reflecting the tax impact on the items excluded from Adjusted EBIT above. Results by Segment – 2017 compared to 2016 and 2016 compared to 2015 (€ million, except shipments which are in thousands of units) NAFTA LATAM APAC EMEA Maserati Components Other activities Unallocated items & eliminations(1) Total Net revenues Adjusted EBIT Shipments 2017 2016 2015 2017 2016 € 66,094 € 69,094 € 69,992 € 5,227 € 5,133 € 8,004 3,250 22,700 4,058 10,115 727 6,197 3,662 21,860 3,479 9,659 779 6,431 4,885 20,350 2,411 9,770 844 151 172 735 560 536 5 105 540 339 445 (189) (244) (150) 2015 4,450 (87) 52 213 105 395 Years ended December 31 2017 2,401 521 85 2016 2,587 456 91 2015 2,726 553 149 1,365 1,306 1,142 51 — — 42 — — 32 — — (4,014) € 110,934 (3,712) € 111,018 (4,088) € 110,595 € (138) 7,054 € (267) 6,056 € (184) 4,794 — 4,423 — 4,482 — 4,602 (1) Primarily includes intercompany transactions which are eliminated in consolidation; also includes 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. 2017 | ANNUAL REPORT56 Board Report Operating Results The following is a discussion of Net revenues, Adjusted EBIT and shipments for each segment for the year ended December 31, 2017 as compared to the year ended December 31, 2016, and for the year ended December 31, 2016 as compared to the year ended December 31, 2015. 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 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 Shipments (thousands of units) Net revenues (€ million) Adjusted EBIT (€ million) Adjusted EBIT margin (%) Increase/(Decrease) Years ended December 31 2017 vs. 2016 2016 vs. 2015 2017 2,401 66,094 5,227 7.9% € € 2016 2,587 69,094 5,133 7.4% € € 2015 % Actual % CER % Actual % CER € € 2,726 69,992 4,450 6.4% (7.2)% (4.3)% 1.8% — (2.6)% 4.0% (5.1)% (1.3)% 15.3% +50 bps — +100 bps — (1.2)% 15.1% — Shipments 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. The decrease in vehicle shipments in 2016 compared to 2015 was driven by the planned phase-out of the Chrysler 200 and Dodge Dart in connection with the NAFTA capacity realignment plan to better meet market demand for pickup trucks and utility vehicles. Shipments reflected decreases in (i) the U.S. of 106 thousand units (-5 percent), (ii) Canada of 29 thousand units (-10 percent) and (iii) Mexico of 4 thousand units (-4 percent). Net revenues 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. 2017 | ANNUAL REPORT57 The decrease in NAFTA Net revenues in 2016 compared to 2015 was primarily attributable to a €1.0 billion net decrease resulting from lower shipments (as described above), net of favorable vehicle mix, which was partially offset by an increase in net pricing of €0.1 billion, which was partially offset by negative foreign currency transaction effects from the Canadian Dollar and Mexican Peso. Adjusted EBIT The following charts reflect the change in NAFTA Adjusted EBIT by operational driver for 2017 as compared to 2016 and for 2016 as compared to 2015: Adjusted EBIT by operational driver 2017 compared to 2016 (€ million) 5,133 324 106 92 5,227 (219) (209) 2016 Volume & Mix Net price Industrial costs SG&A Other 2017 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 expenditure, 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. Adjusted EBIT by operational driver 2016 compared to 2015 (€ million) 4,450 245 71 (69) 361 75 5,133 2015 Volume & Mix Net price Industrial costs SG&A Other 2016 2017 | ANNUAL REPORT58 Board Report Operating Results The increase in NAFTA Adjusted EBIT in 2016 compared to 2015 was primarily attributable to: improved vehicle mix, net of lower shipments, as described above; positive net price, as described above; and decrease in industrial costs primarily related to purchasing savings, lower warranty costs, and positive foreign currency transaction effects, net of higher product costs for content enhancements and higher manufacturing costs. These were partially offset by: higher SG&A expenditure, primarily due to increased advertising costs. LATAM Shipments (thousands of units) Net revenues (€ million) Adjusted EBIT (€ million) Adjusted EBIT margin (%) n.m. = Number is not meaningful. Increase/(Decrease) Years ended December 31 2017 vs. 2016 2016 vs. 2015 2017 521 8,004 151 1.9% € € 2016 456 6,197 5 0.1% € € 2015 % Actual % CER % Actual % CER 553 6,431 (87) € € 14.3% 29.2% n.m. — (17.5)% 23.6% n.m. (3.6)% n.m. (1.4)% +180 bps — +150 bps — 0.7% n.m. — Shipments 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. The decrease in vehicle shipments in 2016 compared to 2015 was primarily attributable to poor trading conditions in Brazil due to continued macroeconomic weakness, partially offset by the locally produced Fiat Toro and Jeep Compass. Shipments reflects (i) a decrease of 106 thousand units (-23 percent) in Brazil, which reflected the poor trading conditions in Brazil due to the continued macroeconomic weakness, partially offset by (ii) an increase of 10 thousand units (+12 percent) in Argentina. Net revenues 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. The decrease in LATAM Net revenues in 2016 compared to 2015 was primarily attributable to a €0.1 billion net increase resulting from favorable vehicle mix, net of lower volumes (as described above), which was partially offset by €0.3 billion from unfavorable foreign currency effects. 2017 | ANNUAL REPORT59 Adjusted EBIT The following charts reflect the change in LATAM Adjusted EBIT by operational driver for 2017 as compared to 2016 and 2016 as compared to 2015. Adjusted EBIT by operational driver 2017 compared to 2016 (€ million) 180 249 5 (268) (3) (12) 151 2016 Volume & Mix Net price Industrial costs SG&A Other 2017 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. These were partially offset by: higher industrial costs due to input cost inflation; and higher depreciation and amortization related to new vehicles. Adjusted EBIT by operational driver 2016 compared to 2015 (€ million) 96 57 5 (13) (17) (31) (87) 2015 Volume & Mix Net price Industrial costs SG&A Other 2016 2017 | ANNUAL REPORT60 Board Report Operating Results The increase in LATAM Adjusted EBIT in 2016 compared to 2015 was primarily attributable to: favorable volume and mix, as described above; and a decrease in SG&A driven by continued cost reduction initiatives to right-size to market volume. These were partially offset by: lower net price resulting from strong competition in Brazil; and higher industrial costs due to higher product costs driven by inflation and depreciation and amortization related to new products. APAC Combined shipments (thousands of units) Consolidated shipments (thousands of units) Net revenues (€ million) Adjusted EBIT (€ million) Adjusted EBIT margin (%) Increase/(Decrease) Years ended December 31 2017 vs. 2016 2016 vs. 2015 2017 290 85 3,250 172 5.3% € € 2016 233 91 3,662 105 2.9% 2015 % Actual % CER % Actual % CER 189 149 24.5% (6.6)% € € 4,885 (11.3)% 52 63.8% — — (9.2)% 71.8% 23.3% (38.9)% (25.0)% 101.9% 1.1% +240 bps — +180 bps — — (23.9)% 114.1% — € € The continued transition to localized Jeep production through the GAC FCA JV in China resulted in higher combined shipments (which include shipments from consolidated subsidiaries and unconsolidated joint ventures) and lower consolidated shipments (which only include shipments from consolidated subsidiaries and our operations in India) in 2017 compared to 2016 and 2016 compared to 2015. The GAC FCA JV was fully operational in 2017, with the production of three Jeep sport utility vehicle (“SUV”) models (Cherokee, Renegade and all-new Compass) as compared to the production of only one Jeep SUV model (Cherokee) in 2016. As a result of the increased local production by the GAC FCA JV, the Group is importing fewer vehicles into China. As the GAC FCA JV is accounted for using the equity method of accounting, the results of the joint venture are recognized in the line item Result from investments within the Consolidated Income Statement, rather than being consolidated on a line by line basis. The shift to localized production in China has the effect of decreasing Net revenues and other lines of the Consolidated Income Statement due to fewer shipments through our consolidated operations in China. As this trend continues, the results from the GAC FCA JV and Adjusted EBIT become increasingly important to understanding our results from operations in APAC. Shipments 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 continued ramp up in localized Jeep production through the GAC FCA JV. The decrease in consolidated shipments in 2016 compared to 2015 was primarily attributable to the transition to local Jeep production in China, as well as lower volumes in Australia due to pricing actions to offset the weakened Australian Dollar. The increase in combined shipments in 2016 as compared to 2015 was due to localized Jeep production through the GAC FCA JV. Net revenues 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. The decrease in APAC Net revenues in 2016 compared to 2015 was primarily due to lower consolidated shipments, as described above, which was partially offset by favorable vehicle mix from imported vehicles and increased sales of components. 2017 | ANNUAL REPORT61 Adjusted EBIT The following charts reflect the change in APAC Adjusted EBIT by operational driver for 2017 as compared to 2016 and for 2016 as compared to 2015. Adjusted EBIT by operational driver 2017 compared to 2016 (€ million) 37 25 105 117 172 (94) (18) 2016 Volume & Mix Net price Industrial costs SG&A Other 2017 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. Adjusted EBIT by operational driver 2016 compared to 2015 (€ million) 52 152 105 136 (197) (11) (27) 2015 Volume & Mix Net price Industrial costs SG&A Other 2016 2017 | ANNUAL REPORT62 Board Report Operating Results The increase in APAC Adjusted EBIT in 2016 compared to 2015 was primarily attributable to: a decrease in SG&A, mainly due to marketing costs incurred by the GAC FCA JV from 2016 onwards; and improved results from the GAC FCA JV driven by the local production of Jeep in China and favorable foreign currency effects (reflected within Other). These were partially offset by: negative effect from volume and mix with lower imported volumes, net of favorable vehicle mix, as described above; lower net price due to incentives to complete the sell-out of discontinued and other imported vehicles; and higher industrial costs due to unfavorable foreign currency transaction effects. EMEA Shipments (thousands of units) Net revenues (€ million) Adjusted EBIT (€ million) Adjusted EBIT margin (%) n.m. = Number is not meaningful. Increase/(Decrease) Years ended December 31 2017 vs. 2016 2016 vs. 2015 2017 1,365 22,700 735 3.2% € € 2016 1,306 21,860 540 2.5% € € 2015 % Actual % CER % Actual % CER € € 1,142 20,350 213 1.0% 4.5% 3.8% 36.1% +70 bps — 4.4% 35.6% 14.4% 7.4% 153.5% — +150 bps — 8.7% n.m. — Shipments 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 light commercial vehicles (“LCVs”) to 297 thousand units (+1 percent). The increase in vehicle shipments in 2016 compared to 2015 was primarily attributable to the all-new Fiat Tipo family, Jeep Renegade and all-new Alfa Romeo Giulia. Shipments reflected (i) an increase in passenger car shipments to 1,012 thousand units (+13 percent) and (ii) an increase in shipments of light commercial vehicles to 294 thousand units (+19 percent). Net revenues 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. The increase in EMEA Net revenues in 2016 compared to 2015 was primarily attributable to a positive effect of €2.3 billion related to the increase in volumes (as described above) and favorable vehicle mix. This was partially offset by unfavorable foreign currency effects of €0.3 billion. 2017 | ANNUAL REPORT63 Adjusted EBIT The following charts reflect the change in EMEA Adjusted EBIT by operational driver for 2017 as compared to 2016 and for 2016 as compared to 2015. Adjusted EBIT by operational driver 2017 compared to 2016 (€ million) 226 540 (242) 149 28 34 735 2016 Volume & Mix Net price Industrial costs SG&A Other 2017 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 currency effects, including depreciation of the British Pound sterling. Adjusted EBIT by operational driver 2016 compared to 2015 (€ million) 448 25 213 (46) (155) 55 540 2015 Volume & Mix Net price Industrial costs SG&A Other 2016 The increase in EMEA Adjusted EBIT in 2016 compared to 2015 was primarily attributable to: higher volumes and vehicle mix improvement, as described above; and improved results from the FCA Bank and Tofas joint ventures (included in Other above). These were partially offset by: an increase in industrial costs mainly due to higher research and development costs, net of purchasing and manufacturing efficiencies; and an increase in SG&A mainly due to higher advertising costs to support new product launches, particularly for the Alfa Romeo brand. 2017 | ANNUAL REPORT64 Board Report Operating Results Maserati Shipments (thousands of units) Net revenues (€ million) Adjusted EBIT (€ million) Adjusted EBIT margin (%) Increase/(Decrease) Years ended December 31 2017 vs. 2016 2016 vs. 2015 2017 51 4,058 560 13.8% € € € € 2016 42 3,479 339 9.7% 2015 % Actual % CER % Actual % CER 32 2,411 105 € € 21.4% 16.6% 65.2% — 19.3% 67.7% 31.3% 44.3% — 47.0% 222.9% 228.9% 4.4% +410 bps — +530 bps — Shipments 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. The increase in Maserati shipments in 2016 compared to 2015 was primarily attributable to the launch of the all-new Maserati Levante, which drove significantly higher shipments in China (+91 percent), Europe (+37 percent) and North America (+14 percent). Net revenues The increase in Maserati Net revenues in 2017 compared to 2016 was primarily driven by higher shipments, partially offset by negative foreign exchange effects. The increase in Maserati Net revenues in 2016 compared to 2015 was primarily driven by higher shipments and favorable vehicle and market mix. Adjusted EBIT 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. The increase in Maserati Adjusted EBIT in 2016 compared to 2015 was primarily due to: positive effect from volume and mix (as described above), which was partially offset by; an increase in industrial costs and commercial launch activities. Components Net revenues (€ million) Adjusted EBIT (€ million) Adjusted EBIT margin (%) Years ended December 31 2017 vs. 2016 2016 vs. 2015 € € 2017 10,115 536 5.3% € € 2016 9,659 445 4.6% € € 2015 % Actual % CER % Actual % CER 9,770 395 4.0% 4.7% 20.4% +70 bps 5.1% 22.4% (1.1)% 12.7% — +60 bps 1.1% 15.9% — Increase/(Decrease) 2017 | ANNUAL REPORT65 Net revenues The increase in Net revenues in 2017 compared to 2016 was primarily due to higher volumes from all three businesses (Magneti Marelli, Comau and Teksid). The decrease in Net revenues in 2016 compared to 2015 was primarily due to lower volumes at Comau and unfavorable foreign currency transaction effects, which were largely offset by volume increases at Magneti Marelli, mainly from the lighting business line. Adjusted EBIT The increase in Adjusted EBIT in 2017 compared to 2016 was primarily related to the positive effect of increased volumes and lower industrial costs primarily resulting from World Class Manufacturing initiatives at Magneti Marelli, which was partially offset by unfavorable mix and unfavorable net pricing. The increase in Adjusted EBIT in 2016 compared to 2015 was primarily related to the positive effect from volume and mix, which was partially offset by higher industrial costs mainly due to inflation and unfavorable foreign currency effects, net of purchasing and industrial efficiencies. 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 autonomous driving, enhance manufacturing efficiency, improve capacity and for maintenance, and for regulatory and environmental compliance. Our capital expenditures in 2018 are expected to be within the range of €8.0 to €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. 2017 | ANNUAL REPORT66 Board Report Operating Results Fidis S.p.A., our 100 percent owned captive finance company, supports working capital needs in all regions at a Group level (including Components and Maserati segments) through the offering of receivable financing activity (also known as factoring). In addition, Fidis S.p.A. also 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. In March 2016, FCA US entered into amendments to the credit agreements that govern its tranche B term loans due in 2017 and 2018, (collectively, 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 (refer to the section —Capital Market and Other Financing Transactions - FCA US Tranche B Term Loans below). As a result, since then, FCA US’s cash management activities are no longer managed separately from the rest of the Group. 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. 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: (€ million) Cash, cash equivalents and current securities(2) Undrawn committed credit lines(3) Total Available liquidity(4) At December 31 € € 2017 12,814 7,563 20,377 € € 2016 17,559 6,242 23,801 € € 2015(1) 21,144 3,413 24,557 (1) The assets of the Ferrari segment were classified as Assets held for distribution within the Consolidated Statement of Financial Position at December 31, 2015. These assets, as well as, the undrawn revolving credit facility of €500 million of Ferrari at December 31, 2015, are not included within the figures presented. (2) 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). (3) Excludes the undrawn €0.1 billion long-term dedicated credit lines available to fund scheduled investments at December 31, 2017 (€0.3 billion was undrawn at December 31, 2016 and December 31, 2015, respectively). (4) 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. 2017 | ANNUAL REPORT67 Our liquidity is principally denominated in U.S. Dollar and Euro. Out of the total €12.8 billion of cash, cash equivalents and current securities available at December 31, 2017 (€17.6 billion at December 31, 2016, €21.1 billion at December 31, 2015), €7.0 billion, or 54.7 percent were denominated in U.S. Dollar (€9.8 billion, or 55.7 percent, at December 31, 2016 and €12.6 billion, or 59.7 percent, at December 31, 2015) and €2.3 billion, or 18.0 percent, were denominated in Euro (€3.3 billion, or 18.8 percent, at December 31, 2016 and €3.4 billion, or 16.1 percent, at December 31, 2015). In March 2017, the Group amended its syndicated revolving credit facility originally signed in June 2015 (as amended, the “RCF”). The amendment increased the RCF from €5.0 billion to €6.25 billion and extended the RCF’s final maturity to March 2022. 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 remaining unamortized debt issuance costs related to the original €5.0 billion RCF and the new costs associated with the amendment will be amortized over the life of the RCF. At December 31, 2017, the €6.25 billion RCF was undrawn. 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. At December 31, 2016, undrawn committed credit lines totaling €6.2 billion included the original €5.0 billion RCF and approximately €1.2 billion of other revolving credit facilities. The €3.4 billion decrease in total available liquidity from December 31, 2016 to December 31, 2017 primarily reflects the reduction in gross debt, which was partially offset by cash generated by operations, net of investing activities, and the increase in available undrawn committed credit lines of €1.3 billion, almost entirely related to the increase of the Group’s RCF of €1.25 billion, as described above. Refer to the section —Cash Flows below for additional information. Cash Flows Year Ended December 31, 2017 compared to the Years Ended December 31, 2016 and 2015 The following table summarizes the cash flows from operating, investing and financing activities for each of the years ended December 31, 2017, 2016 and 2015. 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) 2017 2016 Cash flows from operating activities - continuing operations € 10,385 € 10,594 € Cash flows from operating activities - discontinued operations Cash flows used in investing activities - continuing operations Cash flows used in investing activities - discontinued operations Cash flows used in financing activities - continuing operations Cash flows from financing activities - discontinued operations Translation exchange differences Total change in cash and cash equivalents Cash and cash equivalents at beginning of the period Cash and cash equivalents at end of the period - included within Assets held for distribution Cash and cash equivalents at end of the period — (9,296) — (4,473) — (1,296) (4,680) 17,318 — (9,039) — (5,127) — 228 (3,344) 20,662 € — 12,638 € — 17,318 € 2015(1) 9,224 527 (8,874) (426) (5,195) 2,067 681 (1,996) 22,840 182 20,662 (1) Ferrari operating results and cash flows were excluded from the Group’s continuing operations and are presented as a single line item within the Consolidated Income Statements and Statements of Cash Flows for the year ended December 31, 2015 following the classification of Ferrari as a discontinued operation for the year ended December 31, 2015. 2017 | ANNUAL REPORT68 Board Report Operating Results 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 €3,510 million adjusted to add back €5,890 million for depreciation and amortization expense, in addition to a net decrease of €1,057 million in deferred tax assets mainly related to LATAM, and other non-cash items of €199 million; (ii) €102 million dividends received mainly from our equity method investments and (iii) the negative effect of the change in working capital of €459 million primarily driven by (a) €1,666 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 €206 million, which were partially offset by (c) increase in trade payables of €1,086 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 €327 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 €1,814 million adjusted to add back €5,956 million for depreciation and amortization expense and other non-cash items of €111 million, (ii) a net increase of €1,519 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 €777 million that was primarily driven by (a) decrease in trade receivables of €177 million, (b) increase in trade payables of €776 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) €295 million increase in other payables and receivables primarily related to the net payment of taxes and deferred expenses, which were partially offset by (d) €471 million increase in inventories mainly related to the increased production of new vehicle models in EMEA. Operating Activities — Year Ended December 31, 2015 For the year ended December 31, 2015, net cash from operating activities of €9,751 million was primarily the result of (i) net profit from continuing operations of €93 million adjusted to add back €5,414 million for depreciation and amortization expense and other non-cash items of €812 million which included (a) total €713 million non-cash charges for asset impairments that mainly related to asset impairments in connection with the realignment of the Group’s manufacturing capacity in NAFTA to better meet market demand for pickup trucks and utility vehicles and (b) €80 million charge recognized as a result of the adoption of the SIMADI exchange rate to remeasure our Venezuelan subsidiary’s net monetary assets in U.S. Dollar (reported, for the effect on cash and cash equivalents, within “Translation exchange differences”); (ii) a net increase of €3,206 million in provisions mainly related to an increase in the warranty provision, which included the change in estimate for future recall campaign costs in NAFTA, and higher accrued sales incentives primarily related to increased sales volumes in NAFTA; (iii) €112 million dividends received mainly from our equity method investments; and (iv) €527 million of cash flows from discontinued operations, which were partially offset by (v) the negative effect of the change in working capital of €158 million primarily driven by (a) €958 million increase in inventories, which reflects the increased consumer demand for our vehicles and inventory buildup in NAFTA due to production changeovers, (b) €191 million increase in trade receivables, (c) €580 million decrease in changes in other payables and receivables primarily related to the net payment of taxes and deferred expenses, which were partially offset by (d) €1,571 million increase in trade payables, mainly related to increased production levels in EMEA. 2017 | ANNUAL REPORT69 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) €8,666 million of capital expenditures, including €2,586 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 €838 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 was 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). 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) €8,815 million of capital expenditures, including €2,558 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 €116 million for investments in joint ventures, associates and unconsolidated subsidiaries that primarily related to an additional investment in the GAC FCA JV and (iii) €483 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. Investing Activities — Year Ended December 31, 2015 For the year ended December 31, 2015, net cash used in investing activities of €9,300 million was primarily the result of (i) €8,819 million of capital expenditures, including €2,504 million of capitalized development expenditures, that supported investments in existing and future products. Capital expenditures primarily related to the mass- market vehicle operations in NAFTA and EMEA, investment in the Alfa Romeo brand and the completion of the plant in Pernambuco, Brazil; (ii) a total of €266 million for investments in joint ventures, associates and unconsolidated subsidiaries, of which €171 million was for the GAC FCA JV; and (iii) €426 million of cash flows used by discontinued operations, which were partially offset by €410 million of a net decrease in receivables from financing activities which primarily related to the decreased lending portfolio of the financial services activities of the Group in Brazil and China. 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 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 €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. 2017 | ANNUAL REPORT70 Board Report Operating Results 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 €4,618 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 €1,342 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). Financing Activities —Year Ended December 31, 2015 For the year ended December 31, 2015, net cash used in financing activities of €3,128 million was primarily the result of (i) the prepayment of FCA US’s secured senior notes due June 15, 2019 for an aggregate principal amount of €2,518 million and the prepayment of FCA US’s secured senior notes due June 15, 2021 for an aggregate principal amount of €2,833 million; (ii) the repayment at maturity of two notes that had been issued under the MTN Programme, one for a principal amount of €1,500 million and another for a principal amount of CHF 425 million (€390 million); and (iii) the repayment of other long-term debt for a total of €4,412 million, which included (a) the repayment of the EIB loan of €250 million at maturity, the prepayment of our Mexican development banks credit facilities of €414 million as part of FCA Mexico’s refinancing transaction completed in March 2015, (b) total payments of €244 million on the Canada HCT Notes, and (c) other repayments of borrowings, primarily in Brazil and FCA treasury companies, which were partially offset by (iv) proceeds from FCA’s issuance of U.S.$3,000 million (€2,840 million) total principal amount of unsecured senior notes due in 2020 and 2023; (v) proceeds from other long-term debt for a total of €3,061 million, which included (a) the disbursement received of €0.4 billion under the Mexico Bank Loan of €0.8 billion (U.S.$0.9 billion) as part of FCA Mexico’s refinancing transaction completed in March 2015, (b) proceeds from the €600 million loan granted by the EIB and SACE (refer to the section —Capital Market and Other Financing Transactions below) and (c) other financing transactions, primarily in Brazil; (vi) net proceeds from the Ferrari initial public offering in October 2015; and (vii) net proceeds of €2.0 billion from the draw-down of the syndicated loan facilities entered into by Ferrari N.V. in November 2015, included within Cash flows from financing activities - discontinued operations. 2017 | ANNUAL REPORT71 Net Debt The following table details our Net debt at December 31, 2017 and 2016 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. (€ million) Third parties debt (principal) Capital market(1) Bank debt Other debt(2) Accrued interest and other adjustments(3) Debt with third parties Intercompany, net(4) Current financial receivables from jointly- controlled financial services companies(5) Debt, net of intercompany and current financial receivables from jointly-controlled financial services companies Derivative financial assets/(liabilities), net and collateral deposits(6) Current debt securities Cash and cash equivalents Debt classified as held for sale Total Net debt 2017 At December 31 2016 Industrial Activities € (16,375) Financial Services Consolidated (18,022) € (1,647) € Industrial Activities € (22,499) Financial Services Consolidated (24,034) € (1,535) € (9,443) (6,219) (713) 53 (16,322) 844 285 (308) (986) (353) (2) (1,649) (844) — (9,751) (7,205) (1,066) 51 (12,055) (9,026) (1,418) (11) (17,971) (22,510) — 285 627 80 (417) (733) (385) (3) (1,538) (627) — (12,472) (9,759) (1,803) (14) (24,048) — 80 (15,193) (2,493) (17,686) (21,803) (2,165) (23,968) 204 176 12,423 — 2 — 215 — 206 176 (144) 204 12,638 17,167 — (9) (6) 37 151 — (150) 241 17,318 (9) € (2,390) € (2,276) € (4,666) € (4,585) € (1,983) € (6,568) (1) Includes notes issued under the Medium Term Programme, or MTN Programme, and other notes (€9,422 million at December 31, 2017 and €12,055 million at December 31, 2016) and other debt instruments (€329 million at December 31, 2017 and €417 million at December 31, 2016) issued in financial markets, mainly from LATAM financial services companies. (2) Includes the Canada HCT note (nil at December 31, 2017 and €261 million at December 31, 2016), asset-backed financing, i.e. sales of receivables for which de- recognition is not allowed under IFRS (€360 million December 31, 2017 and €411 million at December 31, 2016) and arrangements accounted for as a lease under IFRIC 4 - Determining whether an arrangement contains a lease, and other debt. (3) Includes adjustments for fair value accounting on debt and net (accrued)/deferred interest and other amortizing cost adjustments. (4) Net amount between industrial activities entities’ financial receivables due from financial services entities (€983 million at December 31, 2017 and €755 million at December 31, 2016) and industrial activities entities’ financial payables due to financial services entities (€139 million at December 31, 2017 and €128 million at December 31, 2016). (5) Financial receivables due from FCA Bank. (6) Fair value of derivative financial instruments (net positive €145 million at December 31, 2017 and net negative €218 million at December 31, 2016) and collateral deposits (€61 million at December 31, 2017 and €68 million at December 31, 2016). As of December 31, 2017, Net debt was €4,666 million as compared to €6,568 million as at December 31, 2016. Excluding positive foreign currency translation effects, Net debt decreased by €1.7 billion, with net debt from industrial activities decreasing by €2.2 billion (refer to —Change in Net Industrial Debt, below), which was partially offset by an increase of €0.3 billion in net debt from financial services that was used to support the increase in financing activities in China and Europe. Change in Net Industrial Debt As described in Operating Results—Non GAAP Financial Measures, Net industrial debt is management’s primary measure for analyzing our financial leverage and capital structure and is one of the key targets used to measure our performance. The following section sets forth an explanation of the changes in our Net industrial debt during 2017 and 2016. At December 31, 2017, Net industrial debt of €2,390 million decreased by €2,195 million from €4,585 million at December 31, 2016 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. 2017 | ANNUAL REPORT72 Board Report Operating Results At December 31, 2016, Net industrial debt of €4,585 million decreased by €464 million from €5,049 million at December 31, 2015 primarily as a result of (i) cash flow from industrial operating activities of €10,563 million, which represents the majority of the consolidated cash flow from operating activities of €10,594 million (refer to the section —Cash Flows above), which was partially offset by (ii) investments in industrial activities of €8,812 million representing investments in property, plant and equipment and intangible assets and (iii) negative foreign currency translation effects of €859 million primarily due to the strengthening of the Brazilian Real. 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 €6.9 billion were outstanding at December 31, 2017 (€9.2 billion at December 31, 2016). The MTN Programme is 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 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). Changes in notes issued under the MTN Programme during 2016 were due to the: issuance of a 3.75 percent note at par in March 2016 with a principal amount of €1,250 million, due in March 2024. The note is listed on the Irish Stock Exchange; repayment at maturity of a note in April 2016 with a principal amount of €1,000 million; repayment at maturity of a note in October 2016 with a principal amount of €1,000 million; and repayment at maturity of a note in November 2016 with a principal amount of CHF 400 million (€373 million). As of December 31, 2017, 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, 2017 and 2016 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. 2017 | ANNUAL REPORT73 Bank Debt FCA US Tranche B Term Loans On February 24, 2017, FCA US prepaid the U.S.$1,826 million (€1,721 million) outstanding principal and accrued interest for its tranche B term loan maturing May 24, 2017. The prepayment was made with cash on hand and did not result in a material loss on extinguishment. At December 31, 2017, €836 million (€948 million at December 31, 2016), which included accrued interest, was outstanding under FCA US’s Tranche B Term Loan maturing December 31, 2018 (the “Tranche B Term Loan due 2018”). On April 12, 2017, FCA US amended the credit agreement that governs the Tranche B Term Loan due 2018. The amendment reduced 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. In addition, the base rate floor was eliminated. As a result, the Tranche B Term Loan due 2018 bears interest, at FCA US’s option, either at a base rate plus 1.0 percent per annum or at LIBOR plus 2.0 percent per annum. FCA US may prepay, refinance or re-price the Tranche B Term Loan due 2018 without premium or penalty. 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 are amortized over the respective remaining terms of the Tranche B Term Loans. For each of the Tranche B Term Loans, FCA US prepaid the scheduled quarterly principal payments, with the remaining balance applied to the principal balance due at maturity. Periodic interest payments, however, continue to be required. As of December 31, 2017, FCA US was in compliance with the covenants of the credit agreement that governs the Tranche B Term Loan due 2018 (refer to Note 21, Debt, within our Consolidated Financial Statements included elsewhere in this report, for information related to the covenants). 2017 | ANNUAL REPORT74 Board Report Operating Results European Investment Bank Borrowings FCA has financing agreements with the European Investment Bank (“EIB”) for a total of €1.1 billion outstanding at December 31, 2017 (€1.3 billion outstanding at December 31, 2016), 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 CO2 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 €600 million (maturing in July 2018), entered into in June 2015 (50 percent guaranteed by SACE) to support the Group’s investment plan (2015-2017) for production and research and development sites in both northern and southern Italy, to develop efficient vehicle technologies for vehicle safety and new vehicle architectures; the facility for €400 million (maturing in November 2018), entered into in November 2013 (50 percent guaranteed by SACE) to support certain investments and research and development programs in Italy; and 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. 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 €3.2 billion at December 31, 2017 (€4.0 billion at December 31, 2016). 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, 2017, outstanding subsidized loans amounted to €2.1 billion (€2.6 billion at December 31, 2016), of which €1.3 billion (€1.6 billion at December 31, 2016), 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 (€1.6 billion). Approximately €0.1 billion (€0.3 billion at December 31, 2016), of committed credit lines contracted to fund scheduled investments in the area were undrawn at December 31, 2017. 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, 2017, the Mexico Bank Loan had an outstanding balance of €0.4 billion (€0.5 billion at December 31, 2016). As of December 31, 2017, 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 and other 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, 2017, 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). 2017 | ANNUAL REPORT75 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 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. At December 31, 2016, Other debt included the unsecured Canada HCT Tranche B Note totaling €278 million, including accrued interest. During the year ended December 31, 2016, FCA US’s Canadian subsidiary made payments on the Canada HCT Notes totaling €148 million, which included accrued interest and the prepayment of all scheduled payments due on the Canada HCT Tranche C Note. The prepayment on the Canada HCT Tranche C Note made on July 15, 2016 resulted in a loss on extinguishment of debt of €8 million that was recorded within Net financial expenses in the Consolidated Income Statement for the year ended December 31, 2016. Debt secured by assets At December 31, 2017, debt secured by assets of the Group (excluding FCA US) amounted to €743 million (€914 million at December 31, 2016), of which €140 million (€433 million at December 31, 2016) 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 FCA US) amounted to €2,372 million at December 31, 2017 (€1,940 million at December 31, 2016). At December 31, 2017, debt secured by assets of FCA US amounted to €1,441 million and included €836 million relating to the Tranche B Term Loan due 2018, €141 million due to creditors for assets acquired under finance leases and €464 million for other debt and financial commitments. At December 31, 2016, debt secured by assets of FCA US amounted to €3,446 million and included €2,678 million relating to the Tranche B Term Loans, €207 million due to creditors for assets acquired under finance leases and €561 million for other debt and financial commitments. 2017 | ANNUAL REPORT76 Board Report Subsequent Events Subsequent Events and 2018 Guidance Subsequent Events The Group has evaluated subsequent events through February 20, 2018, which is the date the financial statements were authorized for issuance. In January 2018, as a result of the distribution of the Company’s entire interest in GEDI to holders of FCA common shares on July 2, 2017, the Compensation Committee of FCA approved a conversion factor of 1.003733 that was applied to outstanding awards under the LTI Plan to make equity award holders whole for the resulting diminution in the value of an FCA common share. There was no change to the total cost of these awards to be amortized over the remaining vesting period as a result of these adjustments. On January 11, 2018, a special bonus payment was announced of $2,000 (approximately €1,670) to approximately 60,000 FCA hourly and salaried employees in the United States, excluding senior leadership, during the second quarter of 2018 for an estimated total cost including applicable social taxes, of approximately $130 million (€109 million). 2017 | ANNUAL REPORT2018 Guidance Net revenues Adjusted EBIT Adjusted net profit Net industrial cash 77 Board Report 2018 Guidance ~ €125 billion ≥ €8.7 billion ~ €5.0 billion ~ €4.0 billion The guidance above confirms the Business Plan key targets. Top line growth to be driven by new product launches; Execution of production ramp-ups for all-new Jeep Wrangler and Ram 1500, as well as new Jeep Cherokee in the first quarter of 2018 are key, with full impact on financial performance expected in the second quarter of 2018; Targeting Net industrial cash position by the end of the first half of 2018; 2018 estimated taxes are expected to be reduced by approximately €800 million in relation to the U.S. tax reform, with the expected effective tax rate to reduce from approximately 35 percent to approximately 25 percent; and Foreign exchange headwind due to Euro to U.S. Dollar strengthening. February 20, 2018 The Board of Directors John Elkann Sergio Marchionne Andrea Agnelli Tiberto Brandolini d’Adda Glenn Earle Valerie A. Mars Ruth J. Simmons Ronald L. Thompson Michelangelo A. Volpi Patience Wheatcroft Ermenegildo Zegna 2017 | ANNUAL REPORT78 Board Report Major Shareholders Major Shareholders Exor N.V. is the largest shareholder of FCA through its 29.18 percent shareholding interest in our issued common shares (as of February 15, 2018). As a result of the loyalty voting mechanism, Exor N.V.’s voting power is 42.34 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 BV (“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 Netherlands Authority for the Financial Markets (Autoriteit Financiële Markten, 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 follows the common shares’ holding of FCA as of February 15, 2018: FCA Shareholders Exor N.V.(1) Baillie Gifford & Co.(2) Number of Issued Common Shares 449,410,092 52,231,297 Percentage  Owned 29.18 3.39 (1) In addition, Exor N.V. holds 375,803,870 special voting shares; Exor N.V.’s beneficial ownership in FCA is 42.34 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) Baillie Gifford & Co., as an investment adviser in accordance with rule 240.13d-1(b), beneficially owns 78,283,320 common shares with sole dispositive power (4.02 percent of the issued shares), of which 52,231,297 common shares are held with sole voting power (2.68 percent of the issued shares). Based on the information in FCA’s shareholder register and other sources available to us, as of January 31, 2018, approximately 440 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. 2017 | ANNUAL REPORT79 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 results 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 is applicable as from financial year 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. Due to the revised Dutch Corporate Governance Code becoming applicable with regard to the financial year 2017, the various corporate governance documents of the Company were revised and updated to be aligned to the current Dutch Corporate Governance Code. 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 14, 2017, the number of the Directors was confirmed at eleven and the current slate of Directors was elected. The term of office of the current Board of Directors will expire following the Company’s 2018 annual general meeting of shareholders at which time the Company’s general meeting of shareholders are expected to elect a new Board of Directors for approximately a one-year term. Each Director may be reappointed 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 nine 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. 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. On certain key industrial matters, the CEO is supported by the Group Executive Council (the “GEC”), which is responsible for reviewing the operating performance of the businesses, collaborating on certain operational matters, supporting the Chief Executive Officer with his tasks and executing decisions of the Board of Directors and the day-to- day management of the Company, primarily to the extent it relates to the operational management. We consider seven of our eleven Board members to be independent. These Board members are all deemed “independent” under the NYSE definition. One of the seven is considered not independent under the Dutch Corporate Governance Code which considers a director of a shareholder holding ten percent or more of the company’s shares as not independent. We believe Mr. Volpi is independent notwithstanding his role as an independent board member of Exor N.V.. We believe however, this is appropriate in light of the position of Exor N.V. as our reference shareholder. 2017 | ANNUAL REPORT80 Board Report Corporate Governance 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 2017, there were 4 meetings of the Board of Directors. The average attendance at those meetings was 100 percent. Summary biographies for persons who are currently 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. 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 PartnerRe, Vice Chairman of Ferrari N.V. and Ferrari S.p.A. and a board member of The Economist Group and of GEDI Gruppo Editoriale S.p.A. Mr. Elkann is a member of the Museum of Modern Art (MoMA). He also serves as Vice Chairman of the Giovanni Agnelli Foundation. Sergio Marchionne (executive director) - Sergio Marchionne currently serves as Chief Executive Officer of FCA and Chairman and Chief Executive Officer of both FCA US and FCA Italy. In addition, he is also Chairman of CNHI and Chairman and Chief Executive Officer of Ferrari N.V. and Ferrari S.p.A. Born in Chieti (Italy) in 1952, he has dual Canadian and Italian citizenship. He holds a Bachelor of Arts with a major in Philosophy from the University of Toronto and a Bachelor of Laws from Osgoode Hall Law School at York University in Toronto, as well as a Master of Business Administration and a Bachelor of Commerce from the University of Windsor (Canada). Mr. Marchionne is a barrister, solicitor and chartered accountant. Mr. Marchionne began his professional career in Canada. From 1983 to 1985, he worked for Deloitte & Touche. From 1985 to 1988, he was with the Lawson Mardon Group of Toronto. From 1989 to 1990, he served as Executive Vice President of Glenex Industries. From 1990 to 1992, he was Chief Financial Officer at Acklands Ltd. From 1992 to 1994, also in Toronto, he held the position of Vice President of Legal and Corporate Development and Chief Financial Officer of the Lawson Mardon Group. From 1994 to 2000, he covered various positions of increasing responsibility at Algroup, headquartered in Zurich (Switzerland), until becoming its Chief Executive Officer. He then went on to head the Lonza Group Ltd, first as Chief Executive Officer (2000-2001) and then as Chairman (2002). In February 2002, he became Chief Executive Officer of the SGS Group of Geneva. In March 2006, he was appointed Chairman of the company, a position which he continues to hold. From 2008 to April 2010, he also served as non- executive Vice Chairman and Senior Independent Director of UBS. In 2010, Mr. Marchionne joined the Board of Directors of Exor S.p.A. (now Exor N.V.) and, in 2015, was appointed non-executive Vice Chairman. As of September 2013, he is also Chairman of CNH Industrial N.V., the company resulting from the mergers of Fiat Industrial S.p.A. and CNH Global N.V. Mr. Marchionne is currently a member of the Board of Philip Morris International Inc. and the Peterson Institute for International Economics, as well as Chairman of the Council for the United States and Italy and member of the J.P. Morgan International Council. Mr. Marchionne is recipient of ad honorem degrees in Industrial Engineering and Management from Polytechnic University in Turin (Italy), in Economics from the University of Cassino (Italy) and in Mechatronics Engineering from the University of Trento (Italy), a Masters honoris causa in Business Administration from the CUOA Foundation (Italy), an honorary Doctor of Laws from the University of Windsor (Canada) and Walsh College in Troy (Michigan), and honorary doctorates in Business Administration from the University of Toledo (Ohio), in Science from Oakland University in Rochester (Michigan) and in Humane Letters from Indiana University Kokomo (Indiana). Mr. Marchionne also holds the honor of Cavaliere del Lavoro. 2017 | ANNUAL REPORT81 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. 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 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 Director of Giovanni Agnelli B.V. and a member of the advisory board of BlueGem Capital Partners LLP. He is also a member of the European Club Association’s executive board since 2012 and Chairman since 2017. Since July 2014, 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 of FCA 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 Honorary Chairman of Exor N.V. and is also 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 of FCA on October 12, 2014. Glenn Earle (non-executive director) - Born in Douglas, Isle of Man in 1958, Glenn Earle is a member of the Board of Directors of Affiliated Managers Group, Inc. and Deputy Chairman of educational charity Teach First. 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 on 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. 2017 | ANNUAL REPORT82 Board Report Corporate Governance 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 of FCA on October 12, 2014. Valerie 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. 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. Ms. Mars joined M&M/Mars on a part time basis in 1992 and began working on special projects. She worked on due diligence for acquisitions and was part of the company’s Innovation Team and VO2Max Team. 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, including its Audit Committee. She is also Director Emeritus of The Open Space Institute. Previously she served on the Hotchkiss School Alumni Nominating Committee and the Prague American Chamber of Commerce Board. 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 of FCA 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 Interim 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. Ms. Simmons also serves on the boards of Rice University, Square Inc., and Mondelez International 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 of FCA on October 12, 2014. 2017 | ANNUAL REPORT83 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 of FCA 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 Hortonworks (HDP), 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 serves on the board of Exor N.V. 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 Stanford Business School Trust and The Castilleja School in Palo Alto, CA. Mr. Volpi was appointed to the Board of Directors of FCA on April 14, 2017. 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 is also on the Board of Trustees of the British Museum. 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 of FCA on October 12, 2014. 2017 | ANNUAL REPORT84 Board Report Corporate Governance 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 the U.S., after a retail experience at Bloomingdale’s, New York. He is also a member of the International Advisory Board of IESE Business School of Navarra and he is board member of the Camera Nazionale della Moda Italiana and of the Council for the United States and Italy. In 2011, he was nominated Cavaliere del Lavoro by the President of the Italian Republic. Zegna is a vertically integrated company that covers sourcing wool at the markets of origin and apparel manufacturing with marketing right through directly operated stores. 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 of FCA on October 12, 2014. Composition of the Board of Directors Pursuant to Dutch law, as from the 2017 financial year, FCA should strive to achieve that its Board of Directors contain a minimum of 30% male and 30% female board members and should explain in its annual report if this criterion is not met. Three of our current eleven Directors are female and therefore female board members represent less than 30% of the total which is required by Dutch law. The Company envisages to achieve sufficient diversity of views and the expertise 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 that stipulates that one of the targets is 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 intends to realize this objective by taking into account this objective in the appointment and nomination of executive and non-executive Directors, and in the adoption of a profile for non-executive Directors. Nonetheless, the Company believes that at current the Board of Directors has the diversity of experience, expertise and backgrounds, and the appropriate independence and judgment, that will allow the Board of Directors to fulfill its responsibilities and execute its duties appropriately. Board Regulations On December 20, 2017, the Board of Directors adopted its regulations. Such regulations 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 shall be 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 may 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. 2017 | ANNUAL REPORT85 The Audit Committee The Audit Committee is responsible for assisting and advising the Board of Directors’ oversight of: (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. As of the date of March 23, 2015, the Board of Directors appointed Ms. Valerie Mars as additional member of the Audit Committee. Currently, the Audit Committee 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 the meeting 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. During 2017, ten 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 The Compensation Committee is responsible for, among other things, 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. 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. Unless decided otherwise by the Compensation Committee, the Head of Human Resources of the Company attends its meetings. 2017 | ANNUAL REPORT86 Board Report Corporate Governance During 2017, the Compensation Committee met twice with 100 percent attendance of its members at such meetings. The Compensation Committee reviewed the implementation of the Remuneration Policy and the Remuneration Report and proposed amendments to the Remuneration Policy , which were adopted by the general meeting 14 April 2017. Further details of the activities of the Compensation Committee are included in the Remuneration Report. The Governance and Sustainability Committee The Governance and Sustainability Committee is responsible for, among other things, 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 the members shall be independent and at most one of the members may be an executive Director. In addition, as described above, the charters of the Audit Committee, Compensation Committee and Governance and Sustainability Committee set forth independence requirements for their members for purposes of the Dutch Corporate Governance Code. Audit Committee members are also required to qualify as independent for purposes of NYSE rules and Rule 10A-3 of the Exchange Act. During 2017, the Governance and Sustainability Committee met three times with 100 percent attendance of its members at such meetings. The Committee reviewed the Board’s and Committee’s assessments, the Sustainability achievement and objectives, the revised Dutch Corporate Governance Code and related requirements, and the recommendations for Directors’ election. 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 under the section “Remuneration of Directors”. Indemnification of Directors The Company shall 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 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. 2017 | ANNUAL REPORT87 Conflict of interest A Director shall not participate in discussions and 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. 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 would have 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 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. 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, whose execution 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, new 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 request, the holder of Qualifying Common Shares shall be considered to have waived her or his 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. 2017 | ANNUAL REPORT88 Board Report Corporate Governance 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 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. Section 10 of the terms and conditions of the special voting shares include 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 condition 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. A Shareholder must promptly notify the Company upon the occurrence of a change of control, which is defined in Article 1.1. of the Articles of Association as including any direct or indirect transfer, carried out through one or a series of related transactions, by a shareholder that is not an individual (natuurlijk persoon) as a result of which (i) a majority of the voting rights of such 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 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 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 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 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 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 such term is defined in the above mentioned Article of the Articles of Association. A change of control will trigger the de- registration of the relevant Qualifying Common Shares from the Loyalty Register and the suspension of the special voting rights attached to the Qualifying Common Shares. 2017 | ANNUAL REPORT89 If the Company was to be dissolved and liquidated, after all the debts of the Company have been paid, any remaining balances would be distributed in the following order of priority: (i) first, to satisfy the aggregate balance of share premium reserves and other reserves than the Special Dividend Reserve to the holders of common shares in proportion to the aggregate nominal value of the common shares held by each of them; (ii) second, an amount equal to the aggregate amount of the nominal value of the common shares to the holders thereof in proportion to the aggregate nominal value of the common shares held by each of them; (iii) third, an amount equal to the aggregate amount of the special voting shares dividend reserve 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 (iv) fourth, the aggregate amount of the nominal value of the special voting shares to the holders thereof in proportion to the aggregate nominal value of the special voting shares held by each of them. General Meeting of Shareholders At least one general meeting of FCA shareholders shall be held every year, which meeting shall be held within six months after the close of the financial year. 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 deems 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 the Board of Directors, in writing, to call a general meeting of FCA shareholders, stating the matters to be dealt with. 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 is not satisfied that the applicants have previously requested the Board of Directors in writing, stating the exact subjects to be discussed, to 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 announcement shall remain accessible until the relevant general meeting of FCA shareholders. 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 number of Shareholders who, by 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. 2017 | ANNUAL REPORT90 Board Report Corporate Governance 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 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 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 of the meeting and the secretary and signed by them in witness thereof. The minutes of the general meeting of FCA shareholders shall be made available, on request, to the shareholders no later than three months after the end of the meeting, after which the 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. 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 shall 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 Company 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. 2017 | ANNUAL REPORT91 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 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 name and, to the extent applicable, the number of votes to which he 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 for 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. Every share (whether common or special voting) shall confer the right to cast one vote. 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 herein. 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. Pledgees and usufructuaries of shares owned by the Company and its subsidiaries shall however 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. 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. 2017 | ANNUAL REPORT92 Board Report Corporate Governance 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 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 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. 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. 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. 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). 2017 | ANNUAL REPORT93 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. 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. 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 of FCA 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 the FCA and any of its subsidiaries. The Code 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 FCA Group has recently communicated to the workforce members a new set of Practices aimed to provide specific guidance on how to effectively apply the Principles of 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. The FCA Group shall use its best efforts to ensure that the Code 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. 2017 | ANNUAL REPORT94 Board Report Corporate Governance 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 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) inform 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. Insider Trading Policy On October 10, 2014, the 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 for 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, Regulation (EU) 596/2014 of the European Parliament and Council of April 16, 2014 on market abuse (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 20 December 2017, the Board of Directors adopted a diversity policy of the Board of Directors (the “Diversity Policy”), since 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. The Company applies the following diversity aspects 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, 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 financial year 2017, the targets relating to nationality and age have been realized. 2017 | ANNUAL REPORT95 Compliance with Dutch Corporate Governance Code While the Company endorses the principles and best practice provisions of the Dutch Corporate Governance Code, its current corporate governance structure applies as follows the following best practice provisions: Dutch legal requirements concerning director independence differ in certain respects from the rules applicable to U.S. companies listed on the NYSE. While under most circumstances both regimes require that a majority of board members be “independent,” the definition of this term under the Dutch Corporate Governance Code differs from the definition used under the NYSE corporate governance standards. In some cases the Dutch requirement is more stringent, such as by requiring a longer “look-back” period (five years) for former executive directors and employees, and by considering a non-executive board member serving as director in the Board of a shareholder holding ten percent or more of the company’s shares to be not independent, even if he or she is considered independent on the board of directors of the shareholder. 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. We consider seven of our eleven Board members to be independent. These Board members are all deemed “independent” under the NYSE definition. One of the seven is considered not independent under the Dutch Corporate Governance Code which considers a director of a shareholder holding ten percent or more of the company’s shares as not independent. We believe Mr. Volpi is independent notwithstanding his role as an independent board member of Exor N.V.. We believe however, 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, such 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 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 its nomination. Since, pursuant to the Articles of Association, the term of office of Directors is approximately one year, such 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. 2017 | ANNUAL REPORT96 Board Report Corporate Governance Report of the Non-Executive Directors Introduction This is the report of the non-executive Directors of the Company over the financial year 2017 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” on page 79. 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 enterprise. 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 risks associated. Due to the revised Dutch Corporate Governance Code becoming applicable with regard to the financial year 2017, the non-executive Directors and especially the members of the Governance and Sustainability Committee spent significant time during the past year to assess the required amendments and arrange for revised updates of the various corporate governance documents of the Company to align those to the current Dutch Corporate Governance Code. 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”, on pages 85, 85 and 86 respectively. 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. The Board of Directors has furthermore proposed amendments to the Remuneration Policy, which were adopted by the general meeting on 14 April 2017. 2017 | ANNUAL REPORT97 During 2017, there were 4 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 100 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 John Elkann Sergio Marchionne Ronald L. Thompson Andrea Agnelli Tiberto Brandolini d’Adda Glenn Earle Valerie A. Mars Ruth J. Simmons Michelangelo A. Volpi(1) Patience Wheatcroft Ermenegildo Zegna Stephen M. Wolf(2) Meeting Board of Directors 4/4 Audit Committee - Governance and Sustainability Committee 3/3 Compensation Committee - 4/4 4/4 4/4 4/4 4/4 4/4 4/4 3/3 4/4 4/4 1/1 - 10/10 - - 10/10 10/10 - - 10/10 - - - - - - - - 3/3 - 3/3 - - - - - - - 2/2 - - - 2/2 2/2 (1) Mr. Michelangelo A. Volpi was appointed as non-executive director at the Shareholders’ meeting held on Friday, April 14, 2017. No meetings of the Compensation Committee were held subsequent to the appointment of Mr. Volpi to the committee. (2) Mr. Stephen M. Wolf served as non-executive director until the Shareholders’ meeting held on Friday, April 14, 2017. During these meetings, key topics discussed were, amongst others: the Group’s strategy, the Group’s financial results and reporting, sustainability, acquisitions and divestments, executive compensation, technological developments, risk management, updates on legal and compliance, risk management, human resources with the Head of Human Resources, implementation of the Remuneration Policy, and the Remuneration Report. 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 consider seven of our eleven Board members to be independent. These Board members are all deemed “independent” under the NYSE definition. One of the seven is considered not independent under the Dutch Corporate Governance Code which considers a director of a shareholder holding ten percent or more of the company’s shares as not independent. We believe Mr. Volpi is independent notwithstanding his role as an independent board member of Exor N.V.. We believe however, this is appropriate in light of the position of Exor N.V. as our reference shareholder. 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. Although it wishes to state that best practice provision 2.1.7 (iii) of the Dutch Corporate Governance Code is not complied with given that more than one 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 the independence requirements as referred to in best practice provision 2.1.10 of the Dutch Corporate Governance Code are otherwise met by the Company. 2017 | ANNUAL REPORT98 Board Report Corporate Governance 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 2017, the Governance and Sustainability Committee’s periodic assessments took place during the meeting held on January 25. During that meeting, the Governance and Sustainability Committee focused on the results of the periodic assessments and the performance of the Board of Directors, its committees and the individual Directors, keeping also into account the self-assessment prepared by each Director. During such meeting the Governance and Sustainability Committee dealt also with the directors’ nomination process. On February 28, 2017 the Governance and Sustainability Committee 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. On December 4, 2017 the Governance and Sustainability Committee reviewed purpose, structure, operations and charter of each of the committees, assessing the required amendments to align the various corporate governance documents to the revised Dutch Corporate Governance Code. In addition the Committee reviewed the process for 2018 Board and Committees’ self-assessment. 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 committee 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 based on the assessments made by the Governance and Sustainability Committee. The self-assessments of the Committees were also discussed by the Board of Directors. The outcome of the evaluations is that there is no need to amend the size or composition of the Audit Committee, the Governance and Sustainability Committee and the Compensation Committee, nor is there any reason to amend their charters on this basis. Further details on the manner in which these committees have carried out their duties, are set forth in sections “The Audit Committee”, “The Compensation Committee” and “The Governance and Sustainability Committee”, on pages 85, 85 and 86 respectively. 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, as well as the amendments of the Board regulations, the Committee’s charters and other corporate documentation. 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. 2017 | ANNUAL REPORT99 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 COSO 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 and utilizing the operational focus of our existing Product (Global and Regional) and Commercial Committees. 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. We also leverage the strategic focus of our Global Risk Management Committee, Group Executive Council (“GEC”), CFO, CEO and Board of Directors (through the Audit Committee). Our risk appetite differs by risk category as shown below. Risk category Category description 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. Operational Risk relating to internal processes, people and systems or external events (including legal and reputational risks). Financial Risk relating to uncertainty of return and the potential for financial loss due to financial performance. Compliance Risk of non-compliance with relevant regulations and laws, internal policies and procedures. Risk appetite We are prepared to take risks in a responsible way that takes our stakeholders’ interests into account and are consistent with our business plan. We look to mitigate operational risks to the maximum extent based on cost/benefit considerations. We seek capital market and other transactions to strengthen our financial position while allowing us to finance our operations on a consolidated global basis. 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. 2017 | ANNUAL REPORT100 Board Report Corporate Governance 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 the COSO risk categories and corresponding risk factors have been assigned. Control measures and mitigating actions are subsequently defined for each identified risk. The risk factors, 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. For 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, refer to the section -Risks Factors elsewhere in this report. Risk Category Key Global Risk Description 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. Operational Product Quality and Customer Satisfaction Our ability to produce vehicles to meet product quality standards, gain market acceptance and satisfy customer expectations. Risk Factor Laws, regulations and governmental policies, including those regarding increased fuel economy requirements and reduced greenhouse gas emissions, have a significant effect on how we do business. 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. 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. Control / Mitigating Actions Group Product Committee (“GPC”) manages approval for investments in FE/ GHG/ZEV related compliance. Established central coordination and oversight of internal checks and conformity activities under senior management to promote consistency in approach and process across our operations. Quality and customer satisfaction performance improvement metrics monitored at Committee meetings. Operational Supply Chain / Supplier Dependency (including Supplier Quality) We face risks associated with increases in costs, disruptions of supply or shortages of raw materials, parts, components and systems used in our vehicles. Active monitoring of the financial health of suppliers to mitigate disruption due to financial distress of companies in our supply chain. Our ability to manage the services provided by our suppliers to ensure alignment with required expectations, needs and quality standards. 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. 2017 | ANNUAL REPORT 101 Risk Category Key Global Risk Description Operational / Strategic Talent Management Our ability to effectively attract, retain and develop personnel globally to meet current and future needs, including risks to the ability to maintain sufficient and effective bench strength in key positions and properly plan and prepare for changes in key management. Risk Factor Our success largely depends on the ability of our current management team to operate and manage effectively. Control / Mitigating Actions Attrition, hiring and staffing metrics are monitored on a regional / sector basis. Assessment of bench strength for key positions and succession planning is managed at the Group level. Strategic Technology Development and Launch Our future performance depends on our ability to offer innovative, attractive products. Our ability to develop and launch new technologies (e.g., electrification of vehicles, autonomous driving, connected vehicles) to meet regulatory requirements and customer expectations. Strategic Product Portfolio Strategy Our ability to create a product portfolio that supports achievement of strategic objectives, including completeness of product range and technological content. Laws, regulations and governmental policies, including those regarding increased fuel economy requirements and reduced greenhouse gas emissions, have a significant effect on how we do business. Our future performance depends on our ability to offer innovative, attractive products. We may be unsuccessful in efforts to increase the growth of some of our brands that we believe have global appeal and reach. GEC and Product Committee reviews of product plans and commercialization strategies in order to define investment needs in the near and long-term. GEC and Product Committee reviews of product plans and commercialization strategies in order to define investment needs in the near and long-term. 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 reviewed our risk management and monitoring activities, which resulted in the establishment of a Global Risk Management Committee to provide additional oversight and support in applying a common approach to risk across all regions and sectors. We have also engaged 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. 2017 | ANNUAL REPORT 102 Corporate Governance Statement by the Board of Directors Based on the assessment performed, the Board of Directors believes that, as of December 31, 2017, 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, (ii) the internal risk management and control systems are designed to provide reasonable assurance that the financial reporting does not contain any material inaccuracies, (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, 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. February 20, 2018 John Elkann Chairman Sergio Marchionne Chief Executive Officer 2017 | ANNUAL REPORTBoard Report103 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 20, 2018 The Board of Directors John Elkann Sergio Marchionne Andrea Agnelli Tiberto Brandolini d’Adda Glenn Earle Valerie A. Mars Ruth J. Simmons Ronald L. Thompson Michelangelo A. Volpi Patience Wheatcroft Ermenegildo Zegna 2017 | ANNUAL REPORT104 Board Report Non-Financial Information Non-Financial Information Business Model Fiat Chrysler Automobiles (“FCA” or “Group”) is an international automotive group engaged in designing, engineering, manufacturing, distributing and selling vehicles, components and production systems worldwide through 159 manufacturing facilities and 87 research and development centers. The Group’s automotive brands are: Abarth, Alfa Romeo, Chrysler, Dodge, Fiat, Fiat Professional, Jeep, Lancia, Ram, Maserati, the SRT performance vehicle designation and Mopar, the parts and service brand. In addition, FCA operates in the components and production systems sectors under the Comau, Magneti Marelli and Teksid brands. The Group also provides retail and dealer finance, leasing and rental services in support of the car business through subsidiaries, joint ventures and commercial agreements with specialized financing services providers. FCA has operations in more than 40 countries, commercial relationships with customers in more than 140 countries, and business partnerships with suppliers and dealers on a global scale. 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. We recognize that our environmental and social activities affect not only our aspiration to grow the business but also our commitment to positively affect our world. 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. The circular economy model stands in contrast to the disposable economy, which wastes materials and the energy needed to produce them. Keeping resources in use for as long as possible is a sound business practice that reduces material costs and promotes efficiency, while also helping reduce the impact on the environment through the entire life cycle of a product. Our progress toward achievement of the Business Plan is a reflection of 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. 2017 | ANNUAL REPORT105 Sustainability Governance Several entities within the Group 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 Sustainability Group Coordinator is also a member of the GEC and coordinates the activities with the support of the Responsible 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. 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. FCA endorses the United Nations (“UN”) Declaration of Human Rights, the International Labour Organization (“ILO”) Conventions and the Organisation for Economic Co-Operation and Development (“OECD”) Guidelines for Multinational Companies. The FCA Code of Conduct is intended to be consistent with such guidelines and aims to ensure that all members of the Company’s workforce act with the highest level of integrity, comply with applicable laws, and build a better future for our Company and the communities in which we do business. 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 that cover specific issues to emphasize the Company’s accountability and commitment to a culture of responsibility and integrity. These cover, among others, matters related to human rights, competition, sustainability for suppliers, environmental management and conflict minerals. The Code of Conduct applies to all Board members and officers of Fiat Chrysler Automobiles N.V. 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. FCA uses its best efforts 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. 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. 2017 | ANNUAL REPORT106 Board Report Non-Financial Information For the reporting of alleged violations, FCA has implemented a Group Whistleblowing process which allows multiple channels for reporting a concern. The FCA Ethics Helpline is the preferred channel, which provides a worldwide and independent intake. For all Code of Conduct violations, the disciplinary measures taken are commensurate with the seriousness of the case and comply with local legislation. The relevant corporate departments are notified of violations, irrespective of whether criminal action is taken by the authorities. 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 at any time for any reason. 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. 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. Alleged violations are reported through the same channels as other types of potential violations: 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 standards. 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, 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. 2017 | ANNUAL REPORT107 Our due diligence processes include actions 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 ILO Conventions on these issues; 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. This survey gauges local supplier conditions and checks are performed in those countries with a high risk based on the yearly Audit Plan. 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: 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. 2017 | ANNUAL REPORT108 Board Report Non-Financial Information 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 emerged 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. 2017 FCA Materiality Diagram Product Environment Social l s r e d o h e k a t s l a n r e t x e r o f e c n a v e e r l i g n s a e r c n I Alternative fuels Emissions from operations Renewable energy Business integrity Vehicle safety Vehicle quality Research and innovation Vehicle fuel economy Vehicle CO2 emissions Hybrid, electric systems Customer satisfaction Water consumption Energy consumption Waste management Biodiversity conservation Emissions from logistics Recycled and recyclable materials Human rights Employee health and safety Employee well-being and work-life balance Employee development Alternative mobility solutions Risk management Employee diversity and equal opportunity Engagement with business partners Raw materials sourcing Community engagement Increasing relevance for internal stakeholders 2017 | ANNUAL REPORT 109 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, by reducing the amount of energy we use, implementing innovative technical solutions, and direct and indirect 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; encourage the use of reusable and environmentally friendly packaging and containers in order to increase material savings and reduce waste; minimize the production 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 represents the concrete application of our model of environmental sustainability and, in particular, our efforts to reduce the impacts of our production processes. WCM is a rigorous manufacturing methodology that involves the entire organization and encompasses all phases of production. 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 2017, more than 80,000 WCM-related projects were implemented, including around 5,000 specifically targeted at reducing environmental impacts and natural resource consumption. 2017 | ANNUAL REPORT110 Board Report Non-Financial Information 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. FCA uses CO2 emissions per vehicle produced as an indicator of its energy performance and, for 2020, is targeting a 32 percent reduction, based on estimated volumes, compared with the 2010 baseline. Energy consumption in 2017 was 48.2 million gigajoules (“GJ”) and was well below the 2010 level in both absolute terms and on a per vehicle produced basis. At mass-market vehicle assembly and stamping plants, energy consumption per vehicle produced recorded a decrease of about 24 percent compared with 2010 (from 7.36 to 5.60 GJ). Manufacturing energy consumption FCA worldwide (million gigajoules) Total energy consumption 2017 48.2 2016 47.4 2015 47.4 Total CO2 emissions from manufacturing processes decreased more than two percent to 3.8 million tons compared with 2016, which was also well below the 2010 level on both a total and per vehicle produced basis. Emissions of CO2 per vehicle produced at mass-market vehicle assembly and stamping plants decreased about 33 percent in the last seven years, falling from 0.616 tons per vehicle produced in 2010 to 0.413 tons per vehicle produced in 2017 and already reaching the target set for 2020. Manufacturing CO2 emissions FCA worldwide (million tons of CO2) Total CO2 emissions 2017 3.8 2016 3.9 2015 4.0 In 2017, FCA continued to make extensive use of energy from renewable sources. In Europe, the vast majority of renewable energy purchased for consumption by the Group is certified by the supplier, covering 100 percent of Italian plants’ electricity. In Brazil, South America’s major market, electricity purchased for consumption is certified as originating almost entirely from hydroelectric or wind sources. In addition, solar power is used for electricity and/ or heating at some Group plants. Energy from renewable sources used in Group production processes represented about 29 percent of total electricity consumption in 2017. Other Emissions(1) Estimated emissions of other substances based on direct fuel consumption for energy production slightly increased in 2017. Nitrogen Oxides (NOX) emissions increased as a result of higher natural gas consumption, while Sulfur Oxides (SOX) emissions increased as a result of the increased production at our foundries. Dust also increased slightly.(2) Direct emissions of NOx, SOx and dust FCA worldwide (tons) NOx SOx Dust 2017 1,350 105 59 2016 1,319 83 53 2015 1,334 122 63 (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. 2017 | ANNUAL REPORT111 Water Management 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. FCA aims to responsibly manage the entire water cycle, adopting technologies and procedures to increase recycling and reuse of water and decrease the level of pollutants in discharged water. Total water consumption (withdrawal) in 2017 decreased compared with 2016 at 24.1 million cubic meters and was below the 2010 level on both a total and per vehicle produced basis. In 2017, mass-market vehicle assembly and stamping plants reduced water consumption per vehicle produced by about 37 percent compared with 2010. Manufacturing water withdrawal FCA worldwide (million m3) Total water withdrawal 2017 24.1 2016 24.4 2015 24.3 For 2020, FCA is targeting a 40 percent reduction in water consumed 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 29 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 2017 decreased by 46 percent compared with the prior year (from 169.4 to 90.8 kg/vehicle produced), and by about 58 percent compared with 2010 (from 217.2 to 90.8 kg/vehicle produced). This significant decrease year-over-year was the result of waste reduction initiatives and the alignment in NAFTA to country-specific waste exemptions. Manufacturing waste generated FCA worldwide (million tons) Waste recovered Waste disposed Total waste generated 2017 0.74 0.24 0.98 2016 1.17 0.21 1.38 2015 1.21 0.25 1.46 Responsible Product 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 solutions such as autonomous technology. 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. 2017 | ANNUAL REPORT112 Board Report Non-Financial Information Research and Innovation As of December 31, 2017, we operated 87 research and development centers worldwide with a combined headcount of approximately 21 thousand employees supporting our research and development efforts. Our personnel support product development efforts and have expertise in a number of disciplines, including mechanical, electrical, materials, computer science and chemical engineering. We also provide several internal programs through which a portion of our engineers receive cross-training in various technical and business functions. In 2017, total expenditures for research and development amounted to €4.3 billion, representing 3.9 percent of Net revenues attributable to industrial operations (excluding revenue from financial services). Total expenditures for research and development for the year ended December 31, 2017 increased 1.5 percent from €4.2 billion from the year ended December 31, 2016, which was in line with the Group’s product development established in the Business Plan. We focus the majority of our research efforts in two areas aimed at improving vehicle efficiency and reducing fuel consumption and emissions: vehicle energy demand (including weight, aerodynamic drag, rolling resistance, heating, air-conditioning and auxiliaries) and powertrain technologies (engines, transmissions, axles and drivelines, hybrid and electric propulsion and alternative fuels). In addition, we have recently begun increasing our research focus on autonomous driving technology. Vehicle Energy Demand Our research focuses on reducing weight, aerodynamic drag, tire rolling resistance and driveline losses. We also continue to research conventional and hybrid vehicle technologies aimed at improving recovery of kinetic energy and re-use of thermal energy to reduce overall energy consumption and CO2 emissions. We have introduced engine stop-start (“ESS”) and smart charging technology in order to further reduce fuel consumption. ESS technology 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. Smart charging technology allows for the optimization of electric generation while recovering kinetic energy and is widely employed in Fiat and Alfa Romeo models, and have been adopted in certain Jeep, Dodge, Ram and Chrysler brand vehicles. We have also introduced active aerodynamic devices, which are automatically activated under certain conditions, to improve aerodynamic drag and reduce fuel consumption and CO2 emissions, while also improving thermal management (decreased defrost time and improved powertrain warm up). These active aerodynamic devices include active grille shutters and adjustable height suspension, and have been adopted in certain Jeep, Ram, Chrysler, Alfa Romeo and Maserati brand vehicles. Further, we have introduced smart actuators, such as a variable speed fuel pump and brushless motor for cooling fan, to reduce fuel consumption. Such smart actuators only require the energy needed for each specific working condition, avoiding electric energy waste. Powertrain Technologies The evolution of our proprietary technologies like MultiAir and MultiJet (increased fuel pressure and improved injection pattern) has progressed in combination with other technologies, such as direct injection, variable displacement oil pumps, two-step valve lift systems, cooled exhaust gas recirculation systems, and electronic thermostats, leading to the development of more efficient powertrain architectures. The latest generation MultiAir technology brings further improvements in fuel efficiency and CO2 emissions via improved intake valve event control, building on the progress of the previous generation. The wider use of smart technologies, which provide dynamic management of the vehicle’s powertrain systems, has contributed to an improved balance between performance and fuel economy. These technologies include smart charging, optimized engine cooling systems and cylinder deactivation. Gasoline and diesel engines are expected to continue to play a prominent role in mobility in upcoming years. The value of thermal management, or using available “waste” thermal energy, is being leveraged in multiple products. This approach allows vehicle systems to operate at higher efficiency by tailoring individual components to run at more optimal temperatures. The Group believes that there is still significant potential to reduce the fuel consumption and emission levels of these engines through technological advancements. 2017 | ANNUAL REPORT113 Gasoline engines Completely new global small and medium gasoline engine families are being developed to improve fuel economy and emission levels. These new engine families feature a modular approach from a shared cylinder design (allowing for different engine configurations, displacements, efficiency and power outputs) and are expected to cover a large range of vehicle applications and introduce features and technologies such as direct injection, downsizing, turbocharging, and cooled exhaust gas recirculation to improve efficiency, while also addressing internal friction and thermal management. In particular, both a 1.0L three cylinder and a 1.3L four cylinder Firefly global small engine launched in the LATAM region in the third quarter of 2016, and 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. Looking to the future, FCA Group has been engaged in the development of new and improved temperature aluminum alloys for engine use. This work has demonstrated an aluminum alloy capable of a 50% 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 blocks and help to enable increased engine efficiency. Hybrid and Battery Propulsion The all-new Chrysler Pacifica Hybrid launched, in 2016, achieves an efficiency rating of 84 miles per gallon equivalent (MPGe), based on U.S. Environmental Protection Agency standards. The Pacifica Hybrid provides an estimated range of 33 miles solely on zero-emissions electric power, with its battery capable of being recharged in approximately two hours using a level 2 240 volt charger. When the battery’s energy is depleted to a certain threshold, the Pacifica Hybrid operates like a conventional hybrid. Power to the wheels is supplied by the hybrid electric drive system and comprised of a specially adapted new version of the award-winning Pentastar 3.6-liter V-6 engine and the all-new eFlite hybrid transmission. Additional electrification technologies are also being developed, including a mild hybrid using belt starter generator (“BSG”) technology. BSG technology offers improvement in fuel economy and a reduction in CO2 emissions. Natural Gas and Biofuel engines A fundamental aspect of our vehicle emission reduction strategy is the use of alternative fuels, from natural gas to biofuels, in order to offer technologies that are aligned with the fuels available in various markets, and capable of reducing emission levels. For example, in Brazil, we have a full range of Flexfuel vehicles that run on varying blends of gasoline and bioethanol. We also believe that in certain markets compressed natural gas is a viable near to medium-term option for promoting compliance with fuel economy and emissions requirements. We offer a range of bi-fuel (natural gas/gasoline) vehicles in Europe, targeting a wide variety of private and commercial consumers. Safety and comfort remain uncompromised, as the natural gas tanks in these vehicles are fully integrated into the vehicle structure. The Group recently completed a significant natural gas direct injection research activity that demonstrated the significant opportunity afforded by direct injection of gaseous high octane fuels and may open the door for future developments. Diesel engines In recent years, diesel research has focused on the combustion process and after-treatment technologies. Although diesel engines are expected to remain an important part of our portfolio, future diesel research efforts are likely to focus on the truck, LCV, larger SUV and larger passenger car segments. 2017 | ANNUAL REPORT114 Non-Financial Information Transmissions Our transmission portfolio includes manual transmissions, dual dry clutch transmissions (“dDCTs”) and automatic transmissions. In support of global fuel consumption and CO2 requirements, FCA has developed its 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 an input split configuration and incorporates two electric motors, both capable of driving in Electric Vehicle mode. The lubrication and cooling system makes use of two pumps, one electrically operated and one mechanically driven. The FCA team expects future hybrid vehicle portfolio growth with the eFlite transmission and similar electrified propulsion systems. 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. In this area the engine is more efficient at converting the fuel energy to mechanical energy. Other improvements in the transmission are used to reduce the power consumption of the transmission. The 2nd generation TorqueFlite 8-speed improves transmission efficiency via improved line pressure control and reduced clutch drag. The addition of transmission oil heaters allows for 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. Axles and Driveline We focus on producing lightweight axle and driveline systems that provide capability and efficiency across our entire portfolio of vehicles. Additionally, we have deployed automatic axle disconnect systems on the majority of our four- wheel and all-wheel drive equipped vehicles to reduce parasitic losses and improve fuel economy during normal driving conditions. Future development activities are focused on optimized system design and material selection to reduce overall system weight without sacrificing capability or performance. Virtual Engineering Over the last several years, we have taken advantage of the rapid expansion in computing power and developed new tools and processes. This has allowed us to simulate and improve the behavior of complex propulsion systems on high performance computers long before the physical parts are built. This process also allows development of efficient propulsion system designs while saving on the cost of expensive physical prototypes. 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 Chrysler Pacifica Hybrid minivans. Production of the first 100 Chrysler Pacifica Hybrid minivans built to enable fully self-driving operations was completed in late 2016. In 2017, we launched Highway Assist autonomous vehicle technology on several Maserati models. This system includes Mobileye vision technology to enable autonomous driving on designated highways. We also announced the signing of a memorandum of understanding in 2017 to join BMW Group, Intel and Mobileye in developing an autonomous driving platform scalable for Level 3 to Level 4/5 automated driving that can be used by multiple OEMs. 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. 2017 | ANNUAL REPORTBoard Report115 Fuel Economy and Emissions FCA designs, manufactures and sells our vehicles to comply 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 CO2 emissions and improve fuel economy in response to the unique regulatory requirements of FCA’s major markets. In the European Union (“EU”), FCA has set a target to achieve a 40 percent reduction in CO2 emissions by 2020 compared with the baseline of 2006 for mass-market cars sold in Europe. EU regulations require each automobile manufacturer to meet a specific sales-weighted fleet average target for CO2 emissions as related to vehicle weight. The regulation set a fleet average target of 130 grams of CO2 per kilometer for all manufacturers, with full compliance required since 2015. The average CO2 emissions of FCA’s mass-market cars was 119.3 g/km in 2016. 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 CO2 emissions data for 2017 are not yet available under the process required by Regulation (EC) No. 443/2009. Starting in 2020, the regulation set a fleet average target of 95 grams of CO2 per kilometer, which is expected to be achieved through an FCA regulatory compliance plan. A new regulatory test procedure for measuring CO2 emissions and fuel consumption from light duty vehicles, the World harmonised Light vehicles Test Procedure (“WLTP”), went into effect in the EU on September 1, 2017 for new passenger car types. It will go into effect on September 1, 2018 for all passenger cars, and one year later for light commercial vehicles. The WLTP replaces the current New European Driving Cycle (“NEDC”) and is expected to provide CO2 emission and fuel consumption values that are more representative of real driving conditions. In the U.S., fuel economy and greenhouse gas (“GHG”) emissions are monitored by, and disclosed to, several regulatory agencies, including the National Highway Traffic Safety Administration (“NHTSA”), the Environmental Protection Agency (“EPA”), and the California Air Resources Board (“CARB”). Vehicle fuel efficiency is measured by fuel economy expressed in miles per gallon (“mpg”). EPA and NHTSA have issued two joint final rules governing GHG and fuel economy, respectively, for light-duty vehicles, covering model years 2012 through 2025. The rules provide for year-over-year increases in fuel economy, and corresponding decreases in GHG emissions, until each automaker’s average fleet-wide fuel economy performance reaches 54.5 mpg by 2025. 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. Combined fuel economy of the 2017 model Chrysler Pacifica, for example, represented a 7.8 percent improvement over the FCA minivan it replaced, while the hybrid version recorded a 61.8 to 320.8 percent improvement (depending on charge sustaining or charge depleting, respectively) over the replaced minivan with a conventional engine. The 2017 Jeep Compass all-wheel drive (“AWD”) improved combined fuel economy by 12 percent over the comparable previous model Compass. These improvements were achieved, in part, through the inclusion of technologies such as Engine Stop-Start (“ESS”); nine-speed transmission; aerodynamic and tire rolling resistance improvements; weight reduction; and electric power steering (“EPS”). The all-new Jeep Wrangler is targeting an improvement in fuel economy of over 20 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. 2017 | ANNUAL REPORT116 Non-Financial Information In China, Phase IV of the Corporate Average Fuel Consumption (“CAFC”), which started in 2016, requires full compliance by 2020. In October 2017, the locally-manufactured Jeep Compass lineup was expanded with the availability of an all-wheel-drive model, featuring the 1.4-liter MultiAir engine. It delivers 0.8L/100km fuel saving compared to the existing AWD version with the 2.4-liter Tigershark engine. In November 2017, FCA signed a research agreement with Eni, an energy company, for joint projects to reduce CO2 emissions produced by road transport vehicles. Areas of cooperation identified include the development of new technologies for the use of gas in transport such as technologies and materials to absorb natural gas; and the assessment of new fuel types for use in existing vehicles, without the need for substantial mechanical changes. This research cooperation will also benefit from the collaboration with the Massachusetts Institute of Technology for the realization of technologies and devices for the capture and temporary storage of part of the CO2 produced by internal combustion engines. 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 in all the stages of the product life cycle 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. This level of awareness and commitment to compliance is also critical to 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 2017, we launched the “Leave No Doubt” program to encourage employees, contractors, suppliers and dealers to report any issue which may concern vehicle safety, emissions or regulatory compliance. The program works through the existing Ethics Helpline whistleblowing system to allow for the reporting of vehicle-specific issues. 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 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. 2017 | ANNUAL REPORTBoard Report117 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. Several FCA vehicles have earned top ratings based on performance during assessments. The 2018 Chrysler Pacifica, Dodge Charger and Dodge Challenger achieved the 5-Star overall safety rating in the U.S. NCAP conducted by the National Highway Traffic Safety Administration (“NHTSA”). The Insurance Institute for Highway Safety (“IIHS”) named the 2017 Jeep Compass a Top Safety Pick and the 2017 Alfa Romeo Giulia was named a Top Safety Pick + rated vehicle. In addition, the Jeep Compass and Alfa Romeo Stelvio earned the 5-Star Euro NCAP rating in 2017. 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 2017, the rate of repair in the first 90 days of ownership improved on average by more than seven 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 2017, TGW improved on average by almost 10 percent globally. 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 and Mobility Needs 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 in all four regions: EMEA, NAFTA, LATAM and APAC. 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 26 million customer contacts in 2017, 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 31 different languages. To strengthen customer relationships, FCA offers a variety of options to support different mobility needs. Enjoy is a car- sharing service that offers a fleet of Fiat 500 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 more than 2,400 vehicles. Since the service was launched, approximately 675,000 individuals in five metropolitan areas have signed up to use it and 13 million rentals have been logged. The operations, from registration to use, are managed online through smartphone applications. 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 Automobility programs are designed to help customers with permanent disabilities by providing financial assistance toward the purchase of appropriate customizable adaptive equipment. Employees 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. A Diversity Policy and related targets are adopted to ensure adequate diversity representation within members of the Board of Directors. For a full description, refer to the section - Corporate Governance elsewhere in this report. 2017 | ANNUAL REPORT118 Non-Financial Information FCA’s efforts to value every employee’s contribution is supported by long-term sustainability targets, specific initiatives addressed to inclusion and monitoring of related performance. In particular, FCA aims to leverage diversity as a key asset and monitor equal opportunity implementation worldwide through Human Resources processes, to build a complete skill set and value everyone’s contribution. The following examples from 2017 demonstrate this commitment: 21.5 percent of 235,915 employees were women; 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; 85.3 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, 83.5 percent of employees not covered by collective bargaining benefited from conditions that are supplemental to, or better than, the minimum required by law; and approximately 5,170 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. Management and Development The Group’s approach to employee management and development is embodied in the commitment to five key leadership principles: we recognize and reward performance; we define leadership as leading change and leading people; we embrace and cherish competition; we aim to achieve best in class performance; and we deliver what we promise. These foundational elements influence every decision, including the appointment of leaders, as we challenge ourselves to match the level of talent necessary in today’s automotive industry. Performance and Leadership Management (“PLM”) is the appraisal system adopted worldwide to assess FCA employees (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 65,600 Group employees worldwide in 2017. Talent management and succession planning are also integral to employee management and development. In 2017, Talent Reviews were conducted for the various professional families and business units within the Company. These 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. In 2017, 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. A widespread training campaign focused on sustainability was made accessible to 47,000 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 use of collaborative robots; promoting employee awareness and safe behavior; and encouraging a healthy lifestyle. 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 2017, the vast majority of our plants had an OHSMS in place that was OHSAS 18001 certified. 2017 | ANNUAL REPORTBoard Report119 Measures implemented over the years have contributed to significant improvements in all injury indicators. In 2017, the injury Frequency Rate was down nine percent compared to the previous year (with 0.09 injuries per 100,000 hours worked) and the Severity Rate was down about 21 percent compared to 2016 (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. FCA’s investment in health and safety, combined with these measures, 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 €100 million from 2012 through 2017. 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, promotion of physical exercise through sports teams or clubs (also dedicating special areas of the Company to sports activities and/ or entering into agreements with local sports centers for use by employees and their families) and smoking cessation programs. 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. Suppliers must conduct business activities according to ethical standards and procedures and as set forth by the FCA Code of Conduct and Sustainability Guidelines for Suppliers. If a supplier fails to meet these standards, a corrective action plan, jointly developed with FCA, is required. FCA may exercise the right to terminate the business relationship. 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. 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 2017, the Group once again invited suppliers to participate in the CDP supply chain program. In 2017, 167 suppliers disclosed (70 percent response rate), attaining an average score of C- (on a scale from A to D-). The goal is to engage 90 - 100 percent of our top strategic suppliers in the program by 2020. 2017 | ANNUAL REPORT120 Non-Financial Information FCA collaborates with peers, suppliers and other stakeholders on issues related to human rights and working conditions throughout the supply chain. This focus has been also on the mica and cobalt supply chains, which 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 Business Alliance (“RBA”). 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 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 its 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 has been designated to lead 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. Suppliers representing approximately 90 percent of our direct material buy responded to the 2016 survey, the most recent year for which we have final data. 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. 2017 | ANNUAL REPORTBoard Report121 Community Engagement FCA strives to enrich the vitality of the communities where we live and work by creating jobs through our facilities, 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. 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 2017, 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 G4 reporting guidelines. The data reported in this section will also be included in the FCA 2017 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 2017 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 13, 2018 and made available online at www.fcagroup.com. In order to ensure that information is comparable and meaningful over time, normalized data for past years was restated to ensure comparability in terms of scope. 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 occupational health and safety relates to 138 of the 159 plants, covering the vast majority of plant workers; to office facilities; and to six plants of companies that are not fully consolidated, including one joint venture in Turkey and five in the APAC region (four in China and one in India); and the Group’s environmental and energy performance refers to 138 of the 159 plants, covering nearly 100 percent of the Group’s industrial revenues and to six plants of companies that are not fully consolidated, including one joint venture in Turkey and five in the APAC region (four in China and one in India). 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. Unless otherwise indicated, all data presented in this section refers to the International System of Units and may be subject to rounding. 2017 | ANNUAL REPORT122 Board Report Remuneration of Directors Remuneration of Directors 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 reward competitively 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, 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 2018 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 FCA Compensation Committee in 2017. Financial Year 2017 - Select Business Highlights A key tenet of the Remuneration Policy is pay for performance. The Group had record results for 2017, achieving or exceeding all key targets for 2017. To provide perspective of the Group’s performance in 2017, the following table highlights some of the key achievements during the year: 2017 Financial Highlights Achieved or exceeded all key targets for 2017 and in first four years of the five-year business plan Record results with Adjusted EBIT at €7.1 billion and margin up 90 bps to 6.4% Continued profitability in all segments with year over year Adjusted EBIT and margin growth Cash flows from industrial operating activities of €1.6 billion contributed to €2.2 billion reduction in Net industrial debt Introduction of Alfa Romeo Giulia and Stelvio in major global premium markets - brand announced return to Formula 1 for 2018 season All-new Jeep Wrangler production started in Q4 ’17; Next-generation Ram 1500 and new Jeep Cherokee on schedule for 2018 Moody’s and S&P improved outlook on FCA’s ratings to positive from stable; Fitch upgraded FCA and maintained outlook at positive In May 2014, we presented a five-year business plan, which was subsequently updated and is available on the Investor Relations page of the Company’s website. We have successfully achieved the business plan key targets established for 2014, 2015, 2016 and 2017 and confirmed the key business plan targets for 2018. 2017 | ANNUAL REPORT123 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 Pay for performance Competitiveness Long-term shareholder value creation Compliance Risk prudence Compensation is strongly linked to the achievement of the Group’s publicly disclosed performance targets. 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. Compensation should be competitive against the comparable market and set in a manner to attract, retain and motivate expert leaders and highly qualified executives. Targets triggering any variable compensation payment should align with the interest of shareholders. Our compensation policies and plans are designed to comply with applicable laws and corporate governance requirements. The compensation structure should avoid incentives that encourage unnecessary or excessive risks that could threaten the Company’s value. Compensation Peer Group For 2017, our compensation peer group was utilized to evaluate relative pay level alignment with Company performance. In April 2016, our Compensation Committee reviewed 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 approved a new peer group that was used in 2017. 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. Market capitalization was considered as a secondary characteristic. For 2014 and 2015, we used two peer groups - U.S. peers and European peers - with a combined total of 46 peer group companies. Our competitors used one group for purposes of benchmarking compensation. In order to better align FCA with its peers, in 2016, the Compensation Committee replaced the previously used two-peer group structure. A refined, consolidated and condensed international peer group, with a blend of both U.S. and European companies, was believed to better recognize the relevant talent market for our executives. In addition to including all U.S. and European automobile manufacturers, primary consideration was given to U.S. and European companies that have significant manufacturing and/or engineering operations and a global market presence. In April 2016, the Compensation Committee approved the new peer group of 26 companies listed below. 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 ArcelorMittal SA Bayer AG Daimler AG Deere & Company Johnsons Controls Inc. Lockheed Martin Corporation The 3M Company ThyssenKrupp AG Ford Motor Company Northrop Grumman Corporation United Technologies Corporation BMW Group AG General Dynamics Corporation PSA Peugeot Citroen The Boeing Company General Electric Company Raytheon Company Volkswagen AG The Volvo Group Caterpillar Inc. Continental AG General Motors Company Honeywell International Inc. Renault SA Siemens AG 2017 | ANNUAL REPORT124 Board Report Remuneration of Directors Summary Overview of Remuneration Elements The executive directors’ remuneration is simple and transparent in design, and consists of the following key elements: Remuneration Element Base salary Description Fixed cash compensation Short-term variable incentive(1) • Performance objectives are annually predetermined and are based on achievements of specific measures • Comprised of three equally-weighted metrics, Adjusted EBIT, Adjusted net profit, and Net industrial debt • Target payout is 100 percent and maximum payout is 250 percent of base salary Purpose Attracts and rewards high performing executives via market competitive pay • Drives Company-wide and individual performance • Rewards annual performance • Motivates executive directors to achieve performance objectives that are key to our annual operating and strategic plans • Aligns executive directors’ and shareholder interests Long-term variable incentive(1) • All equity awards are based on achievements of publicly • Encourages executive directors to achieve multi- disclosed multi-year financial targets • Performance criteria comprised of two equally weighted metrics, relative Total Shareholder Return (“TSR”) and Adjusted net profit • Awards have three vesting opportunities, one third after each of 2016, 2017 and 2018 based on cumulative results year strategic and financial objectives • Motivates executive directors to deliver sustained long-term growth • Aligns executive directors’ and shareholder interests through long-term value creation • Awards may be earned at a level from 0% to 125% of the target • Enhances retention of key talent number of awards granted Pension and retirement savings • The Chief Executive Officer (or “CEO”) participates in a Company-wide pension scheme and a supplemental retirement benefit • Both the CEO and Chairman have retirement savings benefits Provides security and productivity set forth in greater detail under the legacy arrangement description as described below in an amount equal to five times their last annual base compensation Other benefits Executive directors may receive typical benefits such as severance (linked to a non-compete restriction), company cars, medical insurance, accident and disability insurance, tax preparation, financial counseling and tax equalization Facilitates strong performance, consistent with offerings of peer group companies (1) The Chairman receives fixed compensation only and is not eligible for any variable compensation. 2017 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 Realized Compensation The following table was introduced in 2017 to provide a common context for understanding compensation.  Realized compensation as shown below, is the amount that our executive directors actually received in 2017.  Realized compensation includes actual base compensation earned, actual annual bonus, and value of equity awards that vested during the year. In 2017, our Chairman’s realized cash compensation was €1,770,411 and our CEO’s realized cash compensation was €9,676,303. The objective of our CEO’s compensation reward structure is to pay for performance and incentivize our CEO to manage the Company from the perspective of an owner over the long term. In 2017 our CEO continued to successfully execute on delivering the 2014-2018 business plan, with the Company achieving its business plan targets for the fourth year in a row. In addition, the Company delivered a strong 280% total shareholder return for the period 2014-2017. The Company has also outpaced the returns of the ten automobile manufacturers represented in our Relative TSR peer group (listed later in this report). 2017 | ANNUAL REPORT125 Our CEO’s compensation is strictly aligned with pay for performance. Following three consecutive years of no vesting or payout of shares under our Long Term Incentive (“LTI”) program, in 2017 2,795,500 vested FCA shares were received by the CEO representing underlying PSU awards for compensation for the 2014-2016 period. These shares were awarded for performance in respect of each of 2014, 2015 and 2016 for a total value of €28,989,324, equating to an average in equity based compensation of €9,663,108 for each of the three years. Our CEO did not monetize the FCA shares that were delivered to him in 2017 under the LTI program (other than to pay associated taxes) and continues to own these shares, demonstrating alignment with FCA shareholders. Realized compensation differs from the total compensation set forth in the Directors’ Compensation table later in this report, and is in line with accounting and actuarial assumptions. The amounts in the table below are intended to clarify and complement, and do not serve as a substitute for the amounts reported in the compensation tables. Cash Compensation 2017 Fixed and Variable Compensation Equity Compensation 2017 FCA Units (delivered and held) Executive Directors’ Compensation Base Compensation Annual Bonus Base Compensation + Annual Bonus Total FCA shares delivered for three year (2014- 2016) performance period under LTI program (100% at risk and performance based) J. Elkann €1,770,411 None €1,770,411 None S. Marchionne €3,540,822 €6,135,481 €9,676,303 Annualized 931,833 units (€9,663,108(1)) Total Delivered over 3 Years 2,795,500 units (€28,989,324(1)) (1) No shares were received by our CEO in 2014, 2015 and 2016 under the LTI program. In 2017 the shares delivered were not monetized, other than to pay for associated taxes. This amount represents the value of 2,795,500 shares on an annual basis, using the March 13, 2017 vest date, to value the units: - 2,795,500 total units/3 (number of years in performance period) = 931,833 shares per year; - 931,833 units per year x €10.37/unit = €9,663,108 Total value delivered over 3 years: €9,663,108 x 3 = €28,989,324 CEO performance based equity earned for 2014-2016 which vested in 2017: Year 2014 2015 2016 Business Plan Targets Achieved 3 Year LTI Adjusted Net Profit Target Achieved 3 Year LTI Relative TSR Target Achieved CEO LTI Vesting Rates Against Maximum Opportunity √ √ √ √ FCA #1 No vesting payment opportunity No vesting payment opportunity No vesting payment opportunity 100% in 2017 Performance Period 2014-2016 January 1, 2014 ——––————————————› Total FCA Shareholder Return of 280%(1) Median Peer Group Total Shareholder Return of 24% (10 Automobile Manufacturers) December 31, 2017 (1) Calculated using split adjusted closing prices on December 31, 2013 and December 29, 2017, per the Borsa Italiana FCA listing. 2017 | ANNUAL REPORT 126 Board Report Remuneration of Directors Executive Directors’ Compensation In 2017, no changes were made to any of the elements of compensation set forth above for either of the executive directors. The target compensation of the CEO is comprised of base compensation, short-term variable pay and long- term variable pay. The Chairman is not eligible for any form of variable compensation. For 2017, 81 percent of the CEO’s target compensation was at-risk performance based compensation. In 2016, the Group entered into a written agreement with the CEO and a written agreement with the Chairman, memorializing the previously agreed terms and conditions of their service with the Company. The material terms of the CEO’s and Chairman’s respective agreements are described below within the discussion of their remuneration. Target Elements of CEO Compensation Elements of Compensation Salary 19% Incentive Bonus 19% Total Long-Term Incentives 62% Fixed vs. Variable Fixed 19% Variable 81% Internal Pay Ratios The Compensation Committee considered internal pay ratios within the Company and its affiliated enterprise, as provided for by the updated Dutch Governance Code. Multiple scenario analyses were developed comparing the pay of executive directors to the median FCA employee’s pay for 2017 and the previous year. Scenarios included executive director pay ratio reviews, considering the following: Base salary earned for 2017. Cash bonus and any other cash incentives paid for performance year ending in 2017. Non-monetary compensation and contributions into retirement programs during the year. Grant date fair value (per accounting valuation) for any stock-based award granted in 2017, (the method defined under US proxy-reporting rules for 2017). Based on initial survey data provided by an external consultant, the range of ratios utilizing the above components were determined to be consistent with the median among large US companies (over 50,000 employees). The Company is not disclosing pay ratios for 2017 compensation as the Dutch code does not describe the methodology to determine and disclose such ratios. The Company will continue to monitor the internal equity of the executive directors’ compensation pursuant to the new and still evolving guidance under the Dutch Corporate Governance Code. Base Salary The base salary for our executive directors has remained unchanged for four consecutive years (2014, 2015, 2016 and 2017). In addition, 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. With FCA’s formation in October 2014, an annual base salary of U.S. $4.0 million for our CEO and an annual base salary of U.S. $2.0 million for our Chairman were approved. This decision was reached using compensation benchmarking and peer group analysis in consultation with the Company’s external compensation consultant. The Company believes that paying our executive directors at or above these benchmarks is necessary and appropriate to incentivize and retain uniquely qualified executive directors to lead the Company through the business cycle and position the Company for long-term growth. 2017 | ANNUAL REPORT127 Variable Components The 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. On an annual basis, we examine the relationship between the performance criteria chosen and the possible outcomes for the variable remuneration of our CEO (scenario analysis). When such analysis was carried out for the 2017 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 OUR COMPENSATION PHILOSOPHY IS DESIGNED TO REWARD PERFORMANCE AND LEADERSHIP The short-term variable elements and calculations for the CEO follow the same philosophy as the company-wide Performance and Leadership Bonus Plan for all eligible FCA employees. 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 Reflects market Reflects performance vs. objectives based on actual results achieved Base Salary x Target Bonus % x Company Performance Factor = BONUS EARNED 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 any unusual items that occurred in the performance year to determine the appropriate overall measurement of achievement of the objectives; and approves the final bonus determination. 2017 | ANNUAL REPORT128 Board Report Remuneration of Directors For 2017, the Compensation Committee approved the same plan design and metrics utilized in 2016. Target bonus amount is expressed as a percentage of salary. The individual target percentage for our CEO is 100 percent. This target is below external market benchmarks and is below the 25th percentile for the compensation peer group (this relative positioning further reinforces the value we place on a longer term perspective) The Company performance factor is based on three metrics: Adjusted EBIT; Adjusted net profit; and Net industrial debt. Each objective is equally weighed at one-third. Each objective pays out independently. To earn any incentive, the threshold performance must be at least 90 percent of the specific target established. To earn the maximum payout of 250 percent of target, actual results must be achieved at 150 percent or greater of the target performance for each of the performance metrics. There is no minimum bonus payout; payout is zero for below threshold performance. The Compensation Committee established the annual financial performance goals based on the Company’s 2017 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 2017 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. 2017 Performance Metric Weight Threshold (€ millions) Target (€ millions) Maximum (€ millions) Adjusted EBIT(1) Adjusted net profit(2) Net industrial debt(3) 1/3 1/3 1/3 6,300 2,700 (2,750) 7,000 3,000 (2,500) 10,500 4,500 (1,250) (1) Adjusted EBIT excludes certain adjustments from Net profit from continuing operations including: gains/(losses) on the disposal of investments, restructuring, impairments, asset write offs and unusual income/(expenses) which are considered rare or discrete events that are infrequent in nature, and also excludes Net financial expenses and Tax expense. (2) Adjusted net profit is calculated as Net profit 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. (3) Net industrial debt is computed as: debt plus derivative financial liabilities related to industrial activities less (i) cash and cash equivalents, (ii) current available-for-sale and held-for-trading 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 other financial assets/liabilities pertaining to financial services entities are excluded from the computation of Net industrial debt. Discussion of 2017 Results The Compensation Committee reviews results and achievement 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. Significant growth and improvement were achieved in 2017 in each of the three key performance criteria linked to the CEO’s annual incentive: Adjusted EBIT increased 16 percent to €7,054 million from 2016. Adjusted net profit increased 50 percent from 2016 (€3,770 million in 2017 as compared to €2,516 million in 2016). Net industrial debt reduced to €2,390 million at December 31, 2017 (was €4,585 million at December 31, 2016). 2017 | ANNUAL REPORT129 CEO Bonus Calculation Actual Results Financial Goals (€ millions) Threshold (90%) Target (100%) Maximum (150%) Metric Weight Weighted Company Performance Factor Adjusted EBIT Adjusted Net Profit 6,300 2,700 7,000 3,000 7,054 3,770 (2,390) 10,500 33.3% 34.1% 4,500 33.3% 59.0% Net Industrial Debt (2,750) (2,500) (1,250) 33.3% 37.7% Overall Company Performance Factor 130.8% The Compensation Committee determined that the CEO earned an annual bonus for 2017 of U.S. $5.2 million (€4.6 million) as determined by the achievement of the Company performance factors illustrated above with an overall Company performance factor of 130.8%. The Chairman is not eligible for any form of short-term variable compensation. Long-Term Incentives Long-term incentive compensation is a critical component of our executive compensation program. This compensation component is designed to motivate and reward long-term stockholder value creation and the attainment of the Group’s performance goals, to retain top talent and create an ownership alignment with shareholders. Long-term incentives are an important retention tool that management and the Compensation Committee use to align the financial interests of executives and other key contributors with sustained shareholder value creation. We believe the long-term component of compensation for our CEO should be aligned with the interests of our shareholders. The CEO’s long-term incentives are 100 percent performance-based. The Chairman is not eligible for long-term incentives. FCA’s long-term variable incentives consist of a share-based incentive plan that links a portion of the variable component to the achievement of pre-established performance targets consistent with the Company’s five-year business plan that was published in May 2014 and subsequently updated. These awards increase the link between performance, realized compensation and shareholder interests, by delivering greater value to the CEO as shareholder value increases. Long-term incentive awards are intended to emphasize future compensation and encourage the delivery of results over a longer period of time as well as to serve as a retention tool. They are specifically designed to motivate our executives to achieve significant returns for our shareholders over the long-term. Equity Incentive Plan On October 29, 2014, in connection with the formation of FCA and the presentation of the 2014-2018 business plan, the Board of Directors approved a new LTI program, covering the five year performance period, under the Fiat Chrysler Automobiles N.V. Equity Incentive Plan (“EIP”), under which equity awards can be granted to eligible individuals. The LTI program is consistent with the Company’s business plan that was published in May 2014 and subsequently updated. The target setting process for the LTI program is built on the foundation of our rigorous business planning process which is determined by the overall business environment, industry and competitive market factors, as well as Company-wide business goals. Moreover, the targets are in line with external forward-looking guidance that we provide to analysts and investors. 2017 | ANNUAL REPORT130 Board Report Remuneration of Directors The 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. 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. Listed below is the Relative TSR peer group. 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. 2014-2018 Performance Cycle Relative TSR Metric Peers Volkswagen AG Ford Motor Company PSA Peugeot Citroen Toyota Motor Corporation Honda Motor Co. Ltd. Daimler AG BMW Group General Motors Company The Hyundai Motor Company Renault SA CEO’s Long-Term Incentive Equity Awards In 2017, there were no equity grants awarded to the CEO. The CEO has one outstanding performance based equity award, consisting of an aggregate of 4,489,496 performance share units at target as set forth in the Directors’ Compensation table below, which was granted for the five-year 2014-2018 performance period and was approved by the shareholders in 2015. The award level and design for the one time grant covering the five-year performance period was based on market competitive analysis provided by the Compensation Committee’s external compensation consultant. The actual payout that the CEO may realize on his performance-based LTI award depends on the achievement of critical operation and relative stock performance targets established by the Compensation Committee for the 2014-2018 performance period. The performance share units can convert into shares of the Company at the end of years 3, 4, and 5 of the performance period, subject to certain vesting conditions. The first performance tranche of the CEO’s equity award granted in 2015 vested on March 13, 2017 based on performance achieved during the 2014-2016 performance period. For the 2014-2016 performance period, performance share units were earned at 100% of target for Adjusted net profit achievement and at 150% of target for Relative TSR achievement. Accordingly 2,795,500 shares were delivered to the CEO. The second performance tranche of the CEO’s equity award granted in 2015 will vest based on cumulative performance achieved during the 2014-2017 performance period. Satisfaction of this performance will be assessed by the Compensation Committee in 2018. The maximum opportunity for this second vesting of the CEO’s equity award is 2,805,935 units. The third and final performance tranche of the CEO’s equity award granted in 2015 will vest based on cumulative performance achieved during the 2014-2018 performance period. Satisfaction of this performance will be assessed by the Compensation Committee in 2019. The LTI program does not impose a further holding period after vesting, given that the awards do not vest until after year three of the performance period, and the full vesting opportunity does not occur until after year five of the performance period. Pension and Retirement Savings Based on legacy arrangements which were developed to assist in incentivizing the executive directors during an extremely challenging period, certain retirement benefits were provided to the executive directors. Both executive directors have retirement savings benefits in an aggregate amount equal to five times their last annual base compensation. The award is payable quarterly over a period of 20 years commencing three months after the conclusion of services with the Company, with an option for a lump sum payment. The CEO also participates in legacy pension plans for which the Company mandatorily pays defined contributions to social security institutions.  In 2017, a cost of €1.3 million was recognized in connection with these post-mandate benefits and €3.0 million was paid in social security contributions. 2017 | ANNUAL REPORT131 Non-compete Restrictions and Severance In connection with our CEO’s written agreement entered into in 2016, 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 two years 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 two times the sum of his annual base salary and annual bonus, in each case in the amount received for the last fiscal year prior to termination of his services, plus a pro-rated annual bonus for the year in which the termination occurs, based on actual performance goal achievement through the termination date (the “Severance”). 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 two years after the termination date. The CEO will not be entitled to the Severance if he is terminated for cause. In connection with our Chairman’s written agreement entered into in 2016, 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. 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 Tax equalization for executive directors Rationale 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 does not maintain a formal stock ownership policy, the CEO’s stock holdings, when viewed as a multiple of his 2017 base salary, was significantly greater than common market practice of five times base salary. Our CEO consistently retains most of his equity awards upon vesting (other than to cover associated tax obligations) demonstrating alignment with shareholder interests. The share ownership record for Mr. Marchionne reflects that he has historically held a substantial amount of equity in the Company, owning over 3 million shares on an annual basis from February 2012-2013 and over 6 million shares on an annual basis from 2014-2017. 2017 | ANNUAL REPORT132 Board Report Remuneration of Directors Recoupment of Incentive Compensation (Clawback Policy) The Company is dedicated to maintaining and enhancing a culture focused on integrity and accountability. The Company’s EIP defines the terms and conditions for any subsequent long-term incentive program. The Company’s agreement with its CEO, the employment agreements with members of management, including its executive officers and the EIP allow the Company to recover, or “clawback”, incentive compensation with the ability to retroactively make adjustments 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 and 2017 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. Equity Incentive Plan - Long Term Incentive Program 2014 - 2016 2014 - 2017 2014 - 2018 2017 and 2018 Vesting Performance Periods Awards subject to reduction/cancellation/recovery based on clawback policy 1st and 2nd tranche equity awards based on 2014 – 2016 and 2014 – 2017 performance achieved, respectively Award in share of common stock Annual Bonus Plan 2016 and 2017 2016 and 2017 Clawback Annual Performance Periods Awards subject to reduction/cancellation/recovery Results based on performance in 2016 and 2017 Awards in cash in first quarter of 2017 and 2018 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). 2017 | ANNUAL REPORT133 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 Annual cash retainer Additional retainer for Audit Committee member Additional retainer for Audit Committee Chair Additional retainer for Compensation/Governance Committee member Additional retainer for Compensation/Governance Committee Chair Additional retainer for Lead Independent Director U.S.$ 200,000 10,000 20,000 5,000 15,000 25,000 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 to the members of the Board of Directors for the year ended December 31, 2017. Directors of FCA Office held ELKANN John Philipp Chairman MARCHIONNE Sergio CEO AGNELLI Andrea Director BRANDOLINI D’ADDA Tiberto Director EARLE Glenn MARS Valerie SIMMONS Ruth J. Director Director Director THOMPSON Ronald L. Director VOLPI Michelangelo A. Director WHEATCROFT Patience Director WOLF Stephen M. Director ZEGNA Ermenegildo Director Total In office from/to 01/01/2017 - 12/31/2017 01/01/2017 - 12/31/2017 01/01/2017 - 12/31/2017 01/01/2017 - 12/31/2017 01/01/2017 - 12/31/2017 01/01/2017 - 12/31/2017 01/01/2017 - 12/31/2017 01/01/2017 - 12/31/2017 04/15/2017 - 12/31/2017 01/01/2017 - 12/31/2017 01/01/2017 - 04/14/2017 01/01/2017 - 12/31/2017 Annual fee (€) Annual incentive(1) (€) Other compensation (€) Total (€) 1,770,411 — 405,399(2) 2,175,810 3,540,822 4,631,395 2,737,479(3) 10,909,696 179,501(4) 179,501(4) 197,449(4) 192,961(4) 183,986(4) 210,911(4) 90,733 192,961(4) 97,802(4) 188,535(4) 7,025,573 — — — — — — — — — — — 179,501 179,501 17,435(5) 214,884 5,133(5) 198,094 6,108(5) 190,094 5,599(5) 216,510 — 90,733 11,180(5) 204,141 2,036(5) 99,838 7,738(5) 196,273 4,631,395 3,198,107 14,855,075 (1) The annual incentive represents the bonus paid in 2018 for the 2017 performance year. (2) The stated amount includes the use of transport and insurance premiums. (3) The stated amount includes insurance premiums, tax preparation and tax equalization. (4) Non-executive directors who elected to receive a portion of their annual retainer fee in common shares of FCA, prior to the change in Remuneration Policy approved at the 2017 annual general meeting of FCA shareholders. The amount of the annual fee reported includes the fair value of the shares received. (5) 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. 2017 | ANNUAL REPORT134 Board Report Remuneration of Directors Share Plans Granted to Directors The following table gives an overview of the share plans held by the Chief Executive Officer and other Board Members. Name / Plan Agnelli / 2017 FCA Share Grants Grant Date Vesting Date 01/2017 - 04/2017 01/2017 - 04/2017 Brandolini / 2017 FCA Share Grants 01/2017 - 04/2017 01/2017 - 04/2017 Earle / 2017 FCA Share Grants 01/2017 - 04/2017 01/2017 - 04/2017 Mars / 2017 FCA Share Grants 01/2017 - 04/2017 01/2017 - 04/2017 Simmons / 2017 FCA Share Grants 01/2017 - 04/2017 01/2017 - 04/2017 Thompson / 2017 FCA Share Grants 01/2017 - 04/2017 01/2017 - 04/2017 Wheatcroft / 2017 FCA Share Grants 01/2017 - 04/2017 01/2017 - 04/2017 Wolf / 2017 FCA Share Grants 01/2017 - 04/2017 01/2017 - 04/2017 Zegna / 2017 FCA Share Grants Marchionne / FCA LTI awards(2),(3),(4) 01/2017 - 04/2017 01/2017 - 04/2017 Number of shares under award at January 1, 2017 Fair Value on Grant Date(1) — U.S.$10.34 — U.S.$10.34 — U.S.$10.35 — U.S.$10.34 — U.S.$10.35 — U.S.$10.34 — U.S.$10.34 — U.S.$10.35 — U.S.$10.34 Number of shares under award at December 31, 2017 — — — — — — — — — Shares Granted(1) 4,970 Shares Vested 4,970 4,970 6,283 4,970 9,432 4,970 4,970 9,320 4,970 4,970 6,283 4,970 9,432 4,970 4,970 9,320 4,970 04/16/2015 2017 / 2018 / 2019 6,709,200 U.S.$14.84 — 2,795,500 4,472,800 (1) Prior to the 2017 annual general meeting of FCA shareholders non-executive directors could elect to receive a portion of their annual retainer fee in common shares of FCA rather than in cash. The fair value of the shares received and shown in the table is included in the annual amount of the annual fee reported in the Directors’ compensation table above. The Company amended the Remuneration Policy for its non-executive directors at the 2017 annual general meeting of shareholders to state that the non-executive directors’ compensation will be paid entirely in cash. (2) During 2016, 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 Ferrari spin-off. In January 2017, 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 Company’s 16.7 percent ownership interest in RCS Media Group S.p.A. 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 to the most probable outcome of the performance conditions as of the grant date. The per unit value is based on the closing price of 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 Ferrari Spin-off RCS Media Group S.p.A. Number of shares under award Conversion Factor Fair Value on award date Dilution Adjustment Number of adjusted shares 4,320,000 6,670,080 1.5440 1.005865 U.S.$9.61 U.S.$ 9.56 2,350,080 39,120 6,670,080 6,709,200 (3) 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 GEDI Number of shares under award Conversion Factor Fair Value on award date Dilution Adjustment Number of adjusted shares 4,472,800 1.003733 U.S.$9.52 16,696 4,489,496 (4) This number represents the maximum opportunity for the first vesting of the CEO’s equity award. The total cost recognized in 2017 by the Company in connection with the share plans referenced above was approximately €14 million. 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. 2017 | ANNUAL REPORTConsolidated Financial Statements AT DECEMBER 31, 2017 Index to Consolidated Financial Statements Consolidated Income Statement ________________________________________________________________ 136 Consolidated Statement of Comprehensive Income/(Loss) _________________________________________ 137 Consolidated Statement of Financial Position _____________________________________________________ 138 Consolidated Statement of Cash Flows __________________________________________________________ 139 Consolidated Statement of Changes in Equity ____________________________________________________ 140 Notes to Consolidated Financial Statements ______________________________________________________ 141 (1) Principal Activities _________________________________________________________________________ 141 (2) Basis of preparation _______________________________________________________________________ 141 (3) Scope of consolidation _____________________________________________________________________ 161 (4) Net revenues _____________________________________________________________________________ 165 (5) Research and development costs ___________________________________________________________ 166 (6) Net financial expenses _____________________________________________________________________ 167 (7) Tax expense ______________________________________________________________________________ 168 (8) Other information by nature _________________________________________________________________ 171 (9) Goodwill and intangible assets with indefinite useful lives ________________________________________ 172 (10) Other intangible assets ____________________________________________________________________ 173 (11) Property, plant and equipment ______________________________________________________________ 174 (12) Investments accounted for using the equity method ___________________________________________ 176 (13) Other financial assets ______________________________________________________________________ 178 (14) Inventories _______________________________________________________________________________ 178 (15) Trade, other receivables and tax receivables __________________________________________________ 179 (16) Derivative financial assets and liabilities _______________________________________________________ 181 (17) Cash and cash equivalents _________________________________________________________________ 183 (18) Share-based compensation ________________________________________________________________ 184 (19) Employee benefits liabilities _________________________________________________________________ 188 (20) Provisions ________________________________________________________________________________ 194 (21) Debt ____________________________________________________________________________________ 196 (22) Other liabilities and Tax payables ____________________________________________________________ 201 (23) Fair value measurement ____________________________________________________________________ 203 (24) Related party transactions __________________________________________________________________ 206 (25) Guarantees granted, commitments and contingent liabilities _____________________________________ 209 (26) Equity ___________________________________________________________________________________ 215 (27) Earnings per share ________________________________________________________________________ 218 (28) Segment reporting ________________________________________________________________________ 219 (29) Explanatory notes to the Consolidated Statement of Cash Flows _________________________________ 224 (30) Qualitative and quantitative information on financial risks ________________________________________ 226 (31) Subsequent events ________________________________________________________________________ 231 136 Consolidated Income Statement Consolidated Income Statement (in € million, except per share amounts) Years ended December 31 Net revenues Cost of revenues Selling, general and other costs Research and development costs Result from investments: Share of the profit of equity method investees Other income from investments Reversal of a Brazilian indirect tax liability Gains on disposal of investments Restructuring costs Net financial expenses Profit before taxes Tax expense Net profit from continuing operations Profit from discontinued operations, net of tax Net profit Net profit attributable to: Owners of the parent Non-controlling interests Net profit from continuing operations attributable to: Owners of the parent Non-controlling interests Earnings per share: Basic earnings per share Diluted earnings per share Note 2017 2016 4 € 110,934 € 111,018 € 5 12 22 6 7 3 27 93,975 7,385 3,230 410 409 1 895 76 95 1,469 6,161 2,651 3,510 — 95,295 7,568 3,274 316 313 3 — 13 88 2,016 3,106 1,292 1,814 — € € € € € € € € € 3,510 € 1,814 € 3,491 19 3,510 3,491 19 3,510 2.27 2.24 2.27 2.24 € € € € € € € € 1,803 11 1,814 1,803 11 1,814 1.19 1.18 1.19 1.18 € € € € € € € € 2015 110,595 97,620 7,576 2,864 143 130 13 — — 53 2,366 259 166 93 284 377 334 43 377 83 10 93 0.22 0.22 0.05 0.05 Earnings per share for Net profit from continuing operations: 27 Basic earnings per share Diluted earnings per share The accompanying notes are an integral part of the Consolidated Financial Statements. 2017 | ANNUAL REPORTConsolidated Financial Statements137 Consolidated Statement of Comprehensive Income/(Loss) Consolidated Statement of Comprehensive Income/(Loss) (in € million) Years ended December 31 Net profit (A) Note € 2017 3,510 € 2016 1,814 € Items that will not be reclassified to the Consolidated Income Statement in subsequent periods: 26 (Losses)/gains on re-measurement of defined benefit plans Share of gains/(losses) on re-measurement of defined benefit plans for equity method investees Related tax impact Items relating to discontinued operations, net of tax Total items that will not be reclassified to the Consolidated Income Statement in subsequent periods (B1) Items that may be reclassified to the Consolidated Income Statements in subsequent periods: 26 Gains/(losses) on cash flow hedging instruments Gains on available-for-sale financial assets Exchange (losses)/gains on translating foreign operations Share of Other comprehensive (loss) for equity method investees Related tax impact Items relating to discontinued operations, net of tax Total items that may be reclassified to the Consolidated Income Statement in subsequent periods (B2) Total Other comprehensive (loss)/income, net of tax (B1)+(B2)=(B) Total Comprehensive income (A)+(B) Total Comprehensive income attributable to: Owners of the parent Non-controlling interests Total Comprehensive income attributable to owners of the parent: Continuing operations Discontinued operations (64) 2 (21) — (83) 147 14 (1,942) (121) (10) — (1,912) (1,995) 584 (5) (261) — 318 (249) 15 458 (122) 69 — 171 489 € € € € € 1,515 € 2,303 € 1,491 24 1,515 1,491 — 1,491 € € € € 2,288 15 2,303 2,288 — 2,288 € € € € The accompanying notes are an integral part of the Consolidated Financial Statements. 2015 377 679 (2) (201) 3 479 186 11 1,002 (17) (48) 18 1,152 1,631 2,008 1,953 55 2,008 1,685 268 1,953 2017 | ANNUAL REPORTConsolidated Financial Statements138 Consolidated Statement of Financial Position Consolidated Statement of Financial Position (in € million) At December 31 Assets Goodwill and intangible assets with indefinite useful lives Other intangible assets Property, plant and equipment Investments accounted for using the equity method Other financial assets Deferred tax assets Other receivables Tax receivables Accrued income and prepaid expenses Other non-current assets Total Non-current assets Inventories Assets sold with a buy-back commitment Trade and other receivables Tax receivables Accrued income and prepaid expenses Other financial assets Cash and cash equivalents Assets held for sale Total Current assets Total Assets Equity and liabilities Equity Equity attributable to owners of the parent Non-controlling interests Total Equity Liabilities Long-term debt Employee benefits liabilities Provisions Other financial liabilities Deferred tax liabilities Tax payables Other liabilities Total Non-current liabilities Trade payables Short-term debt and current portion of long-term debt Other financial liabilities Employee benefit liabilities Provisions Tax payables Other liabilities Liabilities held for sale Total Current liabilities Total Equity and liabilities The accompanying notes are an integral part of the Consolidated Financial Statements. Note 2017 9 10 11 12 13 7 15 15 14 15 15 13 17 3 26 21 19 20 16 7 22 22 21 16 19 20 22 22 3 € 13,390 € 11,542 29,014 2,008 482 2,004 666 83 328 508 60,025 12,922 1,748 7,887 215 377 487 12,638 — 36,274 € € 96,299 € 20,819 € 168 20,987 10,726 8,584 5,770 1 388 74 2,500 28,043 21,939 7,245 138 694 9,009 309 7,935 — 2016 15,222 11,422 30,431 1,793 649 3,699 581 93 372 359 64,621 12,121 1,533 7,273 206 389 762 17,318 120 39,722 104,343 19,168 185 19,353 16,111 9,052 6,520 16 194 25 3,603 35,521 22,655 7,937 681 811 9,317 162 7,809 97 € 47,269 96,299 € 49,469 104,343 2017 | ANNUAL REPORTConsolidated Financial Statements139 Consolidated Statement of Cash Flows Consolidated Statement of Cash Flows (in € million) Years ended December 31 Note € 29 Cash flows from operating activities: Net profit from continuing operations Amortization and depreciation Net losses on disposal of tangible and intangible assets Net gains on disposal of investments Other non-cash items Dividends received Change in provisions Change in deferred taxes Change due to assets sold with buy-back commitments and GDP vehicles Change in inventories Change in trade receivables Change in trade payables Change in other payables and receivables Cash flows from operating activities - discontinued operations Total Cash flows used in investing activities: Investments in property, plant and equipment and intangible assets Investments in joint ventures, associates and unconsolidated subsidiaries Proceeds from the sale of tangible and intangible assets Proceeds from disposal of other investments Net change in receivables from financing activities Change in securities Other changes Cash flows used in investing activities - discontinued operations Total Cash flows (used in) /from financing activities: 29 Issuance of notes Repayment of notes Proceeds of other long-term debt Repayment of other long-term debt Net change in short-term debt and other financial assets/liabilities Net proceeds from initial public offering of 10 percent of Ferrari N.V. 3 Distributions paid Other changes Cash flows from financing activities - discontinued operations Total Translation exchange differences Total change in Cash and cash equivalents Cash and cash equivalents at beginning of the period Cash and cash equivalents at end of the period - included within Assets held for distribution Cash and cash equivalents at end of the period 2017 3,510 5,890 16 (76) (199) 102 555 1,057 (11) (1,666) (206) 1,086 327 — 10,385 (8,666) (18) 61 4 (838) 175 (14) — (9,296) — (2,235) 833 (3,439) 371 — (1) (2) — (4,473) (1,296) (4,680) 17,318 € 2016 € 1,814 5,956 13 (13) 111 123 1,519 389 (95) (471) 177 776 295 — 10,594 (8,815) (116) 36 55 (483) 299 (15) — (9,039) 1,250 (2,373) 1,342 (4,618) (591) — (18) (119) — (5,127) 228 (3,344) 20,662 2015 93 5,414 18 — 812 112 3,206 (279) 6 (958) (191) 1,571 (580) 527 9,751 (8,819) (266) 29 — 410 (239) 11 (426) (9,300) 2,840 (7,241) 3,061 (4,412) (36) 866 (283) 10 2,067 (3,128) 681 (1,996) 22,840 182 20,662 The accompanying notes are an integral part of the Consolidated Financial Statements. 17 € — 12,638 € — 17,318 € 2017 | ANNUAL REPORTConsolidated Financial Statements140 Consolidated Statement of Changes in Equity Consolidated Statement of Changes in Equity (in € million) Share capital Other reserves Cash flow hedge reserve Attributable to owners of the parent Remeasure- Cumulative ment of share of OCI defined of equity benefit method plans investees Available- for-sale financial assets Currency translation differences Non- controlling interests Total At December 31, 2014 € 17 € 14,338 € (69) € 1,479 € (37) € (1,578) € (86) € 313 € 14,377 Distributions Share-based compensation Net profit Initial public offering of 10 percent Ferrari N.V Other comprehensive income/ (loss) Other changes At December 31, 2015 Capital increase Mandatory Convertible Securities (Note 26) Share-based compensation Net profit Other comprehensive income/ (loss) Other changes At December 31, 2016 Capital increase Demerger of Itedi S.p.A Distributions Share-based compensation Net profit Other comprehensive income/ (loss) Other changes — — — — — — 17 — 2 — — — — 19 — — — — — — — (17) 80 334 869 — (149) 15,455 — (2) 98 1,803 — (42) 17,312 — (64) — 115 3,491 — — — 7 132 — 70 — — — — (182) 49 (63) — — — — — — — — (4) 1,016 1 2,492 — — — — 456 (36) — — — — 11 — (26) — — — — 15 — 2,912 (11) — — — — — — — — — — 14 — — — — 1 479 — (1,098) — — — — 324 6 (768) — 5 — — — (84) 37 — — — — (19) — (105) — — — — (128) — (233) — — — — — (119) — (283) — 43 (7) 12 85 163 18 — — 11 4 (11) 185 3 (28) (1) — 19 5 (15) (300) 80 377 866 1,631 (63) 16,968 18 — 98 1,814 489 (34) 19,353 3 (87) (1) 115 3,510 (1,995) 89 — 67 131 — (1,942) — At December 31, 2017 € 19 € 20,921 € 68 € 970 € 3 € (810) € (352) € 168 € 20,987 The accompanying notes are an integral part of the Consolidated Financial Statements. 2017 | ANNUAL REPORTConsolidated Financial Statements141 Notes to the Consolidated Financial Statements At December 31, 2017 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 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, automotive-related components, metallurgical products and production systems. In addition, the Group is also involved in certain other activities, including services (mainly captive), which represent an insignificant portion of the Group’s business. 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 (or “U.S.”). 2. BASIS OF PREPARATION Authorization of Consolidated Financial Statements and compliance with International Financial Reporting Standards The Consolidated Financial Statements, together with notes thereto of FCA, at December 31, 2017 were authorized for issuance by the Board of Directors on February 20, 2018 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” also 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 as required for the measurement of certain financial instruments, 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. 2017 | ANNUAL REPORTConsolidated Financial StatementsNotes to the Consolidated Financial Statements142 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 the 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 the Equity attributable to the owners of the parent. Subsidiaries are deconsolidated from the date 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 and significant influence is obtained. On acquisition of the investment, any excess of the cost of the investment and the Group’s 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, the 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. 2017 | ANNUAL REPORTConsolidated Financial StatementsNotes to the Consolidated Financial Statements143 Unrealized gains 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. 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 joint arrangement whereby the parties that have joint control of the arrangement 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 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 when the asset or disposal group meets the criteria to be classified as held for sale, if earlier. When the asset or disposal group is classified as a discontinued operation, the comparative information is reclassified within the Consolidated Income Statement as if the asset or disposal group had been discontinued from the start of the earliest comparative period presented. The classification, presentation and measurement requirements of IFRS 5 - Non-current Assets Held for Sale and Discontinued Operations 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. 2017 | ANNUAL REPORT144 Foreign currency The functional currency of the Group’s entities is the currency of their respective primary economic environment. 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 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 resulting 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 to translate the cash flows of foreign subsidiaries in preparing the Consolidated Statement of Cash Flows. The principal exchange rates used to translate other currencies into Euro were as follows: Average At December 31 Average At December 31 Average At December 31 2017 2016 2015 1.130 3.605 7.629 1.465 21.329 4.257 18.683 0.877 1.112 1.199 3.973 7.804 1.504 23.661 4.177 22.595 0.887 1.170 1.107 3.857 7.352 1.466 20.664 4.363 16.327 0.819 1.090 1.054 3.431 7.320 1.419 21.772 4.410 16.707 0.856 1.074 1.109 3.699 6.972 1.418 17.611 4.184 10.271 0.726 1.068 1.089 4.312 7.061 1.512 18.915 4.264 14.136 0.734 1.084 U.S. Dollar (U.S.$) Brazilian Real (BRL) Chinese Renminbi (CNY) Canadian Dollar (CAD) Mexican Peso (MXN) Polish Zloty (PLN) Argentine Peso (ARS) Pound Sterling (GBP) Swiss Franc (CHF) Intangible assets Goodwill Goodwill represents the excess of the fair value of consideration paid over the fair value of net tangible and identifiable intangible assets acquired in a business combination. 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, 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 developed (generally 10-12 years). 2017 | ANNUAL REPORTConsolidated Financial StatementsNotes to the Consolidated Financial Statements145 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 item 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 recognized in 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 at the present value of the minimum lease payments, if lower. The corresponding liability to the lessor is included in the Consolidated Statement of Financial Position within Debt. Depreciation During years ended December 31, 2017, 2016 and 2015, assets were depreciated on a straight-line basis over their estimated useful lives using the following rates: Buildings Plant, machinery and equipment Other assets Depreciation rates 3% - 8% 3% - 33% 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 at December 31, 2017 and 2016 was €225 million and €244 million, respectively. Impairment of long-lived assets At the end of each reporting period, 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. 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. 2017 | ANNUAL REPORT146 Financial assets and liabilities Financial assets, as defined in IAS 39 – Financial Instruments: Recognition and Measurement, primarily include trade receivables, receivables from financing activities, securities that represent temporary investments of available funds and do not satisfy the requirements for being classified as cash equivalents (which include available-for-sale, held-for- trading and held-to-maturity securities), investments in other companies, derivative financial instruments, as well as Cash and cash equivalents. Cash and cash equivalents include cash at banks, units in money market funds and other money market securities, primarily comprised of commercial paper and certificates of deposit that are readily convertible into cash, with original maturities of three months or less at the date of purchase. Cash and cash equivalents are subject to an insignificant risk of changes in value, and consist of balances across various primary national and international money market instruments. Money market funds consist of investments in high quality, short-term, diversified financial instruments which can generally be liquidated on demand. Financial liabilities primarily consist of Debt, Derivative financial instruments, Trade payables and Other liabilities. Measurement Financial assets are recognized on the basis of the settlement date and, on initial recognition, are measured at acquisition cost, including transaction costs. Subsequent to initial recognition, available-for-sale and held-for-trading securities are measured at fair value. When market prices are not directly available, the fair value of available-for-sale and held-for trading securities is measured using appropriate valuation techniques (e.g. discounted cash flow analysis based on market information available at the balance sheet date). Gains and losses on available-for-sale securities are recognized in Other comprehensive income/(loss) until the financial asset is disposed of or is impaired. When the asset is disposed of, the cumulative gains or losses, including those previously recognized in Other comprehensive income/(loss), are reclassified to the Consolidated Income Statement during the period and are recognized within Net financial expenses. Gains and losses arising from changes in the fair value of held-for-trading securities are recognized in the Consolidated Income Statement. When the asset is impaired, the losses are recognized in the Consolidated Income Statement. Loans and receivables which are not held by the Group for trading (loans and receivables originating in the ordinary course of business) and held-to-maturity securities are measured, to the extent that they have a fixed term, at amortized cost, using the effective interest method. When these financial assets do not have a fixed term, they are measured at acquisition cost. Receivables with maturities of over one year which bear no interest, or have an interest rate significantly lower than market rates, are discounted using market rates. Assessments are made regularly as to whether there is any objective evidence that the asset or group of assets may be impaired. If any such evidence exists, the impairment loss is recognized in the Consolidated Income Statement. Investments in other companies are measured at fair value. Equity investments that do not have a quoted market price in an active market and whose fair value cannot be reliably measured are measured at cost, less any impairment losses. For investments classified as available-for-sale, gains or losses arising from changes in fair value are recognized in Other comprehensive income/(loss) until the assets are sold or are impaired, at which time, the cumulative Other comprehensive income/(loss) is recognized in the Consolidated Income Statement. Gains and losses arising from changes in the fair value of held-for-trading investments are recognized in the Consolidated Income Statement. Investments in other companies for which fair value is not available are stated at cost less any impairment losses. Dividends received are included in Other income from investments. Except for derivative financial instruments, which are described in more detail below, financial liabilities are measured at amortized cost using the effective interest method. 2017 | ANNUAL REPORTConsolidated Financial StatementsNotes to the Consolidated Financial Statements147 Derivative financial instruments Derivative financial instruments are used for economic hedging purposes in order to reduce currency, interest rate and market price risks (primarily related to commodities and securities). In accordance with IAS 39 - Financial Instruments: Recognition and Measurement, derivative financial instruments are recognized on the basis of the settlement date and, on initial recognition, are measured at acquisition cost, including transaction costs. Subsequent to initial recognition, all derivative financial instruments are measured at fair value. Furthermore, derivative financial instruments qualify for hedge accounting only when there is formal designation and documentation of the hedging relationship at inception of the hedge, the hedge is expected to be highly effective, its effectiveness can be reliably measured and it is highly effective throughout the financial reporting periods for which it is designated. When derivative financial instruments qualify for hedge accounting, the following accounting treatments apply: Fair value hedges – Where a derivative financial instrument is designated as a hedge of the exposure to changes in fair value of a recognized asset or liability that is attributable to a particular risk and could affect the Consolidated Income Statement, the gain or loss from remeasuring the hedging instrument at fair value is recognized in the Consolidated Income Statement. The gain or loss on the hedged item attributable to the hedged risk adjusts the carrying amount of the hedged item and is recognized in the Consolidated Income Statement. Cash flow hedges – Where a derivative financial instrument is designated as a hedge of the exposure to variability in future cash flows of a recognized asset or liability or a highly probable forecasted transaction and could affect the Consolidated Income Statement, the effective portion of any gain or loss on the derivative financial instrument is recognized directly in Other comprehensive income/(loss). The cumulative gain or loss is reclassified from Other comprehensive income/(loss) to the Consolidated Income Statement at the same time as the economic effect arising from the hedged item that affects the Consolidated Income Statement. The gain or loss associated with a hedge or part of a hedge that has become ineffective is recognized in the Consolidated Income Statement immediately. When a hedging instrument or hedge relationship is terminated but the hedged transaction is still expected to occur, the cumulative gain or loss realized to the point of termination remains in Other comprehensive income/(loss) and is recognized in the Consolidated Income Statement at the same time as the underlying transaction occurs. If the hedged transaction is no longer probable, the cumulative unrealized gain or loss held in Other comprehensive income/(loss) is recognized in the Consolidated Income Statement immediately. Hedges of a net investment – If a derivative financial instrument is designated as a hedging instrument for a net investment in a foreign operation, the effective portion of the gain or loss on the derivative financial instrument is recognized in Other comprehensive income/(loss). The cumulative gain or loss is reclassified from Other comprehensive income/(loss) to the Consolidated Income Statement upon disposal of the foreign operation. If hedge accounting cannot be applied, the gains or losses from the fair value measurement of derivative financial instruments are recognized immediately in the Consolidated Income Statement. Refer to Note 16, Derivative financial assets and liabilities for additional information on the Group’s derivative financial instruments. Transfers of financial assets The Group derecognizes financial assets when the contractual rights to the cash flows arising from the asset are no longer held or if it transfers substantially all the risks and rewards of ownership of the financial asset. On derecognition of financial assets, the difference between the carrying amount of the asset and the consideration received or receivable for the transfer of the asset is recognized in the Consolidated Income Statement. The Group transfers certain of its financial, trade and tax receivables, mainly through factoring transactions. Factoring transactions may be either with recourse or without recourse. Certain transfers include deferred payment clauses (for example, when the payment by the factor of a minor part of the purchase price is dependent on the total amount collected from the receivables) requiring first loss cover, whereby the transferor has priority participation in the losses, or requires a significant exposure to the variability of cash flows arising from the transferred receivables to be retained. These types of transactions do not meet the requirements of IAS 39 – Financial Instruments: Recognition and Measurement, for the derecognition of the assets since the risks and rewards connected with ownership of the 2017 | ANNUAL REPORT148 financial asset are not transferred, and accordingly the Group continues to recognize these receivables within the Consolidated Statement of Financial Position and recognizes a financial liability for the same amount under Asset- backed financing, which is included within Debt. The gains and losses arising from the transfer of these receivables are recorded only when they are derecognized. Inventories Inventories of raw materials, semi-finished products and finished goods 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 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 when they are known. 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 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 are 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 the defined benefit cost are recognized as follows: Service cost is recognized in the Consolidated Income Statement by function and is presented in the relevant line items (Cost of revenues, Selling, general and other costs and Research and development costs); Net interest on the defined benefit liability or 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 Re-measurement components of the net obligations, 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 re-measurement 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. 2017 | ANNUAL REPORTConsolidated Financial StatementsNotes to the Consolidated Financial Statements149 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. Re-measurement components on other long term employee benefits are recognized in the Consolidated Income Statement in the period in which they arise. Share-based compensation We have various 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 and using the Monte Carlo simulation model, which requires the input of subjective assumptions, including the expected volatility of our common stock, interest rates and a correlation coefficient between our common stock 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 are 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 Revenue from the sale of vehicles and service parts is recognized if it is probable that the economic benefits associated with a transaction will flow to the Group and the revenue can be reliably measured. Revenue is recognized when the risks and rewards of ownership are transferred to our customers, the sales price is agreed or determinable and collectability is reasonably assured. For vehicles, this generally corresponds to the date when the vehicles are made available to dealers or distributors, or when the vehicles are released to the carrier responsible for transporting vehicles to dealers or distributors. Revenue from the sale of vehicles, which subsequent to the sale become subject to the issuance of a residual value guarantee to an independent financing provider, is recognized consistent with the timing noted above, provided that significant risks related to the vehicle have been transferred to our customers. At that same time, a provision is made for the estimated residual value risk. Revenues are recognized net of discounts, including but not limited to, sales incentives and customer bonuses. The estimated costs of sales incentive programs include incentives offered to dealers and retail customers, and granting of retail financing at a significant discount to market interest rates. These costs are recognized at the time of the sale of the vehicle. New vehicle sales with a buy-back commitment, or through the Guarantee Depreciation Program (“GDP”) under which the Group guarantees the residual value, or otherwise assumes responsibility for the minimum resale value of the vehicle, are not recognized at the time of delivery but are accounted for similar to an operating lease. Rental income is recognized over the contractual term of the lease on a straight-line basis. At the end of the lease term, the Group recognizes revenue for the portion of the vehicle sales price which had not been previously recognized as rental income and recognizes the remainder of the cost of the vehicle within Cost of revenues. Revenue from services contracts, separately-priced extended warranty and from construction contracts is recognized over the contract period in proportion to the costs expected to be incurred based on historical information. A loss on these contracts is recognized if the sum of the expected costs for services under the contract exceeds unearned revenue. 2017 | ANNUAL REPORT150 Cost of revenues Cost of revenues comprises expenses incurred in the manufacturing and distribution of vehicles and parts, of which the cost of materials and components are the most significant. The remaining costs primarily include labor costs, consisting of direct and indirect wages, depreciation of property, plant and equipment and amortization of other intangible assets relating to production and transportation costs. 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 (€53 million, €77 million and €115 million for the years ended December 31, 2017, 2016 and 2015, respectively). Cost of revenues also included €397 million, €384 million and €432 million related to the decrease in value for assets sold with buy-back commitments for the years ended December 31, 2017, 2016 and 2015, 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). 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 periods necessary to match them with 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 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 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, except when it is able to control the timing of the reversal of the temporary difference, and it is probable that this temporary difference will not reverse in the foreseeable future. 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. 2017 | ANNUAL REPORTConsolidated Financial StatementsNotes to the Consolidated Financial Statements151 Current income taxes and deferred taxes are offset when they relate to the same taxation authority 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. Fair Value Measurement Fair value for measurement and disclosure purposes is determined as the price 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 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 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 require 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 elements that are known when the financial statements are prepared, on historical experience and on any other factors that are considered to be relevant. 2017 | ANNUAL REPORT152 The estimates and underlying assumptions, which are based on management’s best judgment, 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. The items requiring estimates for which there is a risk that a material difference may arise in respect of the carrying amounts of assets and liabilities in the future are discussed below. 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 the plans are funded plans. The 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. In the United Kingdom, the Group participates, amongst others, in a pension plan financed by various entities belonging to the Group, called the “Fiat Group Pension Scheme” covering mainly deferred and retired employees. 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 taking into consideration parameters of a financial nature such as discount rates, the rates 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 3.7 percent and 4.3 percent at December 31, 2017 and 2016, respectively. 2017 | ANNUAL REPORTConsolidated Financial StatementsNotes to the Consolidated Financial Statements153 At December 31, 2017, the effect on the defined benefit obligation of the indicated decrease or increase in the discount rate holding all other assumptions constant was as follows: 10 basis point decrease in discount rate 10 basis point increase in discount rate Effect on pension benefit obligation ( € million) 306 (299) Refer to Note 19, Employee benefits liabilities, for additional information on the Group’s pension plans. Other post-employment benefits The Group provides health care, legal, severance, indemnity life insurance benefits and other postretirement benefits to certain hourly and salaried employees. Upon retirement, these employees may become eligible for continuation of certain benefits. Benefits and eligibility rules may be modified periodically. These other post-retirement employee benefits (“OPEB”) are accounted for on an actuarial basis, which requires the selection of various assumptions. The estimation of the Group’s obligations, costs and liabilities associated with OPEB requires the use of estimates of the present value of the projected future payments to all participants, taking into consideration 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, as well as legal requirements for retirement in respective countries. Mortality rates are developed using our plan-specific populations, recent mortality information published by recognized experts in this field and other data where appropriate to reflect actual and projected plan experience. Plan obligations and costs are based on existing 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 assumptions may affect the OPEB obligation and 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. Health care cost trends. The Group’s health care cost trend assumptions are developed based on historical cost data, the near-term outlook, and an assessment of likely long-term trends. At December 31, 2017, the effect of the indicated decreases or increases in the key assumptions affecting the health care, life insurance plans and Italian severance indemnity (trattamento di fine rapporto or “TFR”), holding all other assumptions constant, is shown below: 10 basis point / (100 basis point for TFR) decrease in discount rate 10 basis point / (100 basis point for TFR) increase in discount rate 100 basis point decrease in health care cost trend rate 100 basis point increase in health care cost trend rate Effect on health care and life insurance benefit obligation Effect on the TFR benefit obligation (€ million) 30 (30) (45) 54 54 (47) — — Refer to Note 19, Employee benefits liabilities, for additional information on the Group’s OPEB liabilities. 2017 | ANNUAL REPORT154 Recoverability of non-current assets with definite useful lives Non-current assets with definite useful lives include property, plant and equipment, intangible assets and assets held for sale. Intangible assets with definite useful lives mainly consist of capitalized development expenditures primarily related to the NAFTA and EMEA segments. The Group periodically reviews the carrying amount of non-current assets with definite useful lives when events or circumstances indicate that an asset may be impaired. The recoverability of non-current assets with definite useful lives is based on the estimated future cash flows, using the Group’s current business plan, of the cash generating units to which the assets relate. The global automotive industry is experiencing significant change as a result of evolving regulatory requirements for fuel efficiency, greenhouse gas emissions and other tailpipe emissions and emerging technology changes, such as autonomous driving. Our business plan could change in response to these evolving requirements and emerging technologies, which may result in changes to our estimated future cash flows and could affect the recoverability of our 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. For the years ended December, 31, 2017, 2016 and 2015, the impairment tests performed compared the carrying amount of the assets included in the respective CGUs to their value in use and was determined using a discounted cash flow methodology. The value in use of the CGUs, which was based primarily on unobservable inputs, was determined using pre-tax estimated future cash flows attributable to the CGUs that were discounted using a pre-tax discount rate reflecting current market assessments of the time value of money and the risks specific to the CGUs. During the year ended December 31, 2017, impairment losses totaling €229 million were recognized. The most significant components of this impairment loss were in EMEA, related to changes in the global product portfolio, and in LATAM, related to product portfolio changes. It was determined that the carrying amount of the CGUs exceeded their value in use and accordingly an impairment charge of €142 million was recognized in EMEA and €56 million in LATAM. In addition, during the second quarter of 2017, due to the continued deterioration of the economic conditions in Venezuela, an impairment test, which compared the carrying amount of certain of FCA Venezuela’s assets to their fair value using a market approach, resulted in impairment losses of €21 million. During the year ended December 31, 2016, impairment losses totaling €195 million were recognized. The most significant component of this impairment loss related to the impairment of capitalized development expenditures for the locally produced Fiat Viaggio and Ottimo vehicles as a result of the Group’s capacity realignment to SUV production in China. It was determined that the carrying amount of the CGUs exceeded the capitalized development expenditures’ value in use which resulted in an impairment charge of €90 million. In addition, due to the continued deterioration of the economic conditions in Venezuela, an impairment test which compared the carrying amount of certain of FCA Venezuela’s assets to their fair value using a market approach, resulted in an impairment charge of €43 million. During the year ended December 31, 2015, impairment losses totaling €713 million were recognized. The most significant component of this impairment loss related to the decision taken by the Group during the fourth quarter of 2015 to realign a portion of its manufacturing capacity in the NAFTA region, as part of the plan to improve NAFTA margins and to better meet market demand for Ram pickup trucks and Jeep vehicles within the Group’s existing plant infrastructure. The approval of this plan was deemed to be an indicator of impairment for certain of our vehicle platform CGUs due to the significant changes to the extent to which the assets are expected to be used. It was determined that the carrying amount of the CGUs exceeded their value in use and an impairment charge of €598 million was recorded for the year ended December 31, 2015, of which €422 million related to tangible asset impairments and €176 million related to the impairment of capitalized development expenditures. 2017 | ANNUAL REPORTConsolidated Financial StatementsNotes to the Consolidated Financial Statements155 Recoverability of Goodwill and Intangible assets with indefinite useful lives In accordance with IAS 36 - Impairment of Assets, goodwill and intangible assets with indefinite useful lives are not amortized and are tested for impairment annually or more frequently if facts or circumstances indicate that the asset may be impaired. Goodwill and intangible assets with indefinite useful lives are allocated to operating segments or to CGUs within the operating segments. The impairment test is performed by comparing the carrying amount (which mainly comprises property, plant and equipment, goodwill, brands and capitalized development expenditures) and the recoverable amount of each CGU or group of CGUs to which Goodwill has been allocated. The recoverable amount of a CGU is the higher of its fair value less costs of disposal and its value in use. The balance of Goodwill and intangible assets with indefinite useful lives recognized by the Group primarily relates to the acquisition of FCA US. Goodwill has been allocated to the NAFTA, EMEA, APAC and LATAM operating segments. The assumptions used in the impairment test represent management’s best estimate for the period under consideration. The estimate of the recoverable amount, for purposes of performing the annual impairment test for each of the operating segments, was determined using fair value less costs of disposal for the year ended December 31, 2017 and was based on the following assumptions: The expected future cash flows covering the period from 2018 through 2022. These expected cash flows reflect the current expectations regarding economic conditions and market trends as well as the Group’s initiatives for the period 2018 to 2022. These cash flows relate to the respective CGUs in their condition when preparing the financial statements and exclude the estimated cash flows that might arise from restructuring plans or other structural changes. Volumes and sales mix used for estimating the future cash flow are based on assumptions that are considered reasonable and sustainable and represent the best estimate of expected conditions regarding market trends and segment, brand and model share for the respective operating segment over the period considered. With regards to the LATAM operating segment, expected future cash flows also include the extension of tax benefits and other government grants to the extent such events are considered probable. The expected future cash flows include a normalized terminal period to estimate the future result beyond the time period explicitly considered which incorporates a long-term growth rate assumption of 2 percent. Post-tax cash flows have been discounted using a post-tax discount rate which reflects the current market assessment of the time value of money for the period being considered and the risks specific to the operating segment and cash flows under consideration. The Weighted Average Cost of Capital (“WACC”) ranged from approximately 12.3 percent to approximately 18.6 percent. The WACC was calculated using the Capital Asset Pricing Model technique. The value estimated as described above was determined to be in excess of the book value of the net capital employed for each operating segment to which Goodwill has been allocated. As such, no impairment charges were recognized for Goodwill and Intangible assets with indefinite useful lives for the year ended December 31, 2017. There were no impairment charges resulting from the impairment tests performed for the years ended December 31, 2016 and 2015. Recoverability of deferred tax assets Deferred tax assets are recognized to the extent that it is probable that sufficient taxable profit will be available to allow the benefit of part or all of the deferred tax assets to be utilized. The recoverability of deferred tax assets is dependent on the Group’s ability to generate sufficient future taxable income in the period in which it is assumed that the deductible temporary differences reverse and tax losses carried forward can be utilized. In making this assessment, the Group considers future taxable income arising on the most recent budgets and plans, prepared by using the same criteria described for testing the impairment of assets and goodwill. Moreover, the Group estimates the impact of the reversal of taxable temporary differences on earnings and it also considers the period over which these assets could be recovered. The estimates and assumptions are subject to uncertainty especially as it relates to future performance in Latin America and the Eurozone. Therefore changes in current estimates due to unanticipated events could have a significant impact on our Consolidated Financial Statements. 2017 | ANNUAL REPORT156 Sales incentives 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 to the dealer. This estimated cost represents the incentive programs offered to dealers and consumers, as well as the expected modifications to these programs in order to facilitate sales of the dealer inventory. Subsequent adjustments to sales incentive programs related to vehicles previously sold to dealers are recognized as an adjustment to Net revenues in the period the adjustment is determinable. The Group uses price discounts to adjust vehicle pricing in response to a number of market and product factors, including pricing actions and incentives offered by competitors, economic conditions, the amount of excess industry production capacity, the intensity of market competition, consumer demand for the product and the desire to support promotional campaigns. The Group may offer a variety of sales incentive programs at any given point in time, including cash offers to dealers and consumers and subvention programs offered to customers, or lease subsidies, which reduce the retail customer’s monthly lease payment or cash due at the inception of the financing arrangement, or both. Sales incentive programs are generally brand, model and region specific for a defined period of time. Multiple factors are used in estimating the future incentive expense by vehicle line including the current incentive programs in the market, planned promotional programs and the normal incentive escalation incurred as the model year ages. The estimated incentive rates are reviewed monthly and changes to planned rates are adjusted accordingly, thus impacting revenues. As there are a multitude of inputs affecting the calculation of the estimate for sales incentives, an increase or decrease of any of these variables could have a significant effect on Net revenues. Product warranties, recall campaigns and product liabilities The Group establishes reserves for product warranties at the time the sale is recognized. The Group issues various types of product warranties under which the performance of products delivered is generally guaranteed for a certain period or term. The accrual for product warranties includes the expected costs of warranty obligations imposed by law or contract, as well as the expected costs for policy coverage, recall actions and buyback commitments. 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 Group’s vehicles. In addition, the number and magnitude of additional service actions expected to be approved and policies related to additional service actions are taken into consideration. Due to the uncertainty and potential volatility of these estimated factors, changes in the assumptions used could materially affect the results of operations. The Group periodically initiates voluntary service and recall actions to address various customer satisfaction as well as safety and emissions issues related to vehicles sold. Included in the reserve is the estimated cost of these service and recall actions. 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 a specific recall campaign is approved and is announced. Estimates of the future costs of 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 cost of these service and recall actions may require the Group to make expenditures in excess of (or less than) established reserves over an extended period of time and in a range of amounts that cannot be reasonably estimated. The estimate of warranty and additional service and recall action obligations is periodically reviewed during the year. Experience has shown that initial data for any given model year can be volatile; therefore, our process relies upon long-term historical averages until sufficient data is available. As actual experience becomes available, it is used to modify the historical averages to ensure that the forecast is within the range of likely outcomes. Resulting accruals are then compared with current spending rates to ensure that the balances are adequate to meet expected future obligations. 2017 | ANNUAL REPORTConsolidated Financial StatementsNotes to the Consolidated Financial Statements157 In addition, the Group makes provisions for estimated product liability costs arising from property damage and personal injuries including wrongful death, and potential exemplary or punitive damages alleged to be the result of product defects. By nature, these costs can be infrequent, difficult to predict and have the potential to vary significantly in amount. The valuation of the reserve is actuarially determined on an annual basis based on, among other factors, the number of vehicles sold and product liability claims incurred. Costs associated with these provisions are recorded in the Consolidated Income Statement and any subsequent adjustments are recorded in the period in which the adjustment is determined. Litigation Various legal proceedings, claims and governmental investigations are pending against the Group on a wide range of topics, including vehicle safety, emissions and fuel economy, competition, tax and securities laws, labor, dealer, supplier and other contractual relationships, intellectual property rights, product warranties and environmental matters. Some of these proceedings allege defects in specific component parts or systems (including airbags, seats, seat belts, brakes, ball joints, transmissions, engines and fuel systems) in various vehicle models or allege general design defects relating to vehicle handling and stability, sudden unintended movement or crashworthiness. These proceedings seek recovery for damage to property, personal injuries or wrongful death and in some cases include a claim for exemplary or punitive damages. Adverse decisions in one or more of these proceedings could require the Group to pay substantial damages, or undertake service actions, recall campaigns or other costly actions. Litigation is subject to many uncertainties, and the outcome of individual matters is not predictable with assurance. Moreover, the cases and claims against the Group are often derived from complex legal issues which are subject to differing degrees of uncertainty, including the facts and circumstances of each particular case, the manner in which the applicable law is likely to be interpreted and applied and the jurisdiction and the different laws involved. An accrual is established in connection with pending or threatened litigation if it is probable there will be an outflow of funds and when the amount can be reasonably estimated. If an outflow of funds becomes probable, but the amount cannot be estimated, the matter is disclosed in the notes to the Consolidated Financial Statements. Since these accruals represent estimates, the resolution of some of these matters could require the Group to make payments in excess of the amounts accrued or may require the Group to make payments in an amount or range of amounts that could not be reasonably estimated. The Group monitors the status of pending legal procedures and consults with experts on legal and tax matters on a regular basis. As such, the provisions for the Group’s legal proceedings and litigation may vary as a result of future developments in pending matters. New standards and amendments effective from January 1, 2017 The following new standards and amendments applicable from January 1, 2017 were adopted by the Group: Amendments to IAS 12 - Income Taxes that clarify how to account for deferred tax assets related to debt instruments measured at fair value. There was no effect to our Consolidated Financial Statements from the adoption of these amendments. Amendments to IAS 7 - Statement of Cash Flows introducing additional disclosures that enable users of financial statements to evaluate changes in liabilities arising from financing activities. The required disclosures have been included in Note 29, Explanatory notes to the Consolidated Statement of Cash Flows. Amendments to IFRS 12 - Disclosure of Interests in Other Entities, included within the Annual Improvements to IFRS Standards 2014–2016 Cycle. There was no effect to our Consolidated Financial Statements from the adoption of these amendments. 2017 | ANNUAL REPORT158 New standards, amendments and interpretations not yet effective The following new standards and amendments were issued by the IASB. We will comply with the relevant guidance no later than their respective effective dates: IFRS 15 – Revenue from contracts with customers (“IFRS 15”), which was issued by the IASB in May 2014 and amended in September 2015 and has an effective date from January 1, 2018, the Group will adopt the provisions of IFRS 15 and all its amendments using the modified retrospective method with a cumulative adjustment to equity as of January 1, 2018. The standard requires a company to recognize revenue upon transfer of control of goods or services to a customer at an amount that reflects the consideration it expects to receive using a five-step process. The new standard also requires additional disclosures about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts. The majority of our revenue will continue to be recognized in a manner consistent with accounting guidance in prior years with the exception of certain GDP vehicles as well as shipping and handling activities that occur after control of the vehicle passes to the customer. Under the new standard, a GDP vehicle sale that contains no option to repurchase or includes a put option for which the customer does not have a significant economic incentive to exercise will be recognized as revenue when control transfers upon shipment of the vehicles, rather than treated as an operating lease in accordance with prior guidance. Shipping and handling activities, when arranged by FCA after control of the vehicle passes to the customer, will be a separate performance obligation in the vehicle sale arrangement  for which control passes when the shipping activities are complete. Under current guidance, these activities are not considered a separately identifiable component from the vehicle. The total impact of the cumulative adjustment to equity as of January 1, 2018 is expected to be less than €50 million, and the impact to the Group’s Net profit is expected to be immaterial on an ongoing basis. In July 2014, the IASB issued IFRS 9 - Financial Instruments (“IFRS 9”). The standard is effective for financial years beginning on January 1, 2018. IFRS 9 introduces improvements in the accounting requirements for classification and measurement of financial assets, for impairment of financial assets and for hedge accounting. The Group will apply practical expedients permitted by the standard and not restate prior periods. For hedge accounting, the Group will apply the standard prospectively. Financial assets will be classified and measured on the basis of the Group’s business model and characteristics of the financial asset’s cash flows. A financial asset is initially measured either at “amortized cost”, at “fair value through other comprehensive income” or at “fair value through profit or loss”. At the date of initial application of IFRS 9, except for certain receivables managed solely with the intent to be transferred to third parties before maturity that are measured at fair value through profit or loss and certain investments in other companies designated as measured at fair value through other comprehensive income, the measurement of the Group’s financial assets under IFRS 9 has not changed compared to IAS 39. The classification of financial liabilities under IFRS 9 is unchanged compared with the current accounting requirements of IAS 39. The new impairment model requires the recognition of impairment provisions based on expected credit losses rather than only incurred losses as is the case under IAS 39. The expected credit losses will be recorded either on a 12-month or lifetime basis. The Group will apply the simplified approach and record lifetime expected losses on trade and other receivables. For receivables from financing activities the Group will apply the general approach recording the credit losses either on a 12-month or lifetime basis. The new hedge accounting rules will align the accounting for hedge instruments more closely with the Group’s risk management practices. Generally, under IFRS 9 more hedge relationships will be eligible for hedge accounting, as the standard introduces a more principles-based approach. The Group has undertaken an assessment of its IAS 39 hedge relationships against the requirements of IFRS 9 and has concluded that the Group’s current hedge relationships will qualify as continuing hedges upon the adoption of IFRS 9. The new standard also introduces expanded disclosure requirements and changes in presentation. Overall, the total impact of the cumulative adjustment to equity as of January 1, 2018 and the impact to the Group’s net profit is expected to be immaterial. 2017 | ANNUAL REPORTConsolidated Financial StatementsNotes to the Consolidated Financial Statements159 In January 2016, the IASB issued IFRS 16 - Leases (“IFRS 16”) which sets out the principles for the recognition, measurement, presentation and disclosure of leases for both parties to a contract and replaces the previous leases standard, IAS 17 - Leases. IFRS 16, which is not applicable to service contracts, but only applicable to leases or lease components of a contract, defines a lease as a contract that conveys to the customer (lessee) the right to use an asset for a period of time in exchange for consideration. IFRS 16 eliminates the classification of leases for the lessee as either operating leases or finance leases as required by IAS 17 and instead, introduces a single lessee accounting model whereby a lessee is required to recognize assets and liabilities for all leases with a term that is greater than 12 months, unless the underlying asset is of low value, and to recognize depreciation of lease assets separately from interest on lease liabilities in the income statement. As IFRS 16 substantially carries forward the lessor accounting requirements in IAS 17, a lessor will continue to classify its leases as operating leases or finance leases and to account for those two types of leases differently. IFRS 16 is effective from January 1, 2019 and we are continuing with our implementation and assessment of the impact of the adoption of this standard on our Consolidated Financial Statements. In June 2016, the IASB issued amendments to IFRS 2 - Share-based Payments, clarifying how to account for certain types of share-based payment transactions. The amendments, which were developed through IFRIC, provide requirements on the accounting for (i) the effects of vesting and non-vesting conditions on the measurement of cash-settled share-based payments, (ii) share-based payment transactions with a net settlement feature for withholding tax obligations and (iii) a modification to the terms and conditions of a share-based payment that changes the classification of the transaction from cash-settled to equity-settled. The Company will adopt these amendments prospectively from January 1, 2018. We do not expect a material impact to our Consolidated Financial Statements or disclosures upon adoption of the amendments. In September 2016, the IASB issued “Applying IFRS 9, Financial Instruments with IFRS 4, Insurance Contracts” (Amendments to IFRS 4). The amendments provide two options for entities that issue insurance contracts within the scope of IFRS 4: (i) an option that permits entities to reclassify, from profit or loss to other comprehensive income, some of the income or expenses arising from designated financial assets (the “overlay approach”) and (ii) an optional temporary exemption from applying IFRS 9 for entities whose predominant activity is issuing contracts within the scope of IFRS 4 (the “deferral approach”). We have completed our evaluation and concluded that there is no impact from these amendments on our Consolidated Financial Statements. In December 2016, the IASB issued Annual Improvements to IFRS Standards 2014–2016 Cycle which included amendments to IAS 28 - Investments in Associates and Joint Ventures (effective January 1, 2018). The amendments clarify, correct or remove redundant wording in the related standard and are not expected to have a material impact to our Consolidated Financial Statements or disclosures upon adoption of the amendments. In December 2016, the IASB issued IFRIC Interpretation 22 - Foreign Currency Transactions and Advance Consideration which addresses the exchange rate to use in transactions that involve advance consideration paid or received in a foreign currency. The interpretation is effective January 1, 2018. We do not expect a material impact to our Consolidated Financial Statements upon adoption of the interpretation. In May 2017, the IASB issued IFRS 17 - Insurance Contracts (“IFRS 17”), which replaces IFRS 4 Insurance Contracts. IFRS 17 requires all insurance contracts to be accounted for in a consistent manner and insurance obligations to be accounted for using current values, instead of historical cost. The new standard requires current measurement of the future cash flows and the recognition of profit over the period that services are provided under the contract. IFRS 17 also requires entities to present insurance service results (including presentation of insurance revenue) separately from insurance finance income or expenses, and requires an entity to make an accounting policy choice of whether to recognize all insurance finance income or expenses in profit or loss or to recognize some of those income or expenses in other comprehensive income. The standard is effective for annual periods beginning on or after January 1, 2021 with earlier adoption permitted. We are currently evaluating the impact of adoption on our Consolidated Financial Statements. 2017 | ANNUAL REPORT160 In June 2017, the IASB issued IFRIC Interpretation 23 - Uncertainty over Income Tax Treatment, (the “Interpretation”), which clarifies application of recognition and measurement requirements in IAS 12 - Income Taxes when there is uncertainty over income tax treatments. The Interpretation specifically addresses the following: (i) whether an entity considers uncertain tax treatments separately, (ii) the assumptions an entity makes about the examination of tax treatments by taxation authorities, (iii) how an entity determines taxable profit (tax loss), tax bases, unused tax losses, unused tax credits and tax rates and (iv) how an entity considers changes in facts and circumstances. The Interpretation does not add any new disclosure requirements, however it highlights the existing requirements in IAS 1 - Presentation of Financial Statements, related to disclosure of judgments, information about the assumptions made and other estimates and disclosures of tax-related contingencies within IAS 12 - Income Taxes. The Interpretation is applicable for annual reporting periods beginning on or after January 1, 2019 and it provides a choice of two transition approaches: (i) retrospective application using IAS 8 - Accounting Policies, Changes in Accounting Estimates and Errors, only if the application is possible without the use of hindsight, or (ii) retrospective application with the cumulative effect of the initial application recognized as an adjustment to equity on the date of initial application and without restatement of the comparative information. The date of initial application is the beginning of the annual reporting period in which an entity first applies this Interpretation. We are currently evaluating the implementation and the impact of adoption of the interpretation on our Consolidated Financial Statements. In October 2017, the IASB issued Prepayment Features with Negative Compensation (Amendments to IFRS 9), allowing companies to measure particular prepayable financial assets with so-called negative compensation at amortized cost or at fair value through other comprehensive income if a specified condition is met, instead of at fair value through profit or loss, effective January 1, 2019. We are currently evaluating the impact of adoption on our Consolidated Financial Statements. In October 2017, the IASB issued Long-term interests in associates and joint ventures (Amendments to IAS 28), which clarifies that companies account for long-term interests in an associate or joint venture, to which the equity method is not applied, using IFRS 9, effective January 1, 2019. We are currently evaluating the impact of adoption on our Consolidated Financial Statements. In December 2017, the IASB issued the Annual Improvements to IFRSs 2015-2017, a series of amendments to IFRSs in response to issues raised mainly on IFRS 3 - Business Combinations, which clarifies that a company remeasure its previously held interest in a joint operation when it obtains control of the business, on IFRS 11 - Joint Arrangements, a company does not remeasure its previously held interest in a joint operation when it obtains joint control of the business, on IAS 12 - Income Taxes, which clarifies that all income tax consequences of dividends (i.e. distribution of profits) should be recognized in profit or loss, regardless of how the tax arises, and on IAS 23 - Borrowing Costs, which clarifies that a company treats as part of general borrowing any borrowing originally made to develop an asset when the asset is ready for its intended use or sale. The effective date of the amendments is January 1, 2019. We are currently evaluating the impact of adoption on our Consolidated Financial Statements. In February 2018, the IASB issued Plan Amendment, Curtailment or Settlement (Amendments to IAS 19) which specifies how companies determine pension expenses when changes to a defined benefit pension plan occur. IAS 19 Employee Benefits specifies how a company accounts for a defined benefit plan. When a change to a plan-an amendment, curtailment or settlement-takes place, IAS 19 requires a company to remeasure its net defined benefit liability or asset. The amendments require a company to use the updated assumptions from this remeasurement to determine current service cost and net interest for the remainder of the reporting period after the change to the plan. The amendments are effective on or after 1 January 2019. We are currently evaluating the impact of adoption on our Consolidated Financial Statements. 2017 | ANNUAL REPORTConsolidated Financial StatementsNotes to the Consolidated Financial Statements161 3. SCOPE OF CONSOLIDATION The following table sets forth a list of the principal subsidiaries of FCA, which are grouped according to each of our reportable segments as well as our holding and other companies: Name NAFTA FCA US LLC FCA Canada Inc. FCA Mexico, S.A. de C.V. LATAM FCA Fiat Chrysler Automoveis Brasil LTDA FCA Automobiles Argentina S.A. Banco Fidis S.A. APAC Chrysler Group (China) Sales Limited FCA Japan Ltd. FCA Australia Pty Ltd. FCA Automotive Finance Co. Ltd. EMEA FCA Italy S.p.A. FCA Melfi S.r.l. FCA Poland Spólka Akcyjna FCA Powertrain Poland Sp. z o.o. FCA Serbia d.o.o. Kragujevac FCA Germany AG FCA France S.A. Fiat Chrysler Automobiles UK Ltd. Fiat Chrysler Automobiles Spain S.A. Fidis S.p.A. Maserati Maserati S.p.A. Maserati (China) Cars Trading Co. Ltd. Maserati North America Inc. Components Magneti Marelli S.p.A. Automotive Lighting LLC Automotive Lighting Reutlingen GmbH Teksid S.p.A. Comau S.p.A. COMAU LLC Holding Companies and Other Companies FCA North America Holdings LLC Fiat Chrysler Finance S.p.A. Fiat Chrysler Finance Europe S.A. (1) FCA holds 100 percent of the voting interest in Magneti Marelli S.p.A. Country USA (Delaware) Canada Mexico Brazil Argentina Brazil People’s Republic of China Japan Australia People’s Republic of China Italy Italy Poland Poland Serbia Germany France United Kingdom Spain Italy Italy People’s Republic of China USA (Delaware) Italy USA (Delaware) Germany Italy Italy USA (Delaware) USA (Delaware) Italy Luxembourg Percentage Interest Held 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 66.67 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 99.99(1) 100.00 99.99 100.00 100.00 100.00 100.00 100.00 100.00 2017 | ANNUAL REPORT162 Itedi S.p.A Held for Sale and Discontinued Operations On August 1, 2016, FCA announced the signing of a framework agreement which set out terms of the proposed integration, through a merger, between FCA’s consolidated media and publishing subsidiary, Italiana Editrice S.p.A (“Itedi”), in which FCA had a 77 percent ownership interest, and the Italian media group, GEDI Gruppo Editoriale S.p.A. (“GEDI”), previously known as Gruppo Editoriale L’Espresso S.p.A. All the conditions precedent for the Merger were met and all regulatory approvals from Italian state authorities that regulate the publishing and media sectors were received in June 2017. All the necessary steps for the merger were completed and on June 27, 2017, FCA and Itedi’s non-controlling shareholder, Ital Press Holding S.p.A. (“Ital Press”), transferred 100 percent of the shares of Itedi to GEDI in exchange for newly issued GEDI shares, resulting in CIR S.p.A., the controlling shareholder of GEDI, holding a 43.4 percent ownership interest in GEDI, FCA holding 14.63 percent and Ital Press holding 4.37 percent. Following the completion of the Merger on June 27, 2017, FCA distributed its entire interest in GEDI to holders of FCA common shares on July 2, 2017 in the ratio of 0.0484 GEDI ordinary shares for each FCA common share. As a result, the Group recorded a gain of €49 million within Gains on disposal in the Consolidated Income Statement for the year ended December 31, 2017. Itedi was not classified as a discontinued operation as it did not represent a separate major line of business or geographical area of operations for the Group, or a part of it. The following table summarizes the assets and liabilities of Itedi S.p.A that were classified as held for sale at December 31, 2016: Assets classified as held for sale Goodwill Other intangible assets Property, plant and equipment Trade receivables Other Total Assets held for sale Liabilities classified as held for sale Provisions Trade payables Debt and Other Total Liabilities held for sale At December 31, 2016 (€ million) € € € € 54 7 17 25 17 120 38 19 40 97 Ferrari Spin-off and Discontinued Operations On October 26, 2015, Ferrari N.V., a subsidiary of FCA, completed its initial public offering (“IPO”) in which FCA sold 10 percent of Ferrari N.V. common shares (“Ferrari IPO”) and received net proceeds of approximately €0.9 billion, which resulted in FCA owning 80 percent of Ferrari N.V. common shares, Piero Ferrari owning 10 percent of common shares and public shareholders owning the remaining 10 percent of common shares. The Ferrari IPO was accounted for as an equity transaction, with the effects on Equity attributable to owners of the parent being as follows: Consideration received Less: Carrying amount of equity interest sold Effect on Equity attributable to owners of the parent At October 26, 2015 € € (€ million) 866 (7) 873 2017 | ANNUAL REPORTConsolidated Financial StatementsNotes to the Consolidated Financial Statements163 In connection with the Ferrari IPO and in preparation for the spin-off of the remaining common shares of Ferrari N.V. owned by FCA, FCA carried out an internal corporate restructuring. As part of this reorganization, FCA transferred its shares of Ferrari S.p.A. to Ferrari N.V. and also provided a capital contribution to Ferrari N.V., while Ferrari N.V. issued a note payable to FCA in the amount of €2.8 billion. This internal restructuring was a common control transaction and did not have an accounting impact on the Consolidated Financial Statements. As a result, and in connection with the transactions in which Piero Ferrari exchanged his shares in Ferrari S.p.A. for Ferrari N.V. shares, FCA paid €280 million to Piero Ferrari as consideration for the dilution of his share value due to the issuance of the €2.8 billion note payable, which was recorded as a reduction to non-controlling interests. On December 3, 2015, an extraordinary general meeting of FCA shareholders was held, whereby the transactions intended to separate FCA’s remaining ownership interest in Ferrari N.V. and to distribute that ownership interest to holders of FCA shares and mandatory convertible securities were approved. As the spin-off of Ferrari N.V. became highly probable with the aforementioned shareholders’ approval and since it was available for immediate distribution at that date, the Ferrari segment met the criteria to be classified as a disposal group held for distribution to owners and a discontinued operation pursuant to IFRS 5 - Non-current Assets Held for Sale and Discontinued Operations at December 31, 2015. Since Exor N.V., which controls and consolidates FCA (refer to Note 24, Related party transactions), continued to control and consolidate Ferrari N.V. after the spin-off, this was deemed to be a common control transaction and was accounted for at book value. The operating results of Ferrari were excluded from the Group’s continuing operations and presented as a single line item within the Consolidated Income Statement, Consolidated Statement of Comprehensive Income and Consolidated Statement of Cash flows for the year ended December 31, 2015. The following table summarizes the operating results of Ferrari that were excluded from the Consolidated Income Statement for the year end December 31, 2015: Net revenues Expenses Net financial expenses/(income) Profit before taxes from discontinued operations Tax expense Profit from discontinued operations, net of tax For the year ended December 31, 2015(1) € € (€ million) 2,596 2,152 16 428 144 284 (1) Amounts presented are not representative of the income statement and the financial position of Ferrari on a stand-alone basis; amounts are net of transactions between Ferrari and other companies of the Group. 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 without any gain or loss on distribution. FCA shareholders received one common share of Ferrari N.V. for every ten common shares of FCA and holders of the mandatory convertible securities were entitled to receive 0.77369 common shares of Ferrari N.V. for each mandatory convertible security of U.S.$100 notional amount held of record on January 5, 2016. In addition, FCA shareholders participating in the FCA loyalty voting structure received one special voting share of Ferrari N.V. for every ten special voting shares of FCA held of record on January 5, 2016. On January 13, 2016, holders of FCA shares also received a cash payment of €0.01, less any required applicable withholding tax, for each share held of record as of January 5, 2016. 2017 | ANNUAL REPORT164 Deconsolidation of FCA Venezuela Throughout 2017, macroeconomic conditions in Venezuela continued to deteriorate. In the second quarter of 2017, asset impairment charges of €21 million relating to certain real estate assets in Venezuela were recognized, recorded within Selling, general and other costs. In December 2017, due to the restrictive monetary policy in Venezuela coupled with the inability to pay dividends and the U.S. Dollar obligations, as well as the deteriorating economic conditions, which has constrained the ability to maintain normal production in Venezuela, we concluded we are no longer able to exert control over our Venezuela operations in order to affect our returns. As such, in accordance with IFRS 10 - Consolidated Financial Statements, as of December 31, 2017, we deconsolidated our subsidiary FCA Venezuela LLC (“FCA Venezuela”), which resulted in a pre-tax, non-cash charge of €42 million recorded within Selling, general and other costs in the Consolidated Income Statement for the year ended December 31, 2017. Upon deconsolidation, FCA’s investment in FCA Venezuela was recognized at fair value, which was nil at December 31, 2017 and will be accounted for at cost in subsequent periods. In March 2016, the Venezuelan government modified its foreign currency exchange systems and the official exchange rate, CENCOEX, was replaced with DIPRO, only available for purchases and sales of essential items, such as food and medicine. In addition, the official exchange rate was devalued from 6.3 VEF to 10 VEF per U.S. Dollar and the SICAD exchange system was terminated. The SIMADI exchange rate was replaced with the “floating” Sistema de Divisa Complementaria, or the “DICOM” exchange rate, available for all transactions not subject to the DIPRO exchange rate. In 2016, the DICOM exchange rate was used to complete the majority of FCA Venezuela’s transactions to exchange VEF for U.S. Dollars. At December 31, 2016, the DICOM exchange rate of 674 VEF per U.S. Dollar and total re-measurement charges, including the devaluation and the write-down of SICAD receivables, of €19 million were recorded within Cost of revenues in the Consolidated Income Statement for the year ended December 31, 2016. In February 2015, the SIMADI rate introduced by the Venezuelan government began trading at 170.0 Venezuelan Bolivar (“VEF”) to U.S. Dollar for entities in the private sector. Also in February 2015, the Venezuelan government also announced that the Supplementary Foreign Currency Administration System (“SICAD I”) and the additional system introduced in March 2014 (“SICAD II”) would be merged into the SICAD, a single exchange system, with a rate starting at 12.0 VEF to U.S. Dollar. As of March 31, 2015, the SICAD exchange rate was expected to be used to complete the majority of FCA Venezuela’s transactions and as such, it was deemed the appropriate rate to use to convert our VEF denominated monetary assets and liabilities to U.S. Dollar. At June 30, 2015, the Group then adopted the SIMADI exchange rate and recorded a re-measurement charge on our VEF denominated net monetary assets in Venezuela of €53 million using an exchange rate of 197.3 VEF per U.S. Dollar. In addition, we recorded a €27 million charge for the write-down of inventory in Venezuela, as due to pricing controls, we were unable to increase VEF sales prices to compensate for the devaluation. The total charge of €80 million was recorded within Cost of revenues in the Consolidated Income Statement for the year ended December 31, 2015. The following significant transactions with non-controlling interests occurred: 2017 Disposal of the 16.0 percent of the Group’s interest in FMM Pernambuco to the minority interest in January 2017, and subsequent loss of control during the third quarter of 2017 resulting in a gain on disposal of €19 million. 2016 There were no significant transactions with non-controlling interests. 2015 Acquisition of the remaining 15.2 percent interest in Teksid S.p.A. from Renault in December 2015. As a result, all the rights and obligations arising from the previous shareholder agreement between FCA and Renault, including the put option, were canceled. 2017 | ANNUAL REPORTConsolidated Financial StatementsNotes to the Consolidated Financial Statements165 4. NET REVENUES Net revenues were as follows: Revenues from: Sales of goods Services provided Contract revenues Lease installments from assets sold with a buy-back commitment Interest income of financial services activities Total Net revenues Net revenues attributed by geographical area were as follows: Net revenues in: North America Italy Brazil China Germany France Argentina Spain Turkey United Kingdom Japan Australia Other countries Total Net revenues Years ended December 31 2017 2016 2015 (€ million) € € 107,219 € 107,497 € 107,095 2,217 929 421 148 2,237 737 405 142 1,600 1,309 403 188 110,934 € 111,018 € 110,595 Years ended December 31 2017 2016 2015 (€ million) € 68,374 € 71,047 € 71,979 8,755 6,406 4,240 3,990 3,487 1,817 1,569 1,456 1,366 816 497 8,161 8,478 4,953 4,493 4,160 3,266 1,409 1,467 1,705 1,632 713 473 7,222 € 110,934 € 111,018 € 7,165 5,103 4,720 3,794 2,852 1,175 1,254 1,682 1,744 625 936 7,566 110,595 2017 | ANNUAL REPORT166 5. RESEARCH AND DEVELOPMENT COSTS Research and development costs were as follows: Research and development expenditures expensed Amortization of capitalized development expenditures Impairment and write-off of capitalized development expenditures Total Research and development costs € € Years ended December 31 2017 1,696 1,424 110 (€ million) € 2016 1,661 1,492 121 € 3,230 € 3,274 € 2015 1,449 1,194 221 2,864 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. The impairment and write-off of capitalized development expenditures during the year ended December 31, 2016 mainly related to the Group’s capacity realignment to SUV production in China, which resulted in an impairment charge of €90 million for the locally produced Fiat Viaggio and Ottimo vehicles. The impairment and write-off of capitalized development expenditures during the year ended December 31, 2015 mainly related to the Group’s plan to realign a portion of its manufacturing capacity in NAFTA to better meet demand for Ram pickup trucks and Jeep vehicles within the Group’s existing plant infrastructure, which resulted in an impairment charge of €176 million for capitalized development expenditures that had no future economic benefit. Refer to Note 10, Other intangible assets, for information on capitalized development expenditures. 2017 | ANNUAL REPORTConsolidated Financial StatementsNotes to the Consolidated Financial Statements167 6. NET FINANCIAL EXPENSES The following table summarizes the Group’s financial income and expenses included within the Net financial expenses line item: Years ended December 31 Interest income and other financial income € 182 € 226 € 2017 2016 (€ million) Financial expenses: Interest expense and other financial expenses: Interest expense on notes Interest expense on borrowings from bank Other interest cost and financial expenses Write-down of financial assets Losses on disposal of securities Net interest expense on employee benefits provisions Total Financial expenses Net expenses from derivative financial instruments and exchange rate differences Total Financial expenses and Net expenses from derivative financial instruments and exchange rate differences 1,128 1,500 568 372 188 23 5 310 1,466 185 1,651 749 472 279 76 6 348 1,930 312 2,242 Net Financial expenses € 1,469 € 2,016 € 2015 365 2,084 1,112 512 460 43 28 350 2,505 226 2,731 2,366 Other interest cost and financial expenses for the year ended December 31, 2017 included a loss of €3 million in relation to the prepayment by FCA US in February 2017 of the outstanding principal and accrued interest for its tranche B term loan (refer to Note 21, Debt). Other interest cost and financial expenses for the year ended December 31, 2017 included a gain on extinguishment of debt of €9 million related to the prepayment of all scheduled payments due on the Canada Health Care Trust (“HCT”) Tranche B Note (refer to Note 21, Debt). Other interest cost and financial expenses for the year ended December 31, 2016 included a loss on extinguishment of debt totaling €10 million related to the U.S.$2.0 billion (€1.8 billion) voluntary prepayment, with cash on hand, of the principal at par of FCA US’s tranche B term loan maturing on May 24, 2017 and FCA US’s tranche B term loan maturing on December 31, 2018. Other interest cost and financial expenses for the year ended December 31, 2016 also included a loss on extinguishment of debt of €8 million related to the prepayment of all scheduled payments due on the Canada Health Care Trust (“HCT”) Tranche C Note (refer to Note 21, Debt). Other interest cost and financial expenses for the year ended December 31, 2015 included a loss on extinguishment of debt totaling €168 million related to the prepayment of the secured senior notes of FCA US due in 2019 and 2021. 2017 | ANNUAL REPORT168 7. TAX EXPENSE The following table summarizes Tax expense: Current tax expense Deferred tax expense/(benefit) Tax expense/(benefit) relating to prior periods Total Tax expense Years ended December 31 2017 901 € 1,773 (23) (€ million) 2016 869 391 32 € 2,651 € 1,292 € € € 2015 445 (277) (2) 166 The applicable tax rate used to determine the theoretical income taxes was the statutory rate in the United Kingdom (“UK”), the tax jurisdiction in which FCA NV is resident. The reconciliation between the theoretical income taxes calculated on the basis of the theoretical tax rate of 19.25 percent in 2017 (20 percent in 2016 and 20.25 percent in 2015) and income taxes recognized was as follows: Years ended December 31 Theoretical income taxes Tax effect on: Recognition and utilization of previously unrecognized deferred tax assets Permanent differences Tax credits Deferred tax assets not recognized and write-downs Differences between foreign tax rates and the theoretical applicable tax rate and tax holidays Taxes relating to prior years Tax rate changes Withholding tax Other differences Total Tax expense, excluding IRAP Effective tax rate IRAP (current and deferred) Total Tax expense 2017 2016 (€ million) € 1,186 € 621 € (164) (397) (23) 1,092 924 (23) (22) 83 — 2,656 43.0% (5) (42) (194) (340) 531 587 32 — 61 (8) 1,248 40.2% 44 € 2,651 € 1,292 € 2015 51 (20) (36) (238) 303 70 (2) — 49 (36) 141 54.4% 25 166 In 2017, the Company recognized Regional Italian Income Tax (“IRAP”) current tax expense of €33 million (and an expense of €36 million in 2016 and an expense of €16 million in 2015) and the recognized IRAP deferred tax benefit of €38 million (an expense of €8 million in 2016 and an expense of €9 million in 2015). As the IRAP taxable basis differs from Profit before taxes, it is excluded from the effective tax rates above. The increase in the effective tax rate to 43.0 percent in 2017 from 40.2 percent in 2016 was mainly due to (i) reduced generation and utilization of tax credits in NAFTA and (ii) a decrease in Brazilian deferred tax assets; partially offset by (iii) tax benefits recorded on changes to prior years’ tax positions and (iv) improved performance in EMEA and LATAM. The Tax Cuts and Jobs Act (the “Tax Act”) was enacted into law in the U.S. on December 22, 2017. The Tax Act includes various changes to U.S. tax law, including a permanent reduction in the U.S. federal corporate income tax rate. The Tax Act also imposes a one-time tax, at a special reduced tax rate, on the deemed repatriation of the post-1986 unremitted earnings from their non-U.S. subsidiaries to the Company’s U.S. subsidiaries. Based on the information available as of December 31, 2017, the Company estimated net tax expense of €88 million in 2017 for the effects of the changes in the tax rate, which includes an expense of €117 million, primarily related to the deemed repatriation resulting from the Tax Act. The expense may be adjusted, potentially materially, as a result of regulations or regulatory guidance that may be issued, changes in interpretations affecting assumptions underlying the estimate, refinement of our calculations, and actions that may be taken, including actions in response to the Tax Act. 2017 | ANNUAL REPORTConsolidated Financial StatementsNotes to the Consolidated Financial Statements169 The Group recognizes the amount of Deferred tax assets less the Deferred tax liabilities of the individual companies within Deferred tax assets, where these may be offset. Amounts recognized were as follows: Deferred tax assets Deferred tax liabilities Total Net deferred tax assets At December 31 2017 (€ million) 2,004 (388) 1,616 € € 2016 3,699 (194) 3,505 € € The decrease in Net deferred tax assets at December 31, 2017 from December 31, 2016 was mainly due to (i) a €1,268 million decrease related to the utilization of U.S. tax credit carryforwards, revaluation of U.S. deferred tax assets and liabilities due to the Tax Act and reductions to other NAFTA deferred tax assets, and (ii) a €734 million decrease to Brazil deferred tax assets; partially offset by (iii) a €178 million increase to EMEA deferred tax assets. The decrease in Deferred tax assets in Brazil was primarily composed of €281 million related to the reversal of the Brazilian indirect tax liability (refer to Note 22, Other liabilities and Tax payables) 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 Tax Act reduces the U.S. federal corporate income tax rate from 35% to 21% effective January 1, 2018. We estimated the related changes in our deferred tax assets and deferred tax liabilities, which resulted in a €137 million decrease in Net deferred tax liability (€29 million to the Consolidated Income Statement and €108 million to Equity), and a €71 million decrease in Net deferred tax assets recorded to Other Comprehensive Income. The net tax benefit may be revised in future quarters as the related temporary differences are further evaluated. The significant components of Deferred tax assets and liabilities and their changes during the years ended December 31, 2017 and 2016 were as follows: At January 1, 2017 Recognized in Consolidated Income Statement Recognized in Equity (€ million) Translation differences and other changes At December 31, 2017 € (1,742) € — € Deferred tax assets arising on: Provisions Provision for employee benefits Intangible assets Impairment of financial assets Inventories Allowances for doubtful accounts Other Total Deferred tax assets Deferred tax liabilities arising on: Accelerated depreciation Capitalized development assets Other Intangible assets and Intangible assets with indefinite useful lives Provision for employee benefits Other Total Deferred tax liabilities Deferred tax asset arising on tax loss carry-forwards Unrecognized deferred tax assets Total Net deferred tax assets € € € € € € 6,149 2,851 211 195 251 117 385 10,159 (2,770) (2,742) (1,493) (14) (331) (7,350) 4,444 (3,748) 3,505 (364) (19) (25) 3 19 (13) (2,141) 430 399 238 (30) 4 1,041 522 (1,195) (1,773) € € € € € € € € € € € (559) (643) — (1) (2) (14) 29 (16) — — — — (14) (30) € (1,190) — € — — — (10) (10) € — € 9 (31) € 449 227 406 (6) 23 1,099 (248) 254 (85) € € € € € 3,848 1,828 192 169 252 122 387 6,798 (1,891) (2,116) (849) (50) (314) (5,220) 4,718 (4,680) 1,616 2017 | ANNUAL REPORT170 Recognized in Consolidated Income Statement At January 1, 2016 Recognized in Equity Transfer to assets held for sale (€ million) Translation differences and other changes At December 31, 2016 Deferred tax assets arising on: Provisions Provision for employee benefits Intangible assets Impairment of financial assets Inventories Allowances for doubtful accounts Other Total Deferred tax assets Deferred tax liabilities arising on: Accelerated depreciation Capitalized development expenditures Other Intangible assets and Intangible assets with indefinite useful lives Provision for employee benefits Other Total Deferred tax liabilities Deferred tax asset arising on tax loss carry-forwards Unrecognized deferred tax assets Total Net deferred tax assets € € € € € € € 6,028 2,866 249 155 243 87 691 10,319 (2,746) (2,376) (1,427) (14) (390) (6,953) 3,717 (3,183) 3,900 € € € € € (4) € — € (11) (42) 47 6 21 (270) (253) (53) (310) 23 — 67 (273) 662 (527) (391) € € € € € (263) — — — — 64 (199) € (10) — € — — 2 5 7 € — € — (192) € 1 — 7 1 — 9 (20) 20 (1) (6) — — (2) — (2) — € € € € € € 131 259 4 (5) 2 11 (100) 302 28 (56) (96) (3) (13) (140) 85 (58) 189 € € € € € € 6,149 2,851 211 195 251 117 385 10,159 (2,770) (2,742) (1,493) (14) (331) (7,350) 4,444 (3,748) 3,505 As of December 31, 2017, the Group had Deferred tax assets on deductible temporary differences of €6,798 million (€10,159 million at December 31, 2016), of which €940 million was not recognized (€551 million at December 31, 2016). As of December 31, 2017, the Group also had Deferred tax assets on tax loss carry-forwards of €4,718 million (€4,444 million at December 31, 2016), of which €3,740 million was not recognized (€3,197 million at December 31, 2016). As of December 31, 2017, the Group had total Net deferred tax assets of €3,256 million (€2,902 million at December 31, 2016) in Italy primarily attributable to Italian tax loss carry-forwards that can be carried forward indefinitely. The Group has determined that it is probable that sufficient Italian taxable income will be generated in future periods that will allow us to realize €898 million of Italian Net deferred tax assets (€750 million at December 31, 2016). As a result, €2,358 million of Net deferred tax assets in Italy were not recognized as of December 31, 2017 (€2,152 million at December 31, 2016). As of December 31, 2017, the Group had total Net deferred tax assets of €1,287 million in Brazil (€1,276 million at December 31, 2016) primarily attributable to Brazilian tax loss carry-forwards which can be carried forward indefinitely. The Group continues to recognize Brazilian Net deferred tax assets of €148 million (€976 million at December 31, 2016) as the Group considers it probable that we will have sufficient taxable income in the future that will allow us to realize these net deferred tax assets. As a result,€1,139 million of Net deferred tax assets in Brazil, which include Brazil tax losses, were not recognized as of December 31, 2017 (€300 million at December 31, 2016). Deferred tax liabilities on the undistributed earnings of subsidiaries have not been recognized, except in cases where it is probable the distribution will occur in the foreseeable future. 2017 | ANNUAL REPORTConsolidated Financial StatementsNotes to the Consolidated Financial Statements171 Total gross deductible and taxable temporary differences and accumulated tax losses at December 31, 2017, together with the amounts for which deferred tax assets have not been recognized, analyzed by year of expiration, were as follows: At December 31, 2017 2018 2019 2020 2021 (€ million) Year of expiration Unlimited/ Indeterminable Beyond 2021 Temporary differences and tax losses relating to corporate taxation: Deductible temporary differences € 28,720 € 3,665 € 2,974 € 2,786 € 3,293 € 15,512 € (23,028) 18,133 (2,390) 147 (2,304) 142 (2,323) 136 (2,324) 155 (10,390) 3,844 490 (3,297) 13,709 (17,534) (640) (292) (147) (649) (3,464) (12,342) € 6,291 € 782 € 520 € 452 € 475 € 5,502 € (1,440) Taxable temporary differences Tax losses Amounts for which deferred tax assets were not recognized Temporary differences and tax losses relating to corporate taxation Temporary differences and tax losses relating to local taxation (i.e. IRAP in Italy): Deductible temporary differences € 9,657 € 1,177 € 761 € 599 € 1,149 € 5,909 € Taxable temporary differences Tax losses Amounts for which deferred tax assets were not recognized Temporary differences and tax losses relating to local taxation (7,993) 3,715 (4,439) (691) 53 (398) (658) 36 (157) (671) 33 (681) 120 (5,153) 2,902 (82) (635) (2,601) € 940 € 141 € (18) € (121) € (47) € 1,057 € 62 (139) 571 (566) (72) 8. OTHER INFORMATION BY NATURE Personnel costs for the Group for the years ended December 31, 2017, 2016 and 2015 amounted to €13.2 billion, €13.2 billion and €13.4 billion, respectively, and included costs that were capitalized mainly in connection with product development activities. For the years ended December 31, 2017, 2016 and 2015, FCA had an average number of employees of 237,150, 235,481 and 236,559, respectively. 2017 | ANNUAL REPORT172 9. GOODWILL AND INTANGIBLE ASSETS WITH INDEFINITE USEFUL LIVES Goodwill and intangible assets with indefinite useful lives at December 31, 2017 and 2016 are summarized below: At January 1, 2017 Translation differences and Other (€ million) At December 31, 2017 Gross amount Accumulated impairment losses Goodwill Brands € 12,299 € (1,449) € (482) 11,817 3,405 28 (1,421) (411) Total Goodwill and intangible assets with indefinite useful lives € 15,222 € (1,832) € 10,850 (454) 10,396 2,994 13,390 At January 1, 2016 Translation differences Transfer to Assets held for sale At December 31, 2016 Gross amount Accumulated impairment losses Goodwill Brands € 11,966 € (469) 11,497 3,293 Total Goodwill and intangible assets with indefinite useful lives € 14,790 € (€ million) 387 (13) 374 112 486 € € (54) € — (54) — (54) € 12,299 (482) 11,817 3,405 15,222 Translation differences in 2017 and 2016 primarily related to foreign currency translation of the U.S. Dollar to the Euro. Brands Brands, composed of the Chrysler, Jeep, Dodge, Ram and Mopar brands, resulted from the acquisition of FCA US and are allocated to the NAFTA segment. These rights are protected legally through registration with government agencies and through the continuous use in commerce. As these rights have no legal, contractual, competitive or economic term that limits their useful lives, they are classified as intangible assets with indefinite useful lives and are therefore not amortized but are instead tested annually for impairment. For the purpose of impairment testing, the carrying value of Brands is tested jointly with the goodwill allocated to the NAFTA segment. Goodwill At December 31, 2017, Goodwill included €10,311 million from the acquisition of FCA US (€11,731 million at December 31, 2016). At December 31, 2016, €54 million of goodwill was classified within Assets held for sale as a result of Itedi meeting the held for sale criteria (see Note 3, Scope of consolidation). There were no impairment charges recognized in respect of Goodwill and intangible assets with indefinite lives during the years ended December 31, 2017, 2016 and 2015. The following table summarizes the allocation of Goodwill between FCA’s reportable segments: NAFTA APAC LATAM EMEA Components Total Goodwill At December 31 2017 (€ million) € 8,453 1,099 529 253 62 2016 9,618 1,250 602 285 62 10,396 € 11,817 € € 2017 | ANNUAL REPORTConsolidated Financial StatementsNotes to the Consolidated Financial Statements 173 Externally acquired development expenditures Internally generated development expenditures Patents, concessions, licenses and credits Other intangible assets Total € € 9,262 1,546 (€ million) € 3,120 € 701 € 19,570 6,487 1,012 (49) 217 — 7,667 589 (40) (130) 8,086 3,617 530 92 (37) 86 — 490 (80) 22 — 3,552 356 (16) (309) 3,583 1,583 210 — (20) 35 — 4,288 1,808 595 58 (35) (73) 4,833 3,379 3,253 € € 371 — (10) (140) 2,029 1,744 1,554 € € € € (1) 265 — 11,072 1,997 (289) (967) 11,813 3,993 962 29 — 108 — 5,092 829 52 (289) (315) 5,369 5,980 6,444 € € 58 (7) 87 (38) 801 65 (1) (61) 804 431 56 1 (6) 31 (31) 482 61 — — (30) 513 319 291 € € 3,106 (137) 591 (38) 23,092 3,007 (346) (1,467) 24,286 9,624 1,758 122 (63) 260 (31) 11,670 1,856 110 (334) (558) 12,744 11,422 11,542 10. OTHER INTANGIBLE ASSETS Gross carrying amount at January 1, 2016 Additions Divestitures Translation differences and other changes Transfer to Assets held for sale At December 31, 2016 Additions Divestitures Translation differences and other changes At December 31, 2017 Accumulated amortization and impairment losses at January 1, 2016 Amortization Impairment losses and asset write-offs Divestitures Translation differences and other changes Transfer to Assets held for sale At December 31, 2016 Amortization Impairment losses and asset write-offs Divestitures Translation differences and other changes At December 31, 2017 Carrying amount at December 31, 2016 Carrying amount at December 31, 2017 Additions included capitalized development expenditures of €2,586 million (€2,558 million in 2016), primarily consisting of material costs and personnel related expenses relating to engineering, design and development focused on content enhancement of existing vehicles, new models and powertrain programs. In 2017, €110 million of impairment losses and asset write-offs were recognized as described in Note 5, Research and development costs. In 2016, of the total €122 million impairment losses and asset write-offs, €90 million related to the locally produced Fiat Viaggio and Ottimo vehicles in China, as described in Note 5, Research and development costs. Translation differences primarily related to foreign currency translation of the U.S. Dollar to the Euro. Amortization of internally and externally generated intangible assets is recognized within Research and development costs within Consolidated Income Statement, as described in Note 5, Research and development costs. Amortization of Patents, concessions, licenses and credits and Other intangibles are recognized within Cost of revenues and Selling, general and other costs. At December 31, 2017 and 2016, the Group had contractual commitments for the purchase of intangible assets amounting to €601 million and €417 million, respectively. 2017 | ANNUAL REPORT174 11. PROPERTY, PLANT AND EQUIPMENT Land Industrial buildings Plant, machinery and equipment (€ million) Advances  and tangible  assets in progress Other assets Gross carrying amount at January 1, 2016 € 900 € 8,108 € 43,908 € 2,734 € Additions Divestitures Translation differences Transfer to Assets held for sale Other changes At December 31, 2016 Additions Divestitures Change in the scope of consolidation Translation differences Other changes At December 31, 2017 Accumulated depreciation and impairment losses at January 1, 2016 Depreciation Divestitures Impairment losses and asset write-offs Translation differences Transfer to Assets held for sale Other changes At December 31, 2016 Depreciation Divestitures Impairment losses and asset write-offs Change in the scope of consolidation Translation differences Other changes At December 31, 2017 6 (11) 57 — (4) 948 20 (11) (2) (71) 1 885 44 — (5) — 2 — — 41 — (2) 1 (1) (1) (1) 37 Carrying amount at December 31, 2016 Carrying amount at December 31, 2017 € € 907 848 € € 303 (22) 431 — 110 8,930 256 (17) (104) (639) 68 8,494 2,782 309 (12) 44 93 — (3) 3,213 313 (11) 22 (76) (163) — 3,298 5,717 5,196 € € 3,330 (729) 1,749 (92) 2,223 50,389 3,768 (1,163) (618) (3,167) 1,844 51,053 28,000 3,582 (697) 25 875 (77) (14) 31,694 3,440 (1,126) 83 (287) (1,693) (29) 32,082 18,695 18,971 € € 453 (70) 120 (10) (4) 3,223 187 (88) (21) (301) 3 3,003 1,443 307 (63) 1 64 (8) — 1,744 279 (78) 6 (18) (152) 19 1,800 1,479 1,203 4,086 1,617 (11) 225 — (2,269) 3,648 1,428 (4) (5) (325) (1,930) 2,812 13 — (1) 3 1 — (1) 15 — — 7 — (1) (5) 16 Total € 59,736 5,709 (843) 2,582 (102) 56 67,138 5,659 (1,283) (750) (4,503) (14) 66,247 32,282 4,198 (778) 73 1,035 (85) (18) 36,707 4,032 (1,217) 119 (382) (2,010) (16) 37,233 30,431 29,014 € € 3,633 2,796 € € For the year ended December 31, 2017, the Group recognized a total of €119 million of impairment losses and asset write-offs, of which €21 million related to certain of FCA Venezuela’s assets due to the continued deterioration of the economic conditions in Venezuela prior to deconsolidation. The remaining impairment losses relates to changes in global product portfolio in EMEA and product portfolio changes in LATAM. For the year ended December 31, 2016, the Group recognized a total of €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. This impairment charge was recognized within Selling, administrative and other expenses in the Consolidated Income Statement for the year ended December 31, 2016. In 2017, translation differences of €2,493 million primarily reflected the weakening of the U.S Dollar, Mexican Peso and the Brazilian Real against the Euro. In 2016, translation differences of €1,547 million mainly reflected the strengthening of the Brazilian Real and the U.S. Dollar against the Euro. 2017 | ANNUAL REPORTConsolidated Financial StatementsNotes to the Consolidated Financial Statements175 The net carrying amount of assets leased under finance lease agreements includes assets that are legally owned by suppliers but which are recognized in the Consolidated Financial Statements in accordance with IFRIC 4 - Determining Whether an Arrangement Contains a Lease, with the recognition of a corresponding financial lease payable, as the arrangement conveys a right to control the use of a specific asset even if that asset is not explicitly referred to in the arrangement. The total net carrying amount of assets leased under finance lease agreements included in Property, plant and equipment were as follows: Industrial buildings Plant, machinery and equipment Total Property, plant and equipment under finance lease At December 31 2017 (€ million) 209 193 402 € € 2016 251 602 853 € € The carrying amounts of Property, plant and equipment of the Group (excluding FCA US) reported as pledged as security for debt are summarized as follows: Land and industrial buildings pledged as security for debt Plant and machinery pledged as security for debt and other commitments Other assets pledged as security for debt and other commitments Total Property, plant and equipment pledged as security for debt At December 31 2017 (€ million) € 1,031 1,324 17 2,372 € 2016 1,239 698 3 1,940 € € Information on the assets of FCA US subject to lien is set out in Note 21, Debt. At December 31, 2017 and 2016, the Group had contractual commitments for the purchase of Property, plant and equipment amounting to €540 million and €950 million, respectively. 2017 | ANNUAL REPORT176 12. INVESTMENTS ACCOUNTED FOR USING THE EQUITY METHOD The following table summarizes Investments accounted for using the equity method: Joint ventures Associates Other Total Investments accounted for using the equity method At December 31 2017 (€ million) 1,866 € 94 48 2,008 € 2016 1,680 62 51 1,793 € € FCA’s ownership percentages and the carrying value of investments in joint ventures accounted for under the equity method were as follows: Joint ventures FCA Bank S.p.A. Tofas-Turk Otomobil Fabrikasi A.S. GAC Fiat Chrysler Automobiles Co. Others Total Ownership percentage Investment balance At December 31 2017 2016 Ownership percentage At December 31 2017 (€ million) 2016 50% 37.9% 50% 50% € 1,178 € 1,044 37.9% 50% 298 287 103 302 237 97 € 1,866 € 1,680 FCA Bank is a joint venture with Crédit Agricole Consumer Finance S.A. (“CACF”) which operates in Europe, primarily in Italy, France, Germany, UK and Spain. In July 2013, the Group reached an agreement with Crédit Agricole to extend the term of the joint venture through to December 31, 2021. FCA Bank provides retail and dealer financing and long- term rental services in the automotive sector, directly or through its subsidiaries as a partner of the Group’s mass- market vehicle brands and for Maserati vehicles. The financial statements of FCA Bank as at and for the year ended December 31, 2017 have not been authorized for issuance as of the date of issuance of the FCA Consolidated Financial Statements. As such, the most recent publicly available financial information is included in the tables below. The most recently available information was used to estimate FCA’s share of FCA Bank net income and net equity. Any difference between this data and actual results will be adjusted in the 2018 FCA Consolidated Financial Statements when available. The following tables include summarized financial information relating to FCA Bank: Financial assets Of which: Cash and cash equivalents Other assets Financial liabilities Other liabilities Equity (100%) Net assets attributable to owners of the parent Group’s share of net assets Elimination of unrealized profits and other adjustments Carrying amount of interest in FCA Bank(1) (1) Amounts as at December 31, 2017 and 2016 respectively. At June 30, 2017 At December 31, 2016 (€ million) € 21,867 € — 3,378 21,557 1,265 2,423 2,382 1,191 (13) € 1,178 € 20,201 — 3,083 19,887 1,159 2,238 2,199 1,100 (56) 1,044 2017 | ANNUAL REPORTConsolidated Financial StatementsNotes to the Consolidated Financial Statements177 Interest and similar income Interest and similar expenses Income tax expense Profit from continuing operations Net profit Net profit attributable to owners of the parent (A) Other comprehensive income/(loss) attributable to owners of the parent (B) Total Comprehensive income attributable to owners of the parent (A+B) Group’s share of net profit(1) Six months ended June 30 2017 Years ended December 31 2015 2016 € € € 437 € (147) (70) 190 190 188 (7) 181 190 € € (€ million) 764 € (263) (105) 312 312 309 (64) 245 154 € € 729 (285) (110) 249 249 248 29 277 124 (1) Amounts for the years ended December 31, 2017, 2016 and 2015 respectively Tofas-Turk Otomobil Fabrikasi A.S. (“Tofas”), is a joint venture with Koç Holding which is registered with the Turkish Capital Market Board and listed on the İstanbul Stock Exchange. At December 31, 2017, the fair value of the Group’s interest in Tofas was €1,375 million (€1,258 million at December 31, 2016). GAC Fiat Chrysler Automobiles Co. (“GAC FCA JV”) is a joint venture with Guangzhou Automobile Group Co., Ltd., which locally produces Jeep vehicles for the Chinese market. The Group’s proportionate share of the earnings of our joint ventures, associates and interests in unconsolidated subsidiaries accounted for using the equity method is reflected within Result from investments in the Consolidated Income Statement. The following table summarizes the share of profits of equity method investees included within Result from investments: Joint Ventures Associates Other Total Share of the profit of equity method investees Years ended December 31 2017 2016 2015 € € (€ million) 390 € 291 € 9 10 7 15 409 € 313 € 155 (27) 2 130 Immaterial Joint Ventures and Associates The aggregate amounts recognized for the Group’s share in all individually immaterial joint ventures and associates accounted for using the equity method were as follows: Joint ventures: Profit from continuing operations Net profit Other comprehensive income/(loss) Total Other comprehensive income Associates: Income/(loss) from continuing operations Net income/(loss) Other comprehensive income/(loss) Total Other comprehensive income/(loss) Years ended December 31 2017 2016 2015 (€ million) € € € € € 201 201 (105) € 137 137 (90) 96 € 47 € 9 9 (3) 6 € € 7 7 (1) 6 € € 31 31 (30) 1 (27) (27) 3 (24) 2017 | ANNUAL REPORT178 13. OTHER FINANCIAL ASSETS Other financial assets consisted of the following: Current Non-current Note 16 € 265 € 19 € 2017 Total (€ million) 284 € At December 31 Current Non-current 2016 Total 448 € 31 € 479 23 23 23 23 23 4 172 — — — 46 — — — 59 2 43 23 — 275 61 4 231 2 43 23 46 275 61 38 203 — — — 49 — 24 — 60 2 41 151 — 320 44 38 263 2 41 151 49 320 68 Derivative financial assets Debt securities measured at fair value through other comprehensive income Debt securities measured at fair value through profit or loss Debt securities held-to-maturity Equity instruments measured at cost Equity instruments measured at fair value through other comprehensive income Held-for-trading investments Financial receivables Collateral deposits(1) Total Other financial assets € 487 € 482 € 969 € 762 € 649 € 1,411 (1) Collateral deposits are held in connection with derivative transactions and debt obligations On March 21, 2017, the Group completed the sale of its available-for-sale investment in CNH Industrial N.V. (“CNHI”), which consisted of 15,948,275 common shares representing 1.17 percent of CNHI’s common shares for an amount of €144 million. The sale did not result in a material gain. The additional 15,948,275 special voting shares owned by the Group and which had not been attributed any value, expired upon the sale of the CNHI common shares. At December 31, 2016, the available-for-sale investment in CNHI had a carrying value of €132 million. 14. INVENTORIES Finished goods and goods for resale Work-in-progress, raw materials and manufacturing supplies Amount due from customers for contract work Total Inventories At December 31 2017 (€ million) € 8,261 4,476 185 12,922 € 2016 7,888 4,168 65 12,121 € € The amount of inventory write-downs recognized within Cost of revenues during the years ended December 31, 2017, 2016 and 2015 was €659 million, €637 million and €653 million, respectively. The amount due from customers for contract work relates to the design and production of industrial automation systems and related products and is summarized as follows: Aggregate amount of costs incurred and recognized profits (less recognized losses) to date Less: Progress billings Construction contracts, net of advances on contract work Amount due from customers for contract work Less: Amount due to customers for contract work included in Other liabilities (current) (Note 22) Construction contracts, net of advances on contract work € € At December 31 2017 (€ million) 881 € (886) (5) 185 (190) (5) € 2016 959 (1,130) (171) 65 (236) (171) 2017 | ANNUAL REPORTConsolidated Financial StatementsNotes to the Consolidated Financial Statements179 15. TRADE, OTHER RECEIVABLES AND TAX RECEIVABLES The following table summarizes Trade, other receivables and tax receivables by due date: Total due  within one year (current) Due between one and five years Due beyond   five years Total due after one year (non- current) 2017 Total At December 31 2016 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) € 2,460 € — € — € — € 2,460 € 2,479 € — € — € — € 2,479 Trade receivables Receivables from financing activities Other receivables Total Trade and other receivables 2,946 2,481 € 7,887 194 414 608 62 € € — 58 58 21 € € € € 194 472 3,140 2,953 2,407 2,387 171 308 — 102 171 410 2,578 2,797 666 € 8,553 € 7,273 83 € 298 € 206 € € 479 € 102 71 € 22 € € 581 € 7,854 93 € 299 Tax receivables € 215 Trade receivables Trade receivables are shown net of the allowance for doubtful accounts, which is calculated on the basis of historical losses on receivables. Changes in the allowance for trade receivables were as follows: Allowance for doubtful accounts € 275 € (€ million) 76 € (82) € 269 At January 1, 2017 Provision Use and other changes At December 31, 2017 Receivables from financing activities Receivables from financing activities mainly relate to the business of financial services companies fully consolidated by the Group and are summarized as follows. Dealer financing Retail financing Finance leases Other Total Receivables from financing activities At December 31 2017 (€ million) 2,295 € 420 4 421 3,140 € 2016 2,115 286 6 171 2,578 € € Receivables from financing activities are shown net of an allowance for doubtful accounts determined on the basis of specific insolvency risks. Changes in the allowance for receivables from financing activities were as follows: Allowance for Receivables from financing activities € 45 € (€ million) 66 € (66) € 45 At January 1, 2017 Provision Use and other changes At December 31, 2017 Receivables for dealer financing are typically generated by sales of vehicles and are generally managed under dealer network financing programs as a component of the portfolio of the financial services companies. These receivables are interest bearing, with the exception of an initial limited, non-interest bearing period. The contractual terms governing the relationships with the dealer networks vary from country to country, although payment terms range from two to six months. 2017 | ANNUAL REPORT180 Other receivables At December 31, 2017, Other receivables primarily consisted of tax receivables for VAT and other indirect taxes of €2,153 million (€1,933 million at December 31, 2016). Transfer of financial assets At December 31, 2017, the Group had receivables due after that date which had been transferred without recourse and which were derecognized in accordance with IAS 39 – Financial Instruments: Recognition and Measurement, amounting to €7,866 million (€6,573 million at December 31, 2016). The transfers related to trade receivables and other receivables for €6,752 million (€5,467 million at December 31, 2016) and receivables from financing activities for €1,114 million (€1,106 million at December 31, 2016). These amounts included receivables of €4,933 million (€4,077 million at December 31, 2016), mainly due from the sales network, transferred to jointly controlled financial services companies (FCA Bank). At December 31, 2017 and 2016, the carrying amount of transferred financial assets not derecognized and the related liabilities were as follows: Receivables from financing activities Trade receivables At December 31 2017 Trade receivables Total (€ million) Receivables from financing activities 2016 Total Carrying amount of assets transferred and not derecognized Carrying amount of the related liabilities (Note 21) € € 22 22 € € 335 335 € € 357 357 € € 34 34 € € 376 376 € € 410 410 2017 | ANNUAL REPORTConsolidated Financial StatementsNotes to the Consolidated Financial Statements181 16. DERIVATIVE FINANCIAL ASSETS AND LIABILITIES The following table summarizes the fair value of the Group’s derivative financial assets and liabilities: Fair value hedges: Interest rate risk - interest rate swaps Interest rate and exchange rate risk - combined interest rate and currency swaps Total Fair value hedges Cash flow hedges: Currency risks - forward contracts, currency swaps and currency options Interest rate risk - interest rate swaps Interest rate and currency risk - combined interest rate and currency swaps Commodity price risk – commodity swaps and commodity options Total Cash flow hedges Net investment hedges: Currency risks - forward contracts, currency swaps and currency options Total Net investment hedges Derivatives for trading Total Fair value of derivative financial assets/(liabilities) Financial derivative assets/(liabilities) - current Financial derivative assets/(liabilities) - non-current € € € Positive fair value 2017 Negative fair value Positive fair value 2016 Negative fair value At December 31 (€ million) € 2 € — € 31 € (1) — 2 100 4 9 30 143 5 5 134 284 265 19 € € € — — (95) (7) — (1) (103) — — (36) (139) (138) (1) € € € — 31 213 — 87 21 321 — — 127 479 448 31 € € € (115) (116) (304) — — (2) (306) (47) (47) (228) (697) (681) (16) The following table summarizes the outstanding notional amounts of the Group’s derivative financial instruments by due date: Due between one and five years Due beyond five years Due  within one year 2017 Due  within one year Total (€ million) At December 31 2016 Due between one and five years Due beyond five years Total Currency risk management € 14,142 € 154 € — € 14,296 € 18,668 € Interest rate risk management Interest rate and currency risk management Commodity price risk management Other derivative financial instruments 1,581 1,753 101 3,435 — 455 — 291 6 14 71 — — 362 461 14 855 928 450 — 311 795 305 44 14 Total Notional amount € 16,178 € 2,218 € 172 € 18,568 € 20,901 € 1,469 € € — € 18,979 — 82 — — 82 1,650 1,315 494 14 € 22,452 2017 | ANNUAL REPORT182 Fair value hedges The gains and losses arising from the valuation of outstanding interest rate derivatives (for managing interest rate risk) and currency derivatives (for managing currency risk) are recognized in accordance with fair value hedge accounting. The following table summarizes the gains and losses arising from the respective hedged items: Years ended December 31 2017 2016 2015 (€ million) Currency risk Net gains/(losses) on qualifying hedges Fair value changes in hedged items Interest rate risk Net (losses) on qualifying hedges Fair value changes in hedged items Net gains/(losses) € € 104 € (104) (9) 10 1 € (13) 13 (26) 26 € — € (49) 49 (34) 34 — Cash flow hedges Amounts recognized in the Consolidated Income Statement mainly relate to currency risk management and, to a lesser extent, to hedges regarding commodity price risk management and cash flows that are exposed to interest rate risk. The Group’s policy for managing currency risk normally requires hedging of projected future flows from trading activities which will occur within the following twelve months and from orders acquired (or contracts in progress) regardless of their due dates. The hedging effect arising from this is recorded in Other comprehensive income within Cash flow hedge reserve and will be recognized in the Consolidated Income Statement, primarily during the following year. Derivatives relating to interest rate and currency risk management are treated as cash flow hedges and are entered into for the purpose of hedging notes issued in foreign currencies. The amount recorded in Other comprehensive income and within Cash flow hedge reserve is recognized in the Consolidated Income Statement according to the timing of the flows of the underlying notes. The Group entered in interest rate swaps in order to hedge against the increase in interest rates in relation to future Debt. The swaps are designated as a cash flow hedge. For the year ended December 31, 2017, losses of €3 million related to such derivatives were recognized in Other comprehensive (loss)/income within Cash flow hedge Reserve. The following table summarizes the amounts, net of tax, that were reclassified from Other comprehensive (loss)/ income to the Consolidated Income Statement in respect of cash flow hedges: 2017 Years ended December 31 2016 2015 (€ million) Currency risk Increase in Net revenues (Increase)/Decrease in Cost of revenues Net financial income/(expenses) Result from investments Interest rate risk Increase in Cost of revenues Result from investments Net financial expenses Commodity price risk Decrease/(Increase) in Cost of revenues Ineffectiveness and discontinued hedges Tax expense/(benefit) Total recognized in Net profit from continuing operations Recognized in Profit from discontinued operations, net of tax € 16 € (103) (22) 28 — (1) (3) 28 4 27 (26) — € 236 (44) 34 26 — (1) (4) (39) 12 (49) 171 — Total recognized in Net profit € (26) € 171 € 33 101 (148) 1 (10) (2) (77) (23) 1 (97) (221) (116) (337) 2017 | ANNUAL REPORTConsolidated Financial StatementsNotes to the Consolidated Financial Statements183 Net investment hedges In order to manage the Group’s foreign currency risk related to its investments in foreign operations, the Group enters into net investment hedges, in particular foreign currency swaps and forward contracts. For the year ended December 31, 2017, gains of €15 million related to net investment hedges were recognized in Other comprehensive (loss)/income within Currency translation differences. There was no ineffectiveness for the year ended December 31, 2017. For the year ended December 31, 2016, losses of €75 million related to net investment hedges were recognized in Other comprehensive (loss)/income within Currency translation differences. There was no ineffectiveness for the year ended December 31, 2016. Derivatives for trading At December 31, 2017 and 2016, Derivatives for trading primarily consisted of derivative contracts entered into for hedging purposes which do not qualify for hedge accounting and one embedded derivative in a bond issuance in which the yield is determined as a function of trends in the inflation rate and related hedging derivative, which converts the exposure to a floating rate (the total value of the embedded derivative is offset by the value of the hedging derivative). 17. CASH AND CASH EQUIVALENTS Cash and cash equivalents consisted of the following: Cash at banks Money market securities Total Cash and cash equivalents At December 31 2017 (€ million) 6,396 6,242 12,638 € € 2016 8,118 9,200 17,318 € € Cash and cash equivalents held in certain foreign countries (primarily in China and Argentina) are subject to local exchange control regulations providing for restrictions on the amount of cash, other than dividends, that can leave the country. 2017 | ANNUAL REPORT184 18. SHARE-BASED COMPENSATION FCA - Performance Share Units In March 2017, FCA awarded a total of 2,264,000 Performance Share Units (“PSU”) to certain key employees under the framework equity incentive plan (Note 26, Equity). The PSU awards, which represent the right to receive FCA common shares, have financial performance goals that include a net income target as well as total shareholder return (“TSR”) target, with each weighted at 50 percent and settled independently of the other. Half of the award will vest based on our achievement of the targets for net income (“PSU NI awards”) covering a three-year period from 2016 to 2018 and will have a payout scale ranging from 0 percent to 100 percent. The remaining half of the PSU awards, (“PSU TSR awards”) are based on market conditions and have a payout scale ranging from 0 percent to 150 percent. The PSU TSR awards performance period covers a two-year period starting in December 2016 through 2018. Accordingly, the total number of shares that will eventually be issued may vary from the original award of 2.26 million units. The PSU awards will vest in the first quarter of 2019 if the respective performance goals for the years 2016 to 2018 are achieved. The PSU awards granted in June 2017 follow the same vesting conditions. During the year ended December 31, 2015, FCA awarded a total of 14,713,100 PSU awards to certain key employees under the equity incentive plan. The PSU awards, which represent the right to receive FCA common shares, have financial performance goals covering a five-year period from 2014 to 2018. The performance goals include a net income target as well as a TSR target, with each weighted at 50 percent and settled independently of the other. The PSU NI awards, which represent half of the award, will vest based on our achievement of the targets for net income and will have a payout scale ranging from 0 percent to 100 percent. The PSU TSR awards, which represent the other 50 percent of the PSU awards, are based on market conditions and have a payout scale ranging from 0 percent to 150 percent. Accordingly, the total number of shares that will eventually be issued may vary from the original award of 14.7 million shares. One third of the total PSU awards vested in 2017 and a cumulative two-thirds of the total PSU awards will vest in the first quarter of 2018 with the achievement of the performance goal for the years 2014 to 2017. A cumulative 100 percent will vest in the first quarter of 2019 if the respective performance goals for the years 2014 to 2018 are achieved. The vesting of the 2017 PSU NI awards and the 2015 PSU NI awards will be determined by comparing the Group’s net profit excluding unusual items to the net income targets derived from the Group’s business plan for the corresponding period. The performance period for the 2017 PSU NI awards commenced on January 1, 2016, and on January 1, 2014 for the 2015 PSU NI awards. As the performance period commenced substantially prior to the commencement of the service period, which coincides with the grant date, the Company determined that the net income target did not meet the definition of a performance condition under IFRS 2 - Share-based Payment, and therefore is required to be accounted for as a non-vesting condition. As such, the fair values of the PSU NI awards were calculated using a Monte Carlo simulation model. Changes during 2017, 2016 and 2015 for the PSU NI awards under the framework equity incentive plan were as follows: 2017 Weighted average fair value at the grant date (€) 5.65 € 5.62 7.91 5.65 PSU NI 7,356,550 4,001,962 168,593 — — (147,660) 7.91 — PSU NI 11,379,445 65,751 1,136,250 (3,758,870) — (18,750) Outstanding shares unvested at January 1 Anti-dilution adjustment Granted Vested Canceled Forfeited 2016 Weighted average fair value at the grant date (€) 8.78 € 2015 Weighted average fair value at the grant date (€) — PSU NI — € 5.68 3.61 — 5.83 — — 7,356,550 — — — — 8.78 — — — Outstanding shares unvested at December 31 8,803,826 € 5.89 11,379,445 € 5.65 7,356,550 € 8.78 2017 | ANNUAL REPORTConsolidated Financial StatementsNotes to the Consolidated Financial Statements185 The key assumptions utilized to calculate the grant-date fair values for the PSU NI awards are summarized below: Key assumptions Grant date stock price Expected volatility Risk-free rate 2017 PSU NI Awards Range €9.74 - €10.39 2015 PSU NI Awards Range €13.44 - €15.21 40% (0.8)% 40% 0.7% The expected volatility was based on the observed historical volatility for common shares of FCA. The risk-free rate was based on the yields of government and treasury bonds with similar terms to the vesting date of each PSU NI award. Changes during 2017, 2016 and 2015 for the PSU TSR awards under the framework equity incentive plan were as follows: 2017 Weighted average fair value at the grant date (€) 10.64 € 10.58 10.84 10.63 PSU TSR 7,356,550 4,001,962 168,593 — PSU TSR 11,379,446 65,750 1,136,250 (3,758,869) — — (147,659) (18,750) 10.84 — Outstanding shares unvested at January 1 Anti-dilution adjustment Granted Vested Canceled Forfeited 2016 Weighted average fair value at the grant date (€) 16.52 € 2015 Weighted average fair value at the grant date (€) — PSU TSR — € 10.70 — 6.71 7,356,550 — 10.84 — — — — — 16.52 — — — Outstanding shares unvested at December 31 8,803,827 € 10.58 11,379,446 € 10.64 7,356,550 € 16.52 The weighted average fair value of the PSU TSR awards granted during the year ended December 31, 2017 was calculated using a Monte Carlo simulation model. The key assumptions utilized to calculate the grant date fair values for the PSU TSR awards issued are summarized below: Key assumptions Grant date stock price Expected volatility Dividend yield Risk-free rate 2017 PSU TSR Awards Range €9.74 - €10.39 2015 PSU TSR Awards Range €13.44 - €15.21 44% —% 0.8% 37% - 39% —% 0.7% - 0.8% The expected volatility was based on the observed historical volatility for common shares of FCA. The risk-free rate was based on the yields of government and treasury bonds with similar terms to the vesting date of each PSU TSR award. In addition, since the volatility of each member of the defined peer group are not wholly independent of one another, a correlation coefficient was developed based on historical share price changes for FCA and the defined peer group over a three-year period leading up to the grant date of the awards. 2017 | ANNUAL REPORT186 FCA - Restricted Share Units In March 2017, FCA awarded 2,264,000 Restricted Share Units (“RSUs”) to certain key employees of the Company which represent the right to receive FCA common shares. These shares will vest in two equal tranches in the first quarter of 2018 and 2019. The fair values of the awards were measured using the FCA stock price on the grant date. The RSU awards granted in June and September 2017 follow the same vesting conditions. During the year ended December 31, 2015, FCA awarded 5,196,550 RSUs to certain key employees of the Company, which represent the right to receive FCA common shares. One third of the awards vested in February of 2017 with the remaining two tranches to vest equally in February of 2018 and 2019. Changes during 2017, 2016 and 2015 for the RSU awards under the framework equity incentive plan were as follows: 2017 Weighted average fair value at the grant date (€) 8.69 € RSUs 5,196,550 2016 Weighted average fair value at the grant date (€) 13.49 € 2015 Weighted average fair value at the grant date (€) — RSUs — € Outstanding shares unvested at January 1 Anti-dilution adjustment Granted Vested Canceled Forfeited RSUs 7,969,623 46,189 2,293,940 (2,671,939) 8.64 2,826,922 10.43 8.64 94,222 — — — (148,071) (37,500) 10.39 — 8.74 5.73 — 6,816,550 — (1,620,000) 9.25 — — — — 13.90 15.21 — — Outstanding shares unvested at December 31 7,600,313 € 9.17 7,969,623 € 8.69 5,196,550 € 13.49 Anti-dilution adjustments - PSU awards and RSU awards The documents governing FCA’s long-term incentive plans contain anti-dilution provisions which provide for an adjustment to the number of awards granted under the plans in order to preserve, or alternatively, prevent the enlargement of the benefits intended to be made available to the recipients of the awards should an event occur that impacts our capital structure. In January 2017, as a result of the distribution of the Company’s 16.7 percent ownership interest in RCS Media Group S.p.A. to holders of its common shares on May 1, 2016, the Compensation Committee of FCA approved a conversion factor of 1.005865 that was applied to outstanding PSU awards and RSU awards issued prior to December 31, 2016 to make equity award holders whole for the resulting diminution in the value of an FCA common share. There was no change to the total cost of these awards to be amortized over the remaining vesting period as a result of these adjustments. Similarly, in January 2016, as a result of the spin-off of Ferrari N.V., a conversion factor of 1.5440 was approved by FCA’s Compensation Committee and applied to outstanding PSU awards and RSU awards as an equitable adjustment to make equity award holders whole for the resulting diminution in the value of an FCA share. For the PSU NI awards, FCA’s Compensation Committee also approved an adjustment to the net income targets for the years 2016-2018 to account for the net income of Ferrari in order to preserve the economic benefit intended to be provided to each participant. There was no change to the total cost of these awards to be amortized over the remaining vesting period as a result of these adjustments. The following table reflects the changes resulting from the anti-dilution adjustments: PSU Awards: Number of awards - as adjusted Key assumptions - as adjusted: Grant date stock price - for PSU NI and PSU TSR RSU Awards: Number of awards - as adjusted 2017 Anti-dilution adjustment 2016 Anti-dilution adjustment 22,890,392 22,717,024 €8.66 - €9.79 €8.71 - €9.85 8,015,812 8,023,472 2017 | ANNUAL REPORTConsolidated Financial StatementsNotes to the Consolidated Financial Statements187 Total expense for the PSU awards and RSU awards of approximately €85 million, €96 million and €54 million was recorded for the years ended December 31, 2017, 2016 and 2015, respectively. At December 31, 2017, the Group had unrecognized compensation expense related to the non-vested PSU awards and RSU awards of approximately €47 million based on current forfeiture assumptions, which will be recognized over a weighted-average period of 1.0 years. Chief Executive Officer - Special Recognition Award On April 16, 2015, shareholders of FCA approved a grant of 1,620,000 common shares to the Chief Executive Officer, which vested immediately. This grant was for recognition of the Chief Executive Officer’s vision and guidance in the formation of Fiat Chrysler Automobiles N.V., which created significant value for the Company, its shareholders, stakeholders and employees. The weighted-average fair value of the shares at the grant date was €15.21 (U.S.$16.29), measured using FCA’s share price on the grant date. A one-time charge of €24.6 million was recorded within Selling, general and other costs during the year ended December 31, 2015 related to this grant. Stock grant plans linked to Fiat shares On April 4, 2012, the shareholders resolved to approve the adoption of a Long Term Incentive Plan (the “Retention LTI Plan”), in the form of stock grants. As a result, the Group granted the Chief Executive Officer 7,000,000 rights, which represented an equal number of common shares. One third of the rights vested on February 22, 2013, one third vested on February 22, 2014 and one third vested on February 22, 2015, which had been subject to the requirement that the Chief Executive Officer remain in office. The Plan was serviced in 2015 through the issuance of new common shares. Compensation expense for the Retention LTI Plan for the year ended December 31, 2015 was not material. Share-based compensation plans issued by FCA US On May 7, 2015, the FCA US Board of Directors approved an amendment to the FCA US Directors’ Restricted Stock Unit Plan (“FCA US Directors’ RSU Plan”), freezing the restricted stock unit value as of December 31, 2015. At December 31, 2017 and 2016, FCA US had no outstanding unvested units under the FCA US Directors’ RSU Plan. In February 2012, the Compensation Committee of FCA US approved the Long-Term Incentive Plan (“2012 LTIP Plan”) that covered senior executives of FCA US (other than the Chief Executive Officer). At December 31, 2017 and 2016, FCA US had no outstanding unvested units under the 2012 LTIP Plan. No compensation expense was recognized for either plan for the year ended December 31, 2017. Compensation expense for the years ended December 31, 2016 and 2015 was not material. 2017 | ANNUAL REPORT188 19. EMPLOYEE BENEFITS LIABILITIES Employee benefits liabilities consisted of the following: Current Non-current Pension benefits Health care and life insurance plans Other post-employment benefits Other provisions for employees Total Employee benefits liabilities € € 34 € 126 109 425 694 € 4,789 2,153 878 764 At December 31 2017 Total (€ million) 4,823 2,279 987 1,189 9,278 € € Current Non-current 38 € 145 110 518 811 € 4,980 2,321 877 874 2016 Total 5,018 2,466 987 1,392 9,863 € 8,584 € € 9,052 € The Group recognized a total of €1,643 million for the cost for defined contribution and state plans for the year ended December 31, 2017 (€1,540 million in 2016 and €1,541 million in 2015). The following table summarizes the fair value of defined benefit obligations and the fair value of the related plan assets: Present value of defined benefit obligations: Pension benefits Health care and life insurance plans Other post-employment benefits Total present value of defined benefit obligations (a) Fair value of plan assets (b) Asset ceiling (c) Total net defined benefit plans (a - b + c) of which: Net defined benefit liability (d) Defined benefit plan asset Other provisions for employees (e) Total Employee benefits liabilities (d + e) At December 31 2017 (€ million) € 25,528 € 2,279 987 28,794 21,218 14 7,590 8,089 (499) € 1,189 9,278 € 2016 28,065 2,466 987 31,518 23,409 12 8,121 8,471 (350) 1,392 9,863 Pension benefits Liabilities arising from the Group’s defined benefit plans are usually funded by contributions made by Group subsidiaries, and at times by their employees, into legally separate trusts from which the employee benefits are paid. The Group’s funding policy for defined benefit pension plans is to contribute the minimum amounts required by applicable laws and regulations. Occasionally, additional discretionary contributions in excess of those legally required are made to achieve certain desired funding levels. In the U.S., these excess amounts are tracked and the resulting credit balance can be used to satisfy minimum funding requirements in future years. At December 31, 2017, the combined credit balances for the U.S. and Canada qualified pension plans were approximately €2.0 billion, and the usage of the credit balances to satisfy minimum funding requirements is subject to the plans maintaining certain funding levels. During the years ended December 31, 2017, 2016 and 2015, the Group made pension contributions in the U.S. and Canada totaling €124 million, €445 million and €202 million, respectively. The Group contributions to pension plans for 2018 are expected to be €92 million, of which €56 million relate to the U.S. and Canada, with €2 million being discretionary contributions and €54 million which will be made to satisfy minimum funding requirements. 2017 | ANNUAL REPORTConsolidated Financial StatementsNotes to the Consolidated Financial Statements189 The expected benefit payments for pension plans are as follows: 2018 2019 2020 2021 2022 2023-2027 Expected benefit payments (€ million) € € € € € € 1,592 1,562 1,550 1,535 1,524 7,556 The following table summarizes the changes in the pension plans: Obligation Fair value of plan assets Asset ceiling 2017 Liability (asset) Obligation (€ million) Fair value of plan assets Asset ceiling 2016 Liability (asset) € 28,065 € (23,409) € 12 € 4,668 € 27,547 € (22,415) € 11 € 5,143 1,259 (817) — 442 1,322 (849) — 473 (42) 1,567 — — (3,006) — — (1,751) (563) (1) — — (1,589) — 2,445 (141) (3) 1,735 563 (2) — — — 3 (1) — — — — — (42) 1,567 (1,589) 3 (562) (141) (3) (16) — (3) (49) 346 — — 907 — 3 (2,015) — 4 (6) — (861) — (817) (454) (4) 1,999 — (2) — — — — 1 — — — — — (55) 346 (861) — 91 (454) (1) (16) — 2 € 25,528 € (21,218) € 14 € 4,324 € 28,065 € (23,409) € 12 € 4,668 At January 1 Included in the Consolidated Income Statement Included in Other comprehensive income: Actuarial (gains)/losses from: Demographic and other assumptions Financial assumptions Return on assets Changes in the effect of limiting net assets Changes in exchange rates Other: Employer contributions Plan participant contributions Benefits paid Settlements paid Other changes At December 31 Amounts recognized in the Consolidated Income Statement were as follows: Current service cost Interest expense Interest income Other administration costs Past service costs/(credits) and gains/(losses) arising from settlements/curtailments Total recognized in the Consolidated Income Statement Years ended December 31 2017 2016 (€ million) 172 € 175 € 1,090 (911) 94 (3) 442 € 1,157 (944) 95 (10) 473 € 2015 196 1,143 (912) 92 (8) 511 € € During the year ended December 31, 2017, the Group entered into an annuity buyout relating to two of its U.S. defined benefit plans. A total of €563 million was paid to a third-party insurance company in settlement of FCA’s obligations, resulting in a settlement loss of €1 million that was recognized within Cost of revenues and Selling, general and other in the Consolidated Income Statement for the year ended December 31, 2017. 2017 | ANNUAL REPORT190 During the year ended December 31, 2016, the Group amended its U.S. defined benefit plan for salaried employees to allow certain terminated vested participants to accept a lump-sum amount. A total of €214 million was paid to those participants who accepted the offer in December 2016. The plan amendment resulted in a settlement gain of €29 million that was recognized within Selling, general and other costs in the Consolidated Income Statement for the year ended December 31, 2016. There were no significant plan amendments or curtailments to the Group’s pension plans for the year ended December 31, 2015. The fair value of plan assets by class was as follows: 2017 of which have  a quoted  market price  in an active  At December 31 2016 of which have  a quoted  market price  in an active  Amount market Amount market € 628 € (€ million) 611 € 862 € 1,426 1,098 2,684 5,208 2,601 5,864 1,071 9,536 1,962 165 — 1,374 1,893 5,394 452 1,426 1,098 1,138 3,662 803 — 114 917 — 162 — 13 49 224 50 1,641 1,170 3,149 5,960 2,611 6,353 907 9,871 1,979 147 3 1,460 2,466 6,055 661 816 1,633 1,170 216 3,019 858 58 9 925 — 118 3 — — 121 156 € 21,218 € 5,464 € 23,409 € 5,037 Cash and cash equivalents U.S. equity securities Non-U.S. equity securities Commingled funds Equity instruments Government securities Corporate bonds (including convertible and high yield bonds) Other fixed income Fixed income securities Private equity funds Commingled funds Mutual funds Real estate funds Hedge funds Investment funds Insurance contracts and other Total fair value of plan assets Non-U.S. Equity securities are invested broadly in developed international and emerging markets. Fixed income securities are debt instruments which are primarily comprised of long-term U.S. Treasury and global government bonds, as well as developed international and emerging market companies’ debt securities diversified by sector, geography and through a wide range of market capitalization. Private equity funds include those in limited partnerships that invest primarily in operating companies that are not publicly traded on a stock exchange. Commingled funds include common collective trust funds, mutual funds and other investment entities. Real estate fund investments include those in limited partnerships that invest in various commercial and residential real estate projects both domestically and internationally. Hedge fund investments include those seeking to maximize absolute return using a broad range of strategies to enhance returns and provide additional diversification. The investment strategies and objectives for pension assets primarily in the U.S. and Canada reflect a balance of liability- hedging and return-seeking investment considerations. The investment objectives are to minimize the volatility of the value of the pension assets relative to the pension liabilities and to ensure assets are sufficient to pay plan obligations. The objective of minimizing the volatility of assets relative to liabilities is addressed primarily through asset diversification, partial asset–liability matching and hedging. Assets are broadly diversified across many asset classes to achieve risk– adjusted returns that, in total, lower asset volatility relative to the liabilities. Additionally, in order to minimize pension asset volatility relative to the pension liabilities, a portion of the pension plan assets are allocated to fixed income securities. The Group policy for these plans ensures actual allocations are in line with target allocations as appropriate. 2017 | ANNUAL REPORTConsolidated Financial StatementsNotes to the Consolidated Financial Statements191 Assets are actively managed primarily by external investment managers. Investment managers are not permitted to invest outside of the asset class or strategy for which they have been appointed. The Group uses investment guidelines to ensure investment managers invest solely within the mandated investment strategy. Certain investment managers use derivative financial instruments to mitigate the risk of changes in interest rates and foreign currencies impacting the fair values of certain investments. Derivative financial instruments may also be used in place of physical securities when it is more cost-effective and/or efficient to do so. Plan assets do not include shares of FCA or properties occupied by Group companies, with the possible exception of commingled investment vehicles where FCA does not control the investment guidelines. Sources of potential risk in pension plan assets measurements relate to market risk, interest rate risk and operating risk. Market risk is mitigated by diversification strategies and as a result, there are no significant concentrations of risk in terms of sector, industry, geography, market capitalization, or counterparty. Interest rate risk is mitigated by partial asset–liability matching. The fixed income target asset allocation partially matches the bond–like and long– dated nature of the pension liabilities. Interest rate increases generally will result in a decline in the fair value of the investments in fixed income securities and the present value of the obligations. Conversely, interest rate decreases will generally increase the fair value of the investments in fixed income securities and the present value of the obligations. The weighted average assumptions used to determine the defined benefit obligations were as follows: Discount rate Future salary increase rate U.S. 3.8% —% Canada 3.5% 3.5% 2017 UK 2.7% 3.2% At December 31 U.S. 4.4% —% Canada 3.9% 3.5% 2016 UK 2.7% 3.1% The average duration of the U.S. and Canadian liabilities was approximately 11 years and 13 years, respectively. The average duration of the UK pension liabilities was approximately 20 years. Health care and life insurance plans Liabilities arising from these plans comprise obligations for retiree health care and life insurance granted to employees and to retirees in the U.S. and Canada. Upon retirement from the Group, these employees may become eligible for continuation of certain benefits. Benefits and eligibility rules may be modified periodically. These plans are unfunded. The expected benefit payments for unfunded health care and life insurance plans are as follows: 2018 2019 2020 2021 2022 2023-2027 Expected benefit  payments (€ million) € € € € € € 125 125 124 124 125 634 2017 | ANNUAL REPORT192 Changes in the net defined benefit obligations for healthcare and life insurance plans were as follows: Present value of obligations at January 1 Included in the Consolidated Income Statement Included in Other comprehensive income: Actuarial (gains)/losses from: - Demographic and other assumptions - Financial assumptions Effect of movements in exchange rates Other: Benefits paid Other changes € 2017 (€ million) 2,466 € 120 (52) 160 (278) (137) — Present value of obligations at December 31 € 2,279 € 2016 2,459 130 (77) 10 83 (139) — 2,466 Amounts recognized in the Consolidated Income Statement were as follows: Current service cost Interest expense Past service costs/(credits) and losses/(gains) arising from settlements Total recognized in the Consolidated Income Statement Years ended December 31 2017 2016 2015 € € (€ million) € 26 € 107 (3) 22 98 — 120 € 130 € 32 102 — 134 Health care and life insurance plans are accounted for on an actuarial basis, which requires the selection of various assumptions. In particular, it requires the use of estimates of the present value of the projected future payments to all participants, taking into consideration the likelihood of potential future events such as health care cost increases and demographic experience. The weighted average assumptions used to determine the defined benefit obligations were as follows: Discount rate Salary growth Weighted average ultimate healthcare cost trend rate 2017 Canada 3.6% 1.0% 4.5% U.S. 3.9% 1.5% 4.5% At December 31 2016 Canada 4.0% 1.0% 4.4% U.S. 4.5% 1.5% 4.5% The average duration of the U.S. and Canadian liabilities was approximately 13 years and 16 years, respectively. The annual rate of increase in the per capita cost of covered U.S. health care benefits assumed for next year and used in the 2017 plan valuation was 6.8 percent (7.0 percent in 2016). The annual rate was assumed to decrease gradually to 4.5 percent after 2029 and remain at that level thereafter. The annual rate of increase in the per capita cost of covered Canadian health care benefits assumed for next year and used in the 2017 plan valuation was 4.8 percent (4.7 percent in 2016). The annual rate was assumed to decrease gradually to 4.5 percent in 2029 and remain at that level thereafter. Other post-employment benefits Other post-employment benefits include other employee benefits granted to Group employees in Europe and comprises, amongst others, the Italian employee severance indemnity (trattamento di fine rapporto, or “TFR”) obligation, required under Italian Law, amounting to €752 million at December 31, 2017 and €775 million at December 31, 2016. 2017 | ANNUAL REPORTConsolidated Financial StatementsNotes to the Consolidated Financial Statements193 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 regarding 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 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 obligation for TFR 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: Present value of obligations at January 1 Included in the Consolidated Income Statement Included in Other comprehensive income: Actuarial (gains)/losses from: - Demographic and other assumptions - Financial assumptions Effect of movements in exchange rates Other: Benefits paid Transfer to Liabilities held for sale Other changes Present value of obligations at December 31 Amounts recognized in the Consolidated Income Statement were as follows: Current service cost Interest expense Past service costs (credits) and (gains)/losses arising from settlements Total recognized in the Consolidated Income Statement 2017 11 13 (1) 23 € € 2017 (€ million) 987 € 23 18 (3) (5) (48) — 15 987 € 2016 969 26 36 29 1 (58) (14) (2) 987 Years ended December 31 2016 2015 (€ million) 8 17 1 26 € € 10 6 — 16 € € € € 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 2017 was 1.2 percent (1.0 percent in 2016). 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 law 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. 2017 | ANNUAL REPORT194 20. PROVISIONS Provisions consisted of the following: Product warranty and recall campaigns € Sales incentives Legal proceedings and disputes Commercial risks Restructuring Other risks Total Provisions Changes in Provisions were as follows: Current Non-current 2,676 5,377 125 481 26 324 € 4,049 € — 551 334 44 792 At December 31 2017 Total (€ million) € 6,725 5,377 676 815 70 1,116 Current Non-current 2,905 5,749 54 250 26 333 € 4,637 € — 530 412 46 895 2016 Total 7,542 5,749 584 662 72 1,228 € 9,009 € 5,770 € 14,779 € 9,317 € 6,520 € 15,837 At January 1, 2017 Additional provisions Settlements Unused amounts Translation differences (€ million) Changes in the scope of consolidation and other changes At December 31, 2017 Product warranty and recall campaigns € 7,542 € 3,196 € (3,262) € — € Sales incentives 5,749 13,850 (13,675) Legal proceedings and disputes Commercial risks Restructuring costs Other risks Total Provisions 584 662 72 1,228 200 432 91 229 (69) (181) (55) (187) € 15,837 € 17,998 € (17,429) € (175) € (1,491) € (3) (38) (34) (3) (97) € (746) (567) (49) (64) (3) (62) (5) 23 48 — (32) 5 39 € 6,725 5,377 676 815 70 1,116 € 14,779 Product warranty and recall campaigns 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 extension 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. At December 31, 2016, the Product warranty and recall campaigns provision included €414 million of charges recognized within Cost of revenues in the Consolidated Income Statement for the year ended December 31, 2016 for the additional estimated costs associated with the recall campaigns related to an industry wide recall of airbag inflators resulting from parts manufactured by Takata. Refer to Note 25, Guarantees granted, commitments and contingent liabilities, for additional information. In addition, the Product warranty and recall campaigns provision included €132 million of estimated net costs recognized within Cost of revenues in the Consolidated Income Statement for the year ended December 31, 2016 associated with a recall for which costs are being contested with a supplier. Although FCA believes the supplier has responsibility for the recall, only a partial recovery of the estimated costs has been recognized pursuant to a cost sharing agreement. The cash outflow for the non-current portion of the Product warranty and recall campaigns provision is primarily expected within a period through 2022. 2017 | ANNUAL REPORTConsolidated Financial StatementsNotes to the Consolidated Financial Statements195 Sales incentives, Legal proceedings and disputes, Commercial risks and Other risks As described within Note 2, Basis of preparation (Use of Estimates section), 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. None of the provisions within the total Legal proceedings and disputes provision are individually significant. As described within Note 2, Basis of preparation (Use of Estimates section), 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 outflow for the Legal proceedings and disputes provision is also uncertain. 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 2020. Other risks include, 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 2024. 2017 | ANNUAL REPORT196 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): 2017 Due within one year (current) Due between one and five years Due beyond five  years Total (non- current) Due within one year (current) Due between one and five years Due beyond five years Total Debt Total (non- current) (€ million) 2016 Total Debt At December 31 Notes € 2,054 € 5,071 € 2,501 € 7,572 € 9,626 € 2,565 € 5,763 € 4,023 € 9,786 € 12,351 Borrowings from banks Asset-backed financing (Note 15) Other debt 4,132 2,278 502 2,780 6,912 4,025 4,592 786 5,378 9,403 357 702 — 347 — 27 — 374 357 1,076 410 937 — 688 — 259 — 947 410 1,884 Total Debt € 7,245 € 7,696 € 3,030 € 10,726 € 17,971 € 7,937 € 11,043 € 5,068 € 16,111 € 24,048 Notes The following table summarizes the outstanding notes at December 31, 2017 and 2016: Face value of outstanding notes At December 31 Medium Term Note Programme: Fiat Chrysler Finance Europe S.A.(1) Fiat Chrysler Finance North America, Inc.(1) Fiat Chrysler Finance Europe S.A.(2) Fiat Chrysler Finance Europe S.A.(1) Fiat Chrysler Finance Europe S.A.(1) Fiat Chrysler Finance Europe S.A.(2) Fiat Chrysler Finance Europe S.A.(1) Fiat Chrysler Finance Europe S.A.(1) Fiat Chrysler Finance Europe S.A.(1) FCA NV(1) Other(3) Currency (million) Coupon % Maturity 2017 2016 EUR EUR CHF EUR EUR CHF EUR EUR EUR EUR EUR 850 1,000 450 1,250 600 250 1,250 1,000 1,350 1,250 7 7.000 5.625 4.000 6.625 7.375 3.125 6.750 4.750 4.750 3.750 March 23, 2017 € June 12, 2017 November 22, 2017 (€ million) — € — — March 15, 2018 1,250 July 9, 2018 September 30, 2019 October 14, 2019 March 22, 2021 July 15, 2022 March 29, 2024 600 213 1,250 1,000 1,350 1,250 7 850 1,000 419 1,250 600 233 1,250 1,000 1,350 1,250 7 Total Medium Term Note Programme 6,920 9,209 Other Notes: FCA NV(1) FCA NV(1) Total Other Notes Hedging effect, accrued interest and amortized cost valuation Total Notes U.S.$ U.S.$ 1,500 1,500 4.500 5.250 April 15, 2020 April 15, 2023 1,251 1,251 2,502 1,423 1,423 2,846 204 9,626 296 € 12,351 € (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. 2017 | ANNUAL REPORTConsolidated Financial StatementsNotes to the Consolidated Financial Statements197 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 €6.9 billion were outstanding at December 31, 2017 (€9.2 billion at December 31, 2016). The MTN Programme is 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 the year ended December 31, 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). Changes in notes issued under the MTN Programme during the year ended December 31, 2016 were due to the: issuance of a 3.75 percent note at par in March 2016 with a principal amount of €1,250 million, due in March 2024; repayment at maturity of a note in April 2016 with a principal amount of €1,000 million; repayment at maturity of a note in October 2016 with a principal amount of €1,000 million; and repayment at maturity of a note in November 2016 with a principal amount of CHF 400 million (€373 million). The 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 case 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 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, 2017, 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 case any security interest upon assets of FCA NV is granted in connection with other notes or debt securities having the same ranking, such 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, 2017, 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. 2017 | ANNUAL REPORT198 Borrowings from banks FCA US Tranche B Term Loans On February 24, 2017, FCA US prepaid the U.S.$1,826 million (€1,721 million) outstanding principal and accrued interest for 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 did not result in a material loss on extinguishment. At December 31, 2017, €836 million (€948 million at December 31, 2016), which included accrued interest, was outstanding under FCA US’s Tranche B Term Loan maturing December 31, 2018 (the “Tranche B Term Loan due 2018”). On April 12, 2017, FCA US amended the credit agreement that governs the Tranche B Term Loan due 2018. The amendment reduced 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. In addition, the base rate floor was eliminated. As a result, the Tranche B Term Loan due 2018 bears interest, at FCA US’s option, either at a base rate plus 1.0 percent per annum or at LIBOR plus 2.0 percent per annum. FCA US may prepay, refinance or re-price the Tranche B Term Loan due 2018 without premium or penalty. For the years ended December 31, 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 are amortized over the respective remaining terms of the Tranche B Term Loans. For each of the Tranche B Term Loans, FCA US prepaid the scheduled quarterly principal payments, with the remaining balance applied to the principal balance due at maturity. Periodic interest payments, however, continue to be required. The Tranche B Term Loan due 2018 is secured by a senior priority security interest in substantially all of FCA US’s assets and the assets of its U.S. subsidiary guarantors, subject to certain exceptions. The collateral includes 100 percent of the equity interests in FCA US’s U.S. subsidiaries and 65 percent of the equity interests in certain of its non- U.S. subsidiaries held directly by FCA US and its U.S. subsidiary guarantors. The credit agreement that governs the Tranche B Term Loan due 2018 includes a number of affirmative covenants, many of which are customary, including, but not limited to, the reporting of financial results and other developments, compliance with laws, payment of taxes, maintenance of insurance and similar requirements. The credit agreement also includes negative covenants, including but not limited to: (i) limitations on incurrence, repayment and prepayment of indebtedness, (ii) limitations on incurrence of liens, (iii) limitations on swap agreements and sale and leaseback transactions, (iv) limitations on fundamental changes, including certain asset sales and (v) restrictions on certain subsidiary distributions. In addition, the credit agreement requires FCA US to maintain a minimum ratio of “borrowing base” to “covered debt” (as defined), as well as a minimum liquidity of U.S.$3.0 billion (€2.5 billion). Furthermore, the credit agreement also contains a number of events of default related to: (i) failure to make payments when due; (ii) failure to comply with covenants, (iii) breaches of representations and warranties, (iv) certain changes of control, (v) cross–default with certain other debt and hedging agreements and (vi) the failure to pay or post bond for certain material judgments. As of December 31, 2017, FCA US was in compliance with the covenants of the credit agreement that governs the Tranche B Term Loan due 2018. 2017 | ANNUAL REPORTConsolidated Financial StatementsNotes to the Consolidated Financial Statements199 European Investment Bank Borrowings FCA has financing agreements with the European Investment Bank (“EIB”) for a total of €1.1 billion outstanding at December 31, 2017 (€1.3 billion outstanding at December 31, 2016), 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 CO2 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 €600 million (maturing in July 2018), entered into in June 2015 (50 percent guaranteed by SACE) to support the Group’s investment plan (2015-2017) for production and research and development sites in both northern and southern Italy, to develop efficient vehicle technologies for vehicle safety and new vehicle architectures; the facility for €400 million (maturing in November 2018), entered into in November 2013 (50 percent guaranteed by SACE) to support certain investments and research and development programs in Italy; and 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. 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 €3.2 billion at December 31, 2017 (€4.0 billion at December 31, 2016). 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, 2017, outstanding subsidized loans amounted to €2.1 billion (€2.6 billion at December 31, 2016), of which €1.3 billion (€1.6 billion at December 31, 2016) 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 (€1.6 billion). Approximately €0.1 billion (€0.3 billion at December 31, 2016) of committed credit lines contracted to fund scheduled investments in the area were undrawn at December 31, 2017. Revolving Credit Facilities In March 2017, the Group amended its syndicated revolving credit facility originally signed in June 2015 (as amended, the “RCF”). The amendment increased the RCF from €5.0 billion to €6.25 billion and extended the RCF’s final maturity to March 2022. The RCF, which is available for general corporate purposes and for 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 remaining unamortized debt issuance costs related to the original €5.0 billion RCF and the new costs associated with the amendment will be amortized over the life of the amended RCF. At December 31, 2017, the €6.25 billion RCF was undrawn. The covenants of the RCF include financial covenants as well as negative pledge, pari passu, cross-default and change of control clauses. The 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, 2017, FCA was in compliance with the covenants of the RCF. 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. At December 31, 2016, undrawn committed credit lines totaling €6.2 billion included the original €5.0 billion RCF and approximately €1.2 billion of other revolving credit facilities. 2017 | ANNUAL REPORT200 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, 2017, the Mexico Bank Loan had an outstanding balance of €0.4 billion (€0.5 billion at December 31, 2016). As of December 31, 2017, 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 and other 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, 2017, FCA Mexico was in compliance with the covenants under the Mexico Bank Loan. Asset-backed financing Asset-backed financing represents the amount of financing received through factoring transactions which do not meet IAS 39 derecognition requirements and are recognized as assets of the same amount of €357 million (€410 million at December 31, 2016) 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 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 At December 31, 2016, Other debt included the unsecured Canada HCT Tranche B Note totaling €278 million, including accrued interest. During the year ended December 31, 2016, FCA US’s Canadian subsidiary made payments on the Canada HCT Notes totaling €148 million, which included accrued interest and the prepayment of all scheduled payments due on the Canada HCT Tranche C Note. The prepayment on the Canada HCT Tranche C Note made on July 15, 2016 resulted in a loss on extinguishment of debt of €8 million that was recorded within Net financial expenses in the Consolidated Income Statement for the year ended December 31, 2016. As described in more detail in Note 26, Equity, FCA issued Mandatory Convertible Securities in December 2014 with an aggregate notional amount of U.S.$2,875 million (€2,293 million), whereby the obligation to pay coupons as required by the Mandatory Convertible Securities met the definition of a financial liability. The Mandatory Convertible Securities were converted into FCA common shares on December 15, 2016 and the financial liability of U.S.$226 million (€213 million) was paid in cash. 2017 | ANNUAL REPORTConsolidated Financial StatementsNotes to the Consolidated Financial Statements201 Other debt also included funds raised from financial services companies, primarily in Latin America, deposits from dealers in Brazil and the Group’s payables for finance leases, which are summarized in the table below: Due between one and three years Due between three and five years Due beyond five years Due within one year At December 31 2016 Due between one and three years Due between three and five years Due beyond five years Total 2017 Due within one year Total (€ million) € € 90 (15) 134 (15) € € 19 (3) € 74 (3) 317 (36) € € 138 (22) 246 (29) € 131 (7) € € 188 (5) 703 (63) € 75 € 119 € 16 € 71 € 281 € 116 € 217 € 124 € 183 € 640 Minimum future lease payments Interest expense Present value of minimum lease payments Debt secured by assets At December 31, 2017, debt secured by assets of the Group (excluding FCA US) amounted to €743 million (€914 million at December 31, 2016), of which €140 million (€433 million at December 31, 2016) 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 FCA US) amounted to €2,372 million at December 31, 2017 (€1,940 million at December 31, 2016) (Note 11, Property, plant and equipment). At December 31, 2017, debt secured by assets of FCA US amounted to €1,441 million and included €836 million relating to the Tranche B Term Loan due 2018, €141 million due to creditors for assets acquired under finance leases and €464 million for other debt and financial commitments. At December 31, 2016, debt secured by assets of FCA US amounted to €3,446 million and included €2,678 million relating to the Tranche B Term Loans, €207 million due to creditors for assets acquired under finance leases and €561 million for other debt and financial commitments. 22. OTHER LIABILITIES AND TAX PAYABLES Other liabilities consisted of the following: Current Non- current 2017 Total Current (€ million) At December 31 Non- current 2016 Total Payables for buy-back agreements € 2,234 € — € 2,234 € 2,081 € — € 2,081 Indirect tax payables Accrued expenses and deferred income Payables to personnel Social security payables Amounts due to customers for contract work (Note 14) Other Total Other liabilities 799 1,573 988 313 190 1,838 7,935 € 19 2,260 16 6 — 199 818 3,833 1,004 319 190 667 1,320 1,006 312 236 2,037 2,187 968 2,428 34 7 — 166 1,635 3,748 1,040 319 236 2,353 € 2,500 € 10,435 € 7,809 € 3,603 € 11,412 2017 | ANNUAL REPORT202 An analysis of Other liabilities (excluding Accrued expenses and deferred income) by due date was as follows: Total due within one year (Current) Due between one and five years Due beyond five years Total due after one year (Non- Current) 2017 Total At December 31 2016 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 and deferred income) € 6,362 € 227 € 13 € 240 € 6,602 € 6,489 € 1,159 € 16 € 1,175 € 7,664 Payables for buy-back agreements refers 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. Indirect tax payables include federal taxes on commercial transactions accrued by the Group’s Brazilian subsidiaries for which, at December 31, 2016, the Group (as well as a number of important industrial groups that operate in Brazil) was awaiting a decision by the Brazilian Supreme Court regarding its claim alleging double taxation. On March 15, 2017, the Brazilian Supreme Court ruled that state value added tax should be excluded from the base 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. 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 believes a risk of economic outflow is still greater than remote. Deferred income includes revenues not yet recognized in relation to separately-priced extended warranties and service contracts. These revenues will be recognized in the Consolidated Income Statement over the contract period in proportion to the costs expected to be incurred based on historical information. Deferred income also includes the remaining portion of government grants that will be recognized as income in the Consolidated Income Statement over the periods necessary to match them with the related costs which they are intended to offset. On January 20, 2017, the last installment of U.S.$175 million (€166 million) was paid on the obligation arising from the 2014 memorandum of understanding between FCA US and the International Union, United Automobile, Aerospace and Agricultural Implement Workers of America, which was included within Other current liabilities at December 31, 2016. 2017 | ANNUAL REPORTConsolidated Financial StatementsNotes to the Consolidated Financial Statements203 At December 31 2016 Total due  within one year (Current) Due between one and five years Due beyond five years Total due after one year (Non- Current) Total 2017 Total (€ million) Tax payables An analysis by due date for Tax payables was as follows: Total due  within one year (Current) Due between one and five years Due beyond   five years Total due after one year (Non- Current) Tax payables € 309 € 32 € 42 € 74 € 383 € 162 € 25 € — € 25 € 187 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 for financial assets and liabilities that are measured at fair value on a recurring basis: Level 1 Level 2 Level 3 Note At December 31 Level 1 Level 2 Level 3 2016 Total 2017 Total (€ million) Debt securities and equity instruments measured at fair value through other comprehensive income Debt securities and equity instruments measured at fair value through profit or loss Collateral deposits Derivative financial assets Cash and cash equivalents Total Assets Derivative financial liabilities Total Liabilities 13 € 3 € 24 € — € 27 € 159 € 18 € 12 € 189 13 13 16 17 16 275 61 — 10,800 — — 254 1,838 € 11,139 € 2,116 — € — € 138 138 € € 2 — 30 — 32 1 1 277 61 284 312 68 — 12,638 15,790 — — 458 1,528 € 13,287 € 16,329 € 2,004 139 139 € — € — € 695 695 € € — — 21 — 33 2 2 312 68 479 17,318 € 18,366 697 697 € In 2017, 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. 2017 | ANNUAL REPORT204 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. In particular: 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 carrying value of Cash and cash equivalents (Note 17, Cash and cash equivalents) usually approximates fair value due to the short maturity of these instruments. The fair value of money market funds 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 following table provides a reconciliation of the changes in items measured at fair value and categorized within Level 3: At January 1, 2016 Gains/(Losses) recognized in Consolidated Income Statement Gains/(Losses) recognized in Other comprehensive income Issues/Settlements At December 31, 2016 Gains/(Losses) recognized in Consolidated Income Statement Gains/(Losses) recognized in Other comprehensive income Issues/Settlements At December 31, 2017 Securities Derivative financial assets/(liabilities) (€ million) 12 — — — 12 (10) — — 2 € € (35) (31) 62 23 19 27 18 (35) 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, €20 million was recognized within Cash flow reserves and €2 million was recognized within Currency translation differences. 2017 | ANNUAL REPORTConsolidated Financial StatementsNotes to the Consolidated Financial Statements205 Assets and liabilities not measured at fair value on recurring basis The carrying value for current receivables and payables is a reasonable approximation of the fair value as the present value of future cash flows does not differ significantly from the carrying amount. The following table provides the carrying amount and fair value for financial assets and liabilities not measured at fair value on a recurring basis: Carrying amount Note At December 31 2017 Fair Value (€ million) Carrying amount 2016 Fair Value Dealer financing Retail financing Finance lease Other receivables from financing activities Total Receivables from financing activities 15 Asset backed financing Notes Other debt Total Debt € € € 2,295 € 2,295 € 2,115 € 2,115 420 4 421 3,140 357 9,626 7,988 € € 405 4 421 3,125 357 10,365 8,001 € € 286 6 171 2,578 410 12,351 11,287 € € 285 6 171 2,577 410 13,164 11,311 24,885 21 € 17,971 € 18,723 € 24,048 € 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 for 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, 2017, €10,358 million and €7 million of notes were classified within Level 1 and Level 2, respectively. At December 31, 2016, €13,157 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 adjustments using unobservable inputs is categorized within Level 3 of the fair value hierarchy. At December 31, 2017, €6,796 million and €1,205 million of Other Debt was classified within Level 2 and Level 3, respectively. At December 31, 2016, €9,424 million and €1,887 million of Other Debt was classified within Level 2 and Level 3, respectively. 2017 | ANNUAL REPORT206 24. RELATED PARTY TRANSACTIONS Pursuant to IAS 24 - Related Party Disclosures, the related parties of the Group are 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 29.18 percent common shares shareholding interest and 42.34 percent voting power at December 31, 2017), which include Ferrari N.V. and CNHI. Exor N.V. received 73,606,222 of FCA common shares in connection with the conversion of the Mandatory Convertible Securities into FCA common shares on December 16, 2016 (Note 26, Equity). Related parties also include associates, joint ventures and unconsolidated subsidiaries of the Group. In addition, members of the FCA Board of Directors, and executives with strategic responsibilities and certain members of their families are also considered related parties. 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.; the sale of automotive lighting and automotive components to 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 joint ventures Tofas and FCA Bank leasing and renting subsidiaries; the sale of engines, other components and production systems and the purchase of light commercial vehicles with the joint operation Sevel S.p.A.; the sale of engines, other components and production systems to companies of CNHI; the purchase of vehicles, the provision of services and the sale of goods with 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 companies of CNHI; and the purchase of light commercial vehicles and passenger cars from the joint venture Tofas. 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 IAS 39 – Financial Instruments: Recognition and Measurement. 2017 | ANNUAL REPORTConsolidated Financial StatementsNotes to the Consolidated Financial Statements207 The amounts for significant transactions with related parties recognized in the Consolidated Income Statements were as follows: 2017 Selling, general and other costs, net Net Financial expenses/ (income) Net Revenues Cost of revenues 2016 Selling, general  and other costs, net Net Financial expenses/ (income) Net Revenues Cost of revenues 2015 Selling, general  and other costs, net Net Financial expenses Net Revenues Cost of revenues Years ended December 31 Tofas € 1,287 € 2,779 € 392 1,715 569 25 35 — 26 — 1 2 9 € 5 (20) (105) — (4) 4,023 2,808 (115) 73 526 82 — 1 52 329 320 — — (3) 2 1 114 26 (€ million) — € 1,536 € 2,811 € 3 € — € 1,533 € 1,611 € — € — 36 — — 2 38 (1) — — — — 381 1,571 683 23 36 — 18 — 1 5 5 (21) (82) (1) (3) 4,230 2,835 (99) 91 543 81 — — 47 422 246 — — — 3 — 143 26 — 39 — (1) — 38 — — — — — 311 1,447 252 15 29 — 14 — 4 22 3,587 1,651 143 564 n/a — — 14 431 n/a — 1 4 9 — — — 13 6 — n/a 132 17 — — 30 — — — 30 — — n/a — — 609 649 143 — 624 668 172 — 564 432 149 — 61 8 3 1 57 7 8 1 79 13 8 (1) € 4,766 € 3,517 € 28 € 38 € 5,002 € 3,557 € 81 € 39 € 4,373 € 2,110 € 176 € 29 € 110,934 € 93,975 € 7,385 € 1,469 € 111,018 € 95,295 € 7,568 € 2,016 € 110,595 € 97,620 € 7,576 € 2,366 Sevel S.p.A. FCA Bank GAC FCA JV Fiat India Automobiles Limited Other Total joint arrangements Total associates CNHI Ferrari N.V. Directors and Key Management Other Total CNHI, Ferrari, Directors and other Total unconsolidated subsidiaries Total transactions with related parties Total for the Group 2017 | ANNUAL REPORT208 Assets and liabilities from significant transactions with related parties were as follows: Trade and other receivables Trade payables Other liabilities Other liabilities Asset- backed financing 2017 Trade and other receivables Debt(1) (€ million) At December 31 2016 Trade payables Other liabilities Asset- backed financing Debt(1) Tofas Sevel S.p.A. FCA Bank GAC FCA JV Fiat India Automobiles Limited Other Total joint arrangements Total associates CNHI Ferrari N.V. Other Total CNHI, Ferrari N.V. and other Total unconsolidated subsidiaries Total originating from related parties Total for the Group € 34 € 240 € 50 € — € — € 28 € 298 € 23 466 58 7 20 608 36 47 23 1 71 83 — 206 15 13 1 475 32 86 75 2 163 8 6 199 1 5 — 261 13 11 — — 11 1 — 319 — — — 319 — — — — — — 1 32 — — — 33 — — — — — 28 33 201 121 2 25 410 30 80 25 — 105 84 — 248 2 — 4 552 18 82 75 2 159 9 52 4 108 4 — — 168 18 15 — — 15 1 € — € — 169 — — — 169 — — — — — — 169 € — 8 18 — — — 26 — 4 — — 4 25 55 € € 798 € 678 € 286 € 319 € 61 € 629 € 738 € 202 8,553 € 21,939 € 10,435 € 357 € 17,614 € 7,854 € 22,655 € 11,412 € € 410 € 23,638 (1) This relates to Debt excluding Asset-backed financing, refer to Note, 21 Debt . Commitments and Guarantees pledged in favor of related parties As of December 31, 2017, the Group had a take or pay commitment with Tofas with future minimum expected obligations as follows: 2018 2019 2020 2021 2022 2023 and thereafter € € € € € € (€ million) 340 276 269 250 159 — 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: Directors(1) Total Compensation Years ended December 31 2017 2016 (€ thousand) € € 29,861 29,861 € € 39,329 39,329 € € 2015 38,488 38,488 (1) This amount includes 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. 2017 | ANNUAL REPORTConsolidated Financial StatementsNotes to the Consolidated Financial Statements209 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 €81 million for 2017 (€103 million in 2016 and €65 million in 2015), which, in addition to base compensation, includes: an amount of approximately €49 million in 2017 (approximately €73 million in 2016 and approximately €38 million in 2015) for share-based compensation expense; an amount of approximately €8 million in 2017 (approximately €8 million in 2016 and approximately €8 million in 2015) for short-term employee benefits; and an amount of €9 million in 2017 (€6 million in 2016 and €3 million in 2015) for pension and similar benefits. 25. GUARANTEES GRANTED, COMMITMENTS AND CONTINGENT LIABILITIES Guarantees granted At December 31, 2017, the Group had pledged guarantees on the debt or commitments of third parties totaling €5 million (€8 million at December 31, 2016), as well as guarantees of €4 million on related party debt (€2 million at December 31, 2016). 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, nonrefundable 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, 2017, €67 million (U.S.$80 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. 2017 | ANNUAL REPORT210 At December 31, 2017, the maximum potential amount of future payments required to be made in accordance with these wholesale financing arrangements was approximately €285 million (US$319 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 less than €0.1 million at December 31, 2017, which considers both the likelihood that the triggering events will occur and the estimated payment that would be made net of the estimated value of inventory that would be reacquired upon the occurrence of such events. These estimates are based on historical experience. Arrangements with key suppliers From time to time, 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, 2017 were as follows: 2018 2019 2020 2021 2022 2023 and thereafter € € € € € € (€ million) 817 583 515 325 198 53 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: Due between one and three years Due between three and five years (€ million) Due within one year At December 31, 2017 Due beyond five years Total Future minimum lease payments under operating lease agreements € 352 € 457 € 298 € 396 € 1,503 During 2017, the Group recognized lease payments expense of €341 million (€339 million in 2016 and €246 million in 2015). Other commitments, arrangements and contractual rights UAW Labor Agreement In October 2015, FCA US and the UAW agreed to a new 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. 2017 | ANNUAL REPORTConsolidated Financial StatementsNotes to the Consolidated Financial Statements211 Italian labor agreement In April 2015, a new four-year compensation agreement was signed by FCA companies in Italy within the automobiles business. The new compensation agreement was subsequently included into the new 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 incentivizes 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 (“Business Plan Bonus”) for the EMEA region, including the activities of the premium brands Alfa Romeo and Maserati. A portion of the Business Plan Bonus is a guaranteed amount based on employees’ base salaries and is paid over four years in quarterly installments, while the remaining portion is to be paid in March 2019 to active employees as of December 31, 2018, with at least two years of service during 2015 through 2018. A total of €124 million, €117 million and €115 million was recorded as an expense for the compensation agreement for the years ended December 31, 2017, 2016 and 2015, respectively. Canada labor agreement FCA entered into a new 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 new agreement expires September 2020. Sevel S.p.A. As part of the Sevel cooperation agreement with Peugeot-Citroen SA (“PSA”), the Group was party to a call agreement with PSA whereby, from July 1, 2017 to September 30, 2017, the Group would have the right to acquire the residual interest in the joint operation Sevel with effect from December 31, 2017. During the period specified in the agreement the Group did not exercise its right to acquire the residual interest in the joint operation Sevel and such right expired. 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 €170 million and a total of €50 million has been recognized within Provisions related to these obligations as of December 31, 2017 and 2016. 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. 2017 | ANNUAL REPORT212 Takata airbag inflators On November 3, 2015, NHTSA issued the Takata Consent Order regarding Takata airbag inflators manufactured using non-desiccated Phase Stabilized Ammonium Nitrate (“PSAN”) that were installed in original equipment manufacturers’ vehicles. On May 4, 2016, NHTSA published an amendment to the original Takata Consent Order which expanded the scope of the original consent order to include 7.6 million additional units of non-desiccated PSAN airbag inflators, of which approximately 2 million inflator units were deferred and not yet subject to recall. In compliance with the amendment to the Takata Consent Order, on May 16, 2016, Takata submitted a Defect and Noncompliance Information Report (“DIR”) to NHTSA declaring the non-desiccated PSAN airbag inflators defective. As a result, FCA US announced a recall of vehicles, assembled in NAFTA, related to the May 16, 2016 DIR, which represented approximately 5.6 million inflator units. Considering the estimated cost of the recall and the estimated participation rate of the recalls taking into account the age of the vehicles involved, we recognized €414 million within Cost of revenues for the year ended December 31, 2016. The charges reflected our assumptions on participation rate based on the Group’s historical experience and industry data.  On January 2, 2018, Takata submitted a DIR to NHTSA declaring certain non-desiccated PSAN inflators contained in certain vehicles to be defective. As a result of Takata’s DIR, on January 9, 2018, FCA US submitted a DIR to NHTSA indicating that approximately 0.4 million units of the approximately 2 million inflator units that were deferred are now subject to recall. In accordance with IAS 10, Subsequent Events, and using the same assumptions based on our historical experience and industry data for the estimated participation rates taking into account the age of the vehicles involved, we recognized an additional provision of approximately €29 million within Cost of revenues for the year ended December 31, 2017. The remaining 1.6 million inflator units remain deferred and not yet subject to recall. As such, no costs have been accrued. We do not anticipate the cost associated with any potential recall would be material to the Group. In December 2017, FCA started to inform the authorities in LATAM that preventative safety campaigns will be launched for certain non-desiccated PSAN inflators manufactured by Takata. Considering the estimated cost of the preventative safety campaign and the estimated participation rates, which take into account the age of the vehicles involved, a provision of €73 million has been recognized at December 31, 2017. If our actual experience differs from our historical experience or industry data, this could result in an adjustment to the Takata warranty provision in the future. We continue to assess the condition and performance of airbag inflators supplied by Takata. While there have not been any known issues relating to the unrecalled units, as additional information, data and analysis become available and we continue discussions with our regulators, the number of inflator units that may become subject to recalls could be expanded. Any liability for the estimated cost for future recalls would be recognized in the period in which a recall becomes probable. Emissions Matters We have received inquiries from several regulatory authorities as they examine the on-road tailpipe emissions of several automakers’ vehicles. We are, when jurisdictionally appropriate, cooperating with a number of governmental agencies and authorities. In particular, 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 reported by KBA, 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 (“BMVI”), 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, which was borne out in material Italy provided during the mediation process. 2017 | ANNUAL REPORTConsolidated Financial StatementsNotes to the Consolidated Financial Statements213 In addition, at the request of the French Consumer Protection Agency, the French public prosecutor has been investigating diesel vehicles of a number of automakers including FCA, regarding whether the sale of those vehicles violated French consumer protection laws. The results of these inquiries cannot be predicted at this time; however, the intervention by a number of governmental agencies and authorities has required significant management time, which may divert attention from other key aspects of our business plan, or may lead to further enforcement actions as well as penalties or obligations to modify or recall vehicles, any of which may have a material adverse effect on our business, results of operations and reputation. On January 12, 2017, the U.S. Environmental Protection Agency (“EPA”) and the California Air Resources Board issued Notices of Violation related to certain software-based features in the emissions control systems in approximately 100,000 2014-2016 model year light-duty Ram 1500 and Jeep Grand Cherokee diesel vehicles. On May 23, 2017, the Environmental and Natural Resources Division of the U.S. Department of Justice (“DOJ-ENRD”) filed a civil lawsuit against us in connection with the concerns raised by the EPA. The complaint alleges that software- based features were not disclosed to the EPA as required during the vehicle emissions certification process, resulting in violations of the Clean Air Act. The complaint also alleges that certain of the software features bypass, defeat or render inoperative the vehicles’ emission control systems, causing the vehicles to emit higher levels of oxides of nitrogen (NOx) during certain normal real world driving conditions than during federal emissions tests. A number of private lawsuits relating to the vehicles have been filed in U.S. state and federal courts principally on behalf of consumers asserting fraud, violation of consumer protection laws, and other civil claims, including a putative class action that is proceeding in U.S. federal court in the Northern District of California. A number of other governmental agencies and authorities, including the U.S. Department of Justice, the U.S. Securities and Exchange Commission and various states Attorneys General have commenced related investigations. We have been working with the EPA and the CARB to clarify issues related to the Company’s emissions control systems technology and announced in May that we had developed updated emissions software calibrations for our model year 2017 light-duty Ram 1500 and Jeep Grand Cherokee diesel vehicles that we believe address the agencies’ concerns. Following this, we continued to work with the agencies on vehicle testing and refinements to these calibrations. The 2017 model year updates include modified emissions software calibrations, with no required hardware changes, and we believe that the modifications do not negatively impact the fuel efficiency or performance of the vehicles. In July 2017, we received vehicle emissions certifications from CARB and the EPA permitting the production and sale of our 2017 model year light-duty Ram 1500 and Jeep Grand Cherokee diesel vehicles in all 50 states. We continue to work with the EPA and CARB to seek their permission to use these modified emissions software calibrations to update the emissions control systems in our 2014-2016 model year light-duty Ram 1500 and Jeep Grand Cherokee diesel vehicles. We are unable to predict the outcome of these investigations and litigation at this stage and due to the range of possible outcomes, we are unable to reliably estimate a range of probable losses. 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. 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. 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. 2017 | ANNUAL REPORT214 Sales Reporting 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. We are also aware of 2 putative securities class action lawsuits pending 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. 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. Safety Recalls 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. At this stage of the proceedings, we are unable to reliably evaluate the likelihood that a loss will be incurred or estimate a range of possible loss. Rear Impact Litigation On July 9, 2012, a lawsuit was filed against FCA US in the Superior Court of Decatur County, Georgia, U.S. (the “Court”), 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). FCA US believes the jury verdict was not supported by the evidence or the law and appealed the Court’s verdict. 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 submitted extensive data to NHTSA validating that the vehicle performs as well as, or better than, peer vehicles in impact studies, and nothing revealed in the trial altered this data. During the trial, however, FCA US was not allowed to introduce all the data previously provided to NHTSA, which demonstrated that 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 December 23, 2016, FCA US filed a petition with the Georgia Supreme Court. Oral arguments were held on October 24, 2017. While a decision by the Georgia Supreme Court could affirm the judgment, FCA US is seeking an order from the Georgia Supreme Court to instead overturn the verdict, order a new trial, or further modify the amount of the judgment. We do not believe a loss, if any, will exceed the amount of the current judgment and believe it is more likely that a loss, if any, will be less than the current judgment and will be covered by our existing provisions. 2017 | ANNUAL REPORTConsolidated Financial StatementsNotes to the Consolidated Financial Statements215 26. EQUITY Share capital At December 31, 2017, the authorized share capital of FCA is 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, 2017, fully paid-up share capital of FCA amounted to €19 million (€19 million at December 31, 2016) and consisted of 1,540,089,690 common shares and of 408,941,767 special voting shares, all with a par value of €0.01 each (1,527,965,719 common shares and 408,941,767 special voting shares, all with a par value of €0.01 each at December 31, 2016). 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, 2017: Balance at January 1, 2017 Shares issued to Executive Directors (Directors’ Compensation) Shares issued to Non-Executive Directors (Directors’ Compensation) Shares issued to Key management Balance at December 31, 2017 Common Shares 1,527,965,719 2,795,500 54,855 9,273,616 Special Voting Shares 408,941,767 — — — Total 1,936,907,486 2,795,500 54,855 9,273,616 1,540,089,690 408,941,767 1,949,031,457 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 €11,594 million at December 31, 2017 (€10,866 million at December 31, 2016) that was determined in accordance to the Dutch law and mainly relates to development expenditures capitalized by subsidiaries and their earnings subject to certain restrictions on distributions to FCA; capital reserves of €5,817 million at December 31, 2017 (€5,766 million at December 31, 2016); retained earnings, that after the separation of the legal reserve was negative €333 million (negative €1,356 million at December 31, 2016); and profit attributable to owners of the parent of €3,491 million for the year ended December 31, 2017 (€1,803 million for the year ended December 31, 2016). 2017 | ANNUAL REPORT216 Other comprehensive income Other comprehensive income was as follows: Years ended December 31 2017 2016 2015 (€ million) Items that will not be reclassified to the Consolidated Income Statement in subsequent periods: (Losses)/gains on re-measurement of defined benefit plans € (64) € 584 € 679 Share of gains/(losses) on re-measurement of defined benefit plans for equity method investees Items relating to discontinued operations Total Items that will not be reclassified to the Consolidated Income Statement (B1) Items that may be reclassified to the Consolidated Income Statement in subsequent periods: Gains/(losses) on cash flow hedging instruments arising during the period Gains/(losses) on cash flow hedging instruments reclassified to the Consolidated Income Statement Total Gains/(losses) on cash flow hedging instruments Gains on available-for-sale financial assets Exchange (losses)/gains on translating foreign operations Share of Other comprehensive income/(loss) for equity method investees arising during the period Share of Other comprehensive income/(loss) for equity method investees reclassified to the Consolidated Income Statement Total Share of Other comprehensive (loss)/income for equity method investees Items relating to discontinued operations 2 — (62) 66 81 147 14 (1,942) (94) (27) (121) — (5) — 579 (54) (195) (249) 15 458 (97) (25) (122) — (2) 4 681 63 123 186 11 1,002 (18) 1 (17) 21 Total Items that may be reclassified to the Consolidated Income Statement (B2) (1,902) 102 1,203 Total Other comprehensive income (B1)+(B2)=(B) Tax effect Tax effect - discontinued operations Total Other comprehensive income, net of tax (1,964) (31) — 681 (192) — 1,884 (249) (4) € (1,995) € 489 € 1,631 Gains and losses arising from the re-measurement of defined benefit plans mainly 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). 2017 | ANNUAL REPORTConsolidated Financial StatementsNotes to the Consolidated Financial Statements217 The following table summarizes the tax effect relating to Other comprehensive income: 2017 2016 Pre-tax balance Tax income/ (expense) Net balance Pre-tax balance Tax income/ (expense) (€ million) Net balance Pre-tax balance Tax income/ (expense) 2015 Net balance Years ended December 31 € (64) € (21) € (85) € 584 € (261) € 323 € 679 € (201) € 478 147 14 (10) 137 (249) — 14 15 458 (1,942) — (1,942) (119) — — — (119) (127) — — 69 — — — — (180) 186 (48) 138 15 11 458 1,002 (127) — (19) 25 — — — (4) 11 1,002 (19) 21 € (1,964) € (31) € (1,995) € 681 € (192) € 489 € 1,884 € (253) € 1,631 (Losses)/gains on re-measurement of defined benefit plans Gains/(Losses) on cash flow hedging instruments Gains on available-for-sale financial assets Exchange (losses)/gains on translating foreign operations Share of Other comprehensive income/(loss) for equity method investees Items relating to discontinued operations Total Other comprehensive income 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. For 2017, the Board of Directors has not recommended a dividend payment on FCA common shares in order to further fund capital requirements of the Group’s business plan. 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 FCA shareholder in the Loyalty Register. Only a minimal dividend accrues to the special voting shares 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. 2017 | ANNUAL REPORT218 27. EARNINGS PER SHARE Basic earnings per share The basic earnings per share for the years ended December 31, 2017, 2016 and 2015 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. For the years ended December 31, 2017 and 2016, the weighted average number of shares outstanding included 238,846,375 shares from the conversion of the Mandatory Convertible Securities into FCA common shares in December 2016 (Note 26, Equity). For the year ended December 31, 2015, the weighted average number of shares outstanding was increased to include the minimum number of ordinary shares that would arise on conversion of the Mandatory Convertible Securities. The following tables provide the amounts used in the calculation of basic earnings per share: Net profit attributable to owners of the parent Weighted average number of shares outstanding Basic earnings per share Net profit from continuing operations attributable to owners of the parent Weighted average number of shares outstanding Basic earnings per share from continuing operations million thousand € million thousand € Net profit from discontinued operations attributable to owners of the parent million Weighted average number of shares outstanding Basic earnings per share from discontinued operations thousand € 2017 3,491 1,535,988 2.27 2017 3,491 1,535,988 2.27 € € € € Years ended December 31 2016 1,803 1,513,019 1.19 2015 334 1,510,555 0.22 € € Years ended December 31 2016 1,803 1,513,019 1.19 2015 83 1,510,555 0.05 € € Years ended December 31 2017 2016 — € — € 2015 251 1,535,988 1,513,019 1,510,555 — € — € 0.17 € € € € € € 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, 2017, 2016 and 2015 (Note 18, Share-based compensation), as determined using the treasury stock method. For the year ended December 31, 2015, the weighted average number of shares outstanding was also increased to take into consideration the theoretical effect that would arise if the shares related to the Mandatory Convertible Securities (Note 26, Equity) were issued. Based on FCA’s share price at December 31, 2015, the minimum number of shares would have been issued had the Mandatory Convertible Securities been converted and, as such, there was no difference between the basic and diluted earnings per share for the year ended December 31, 2015 in respect of the Mandatory Convertible Securities. 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, 2016 and 2015. 2017 | ANNUAL REPORTConsolidated Financial StatementsNotes to the Consolidated Financial Statements219 The following tables provide the amounts used in the calculation of diluted earnings per share: Net profit attributable to owners of the parent Weighted average number of shares outstanding Number of shares deployable for share-based compensation Weighted average number of shares outstanding for diluted earnings per share Diluted earnings per share Years ended December 31 2017 2016 million € 3,491 € 1,803 € 2015 334 thousand thousand thousand 1,535,988 1,513,019 1,510,555 20,318 13,357 3,452 1,556,306 1,526,376 1,514,007 € € 2.24 € 1.18 € 0.22 Net profit from continuing operations attributable to owners of the parent million Weighted average number of shares outstanding for diluted earnings per share thousand Diluted earnings per share from continuing operations € Net profit from discontinued operations attributable to owners of the parent million Weighted average number of shares outstanding for diluted earnings per share thousand Diluted earnings per share from discontinued operations € Years ended December 31 2017 3,491 1,556,306 2.24 2016 1,803 1,526,376 1.18 € € 2015 83 1,514,007 0.05 € € Years ended December 31 2017 2016 — € — € 2015 251 1,556,306 1,526,376 1,514,007 — € — € 0.17 € € € € 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 – Operating Segments, or whose information is considered useful for the users of the financial statements. The Group’s reportable segments include four regional mass-market vehicle operating segments (NAFTA, LATAM, APAC and EMEA), the Maserati global luxury brand operating segment and a global Components 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 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. 2017 | ANNUAL REPORT220 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. Components earns its revenues from the production and sale of lighting components, body control units, suspensions, shock absorbers, electronic systems, exhaust systems and plastic molding components. In addition, the segment earns revenues with its spare parts distribution activities carried out under the Magneti Marelli brand name, cast iron components for engines, gearboxes, transmissions and suspension systems and aluminum cylinder heads (Teksid), in addition to the design and production of industrial automation systems and related products for the automotive industry (Comau). 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. Other activities include the results of 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, 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. 2017 | ANNUAL REPORTConsolidated Financial StatementsNotes to the Consolidated Financial Statements221 The following tables summarize selected financial information by segment for the years ended December 31, 2017, 2016 and 2015: 2017 NAFTA LATAM APAC EMEA Maserati Components Mass-Market Vehicles Other activities Unallocated items & eliminations FCA € 66,094 € 8,004 € 3,250 € 22,700 € 4,058 € 10,115 € 727 € (4,014) € 110,934 (€ million) (47) (15) (32) (140) (21) (3,323) (436) 4,014 — € 66,047 € 7,989 € 3,218 € 22,560 € 4,037 € 6,792 € 291 € — € 110,934 Revenues Revenues from transactions with other segments Revenues from third party customers Net profit from continuing operations Tax expense Net financial expenses Adjustments: Reversal of a Brazilian indirect tax liability(1) Impairment expense(2) Recall campaigns - airbag inflators(3) Restructuring costs/ (reversal)(4) Resolution of certain Components legal matters Deconsolidation of Venezuela(5) € € € € € € NAFTA capacity realignment(6) € Tianjin (China) port explosions insurance recoveries(7) Gains on disposal of investments(8) Other € € € € € € 3,510 2,651 1,469 — € — € — € 77 € — € — € — € 142 € — € — € — € 10 € — € — € — € — € (895) 229 29 € 73 € — € — € — € — € — € — € 102 (1) € 75 € — € — € — € 20 € — € 1 € — € — € — € — € — € 43 € — € — € — € (38) € 42 € — € — € — € — € — € — € — € — € — € — € — € — € — € 95 43 42 (38) — € — € (68) € — € — € — € — € — € (68) — € (1) € — € — € — € 1 € — € — € — € — € (27) € (11) € — € — € (49) € 1 € (76) (10) Adjusted EBIT € 5,227 € 151 € 172 € 735 € 560 € 536 € (189) € (138) € 7,054 Share of profit of equity method investees € — € — € 75 € 306 € — € 14 € 13 € 1 € 409 (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. 2017 | ANNUAL REPORT222 2016 Revenues Revenues from transactions with other segments Revenues from third party customers Net profit from continuing operations Tax expense Net financial expenses Adjustments: Recall campaigns - airbag inflators(1) Costs for recall, net of supplier recoveries - contested with supplier(2) NAFTA capacity realignment(3) Tianjin (China) port explosions, net of insurance recoveries(4) Currency devaluation Restructuring costs/(reversal)(5) Impairment expense(6) Gains on disposal of investments Other Adjusted EBIT Share of profit of equity method investees € € € € € € € € € NAFTA LATAM APAC Mass-Market Vehicles EMEA Maserati Components (€ million) Other activities Unallocated items & eliminations FCA € 69,094 € 6,197 € 3,662 € 21,860 € 3,479 € 9,659 € 779 € (3,712) € 111,018 (40) (42) (24) (148) (10) (3,030) (418) 3,712 — € 69,054 € 6,155 € 3,638 € 21,712 € 3,469 € 6,629 € 361 € — € 111,018 414 € — € — € — € — € — € — € — € 414 € € € 1,814 1,292 2,016 132 € 156 € — € — € (10) € — € — € (25) € — € — € — € 19 € 68 € 52 € — € 3 € 5 € — € — € (55) € — € — € 109 € — € (10) € 105 € — € — € — € — € 5 € 7 € — € — € — € — € — € — € — € — € — € — € — € — € — € — € 25 € 49 € (8) € — € — € — € — € — € — € 8 € (5) € — € — € — € — € — € — € — € — € — € 132 156 (55) 19 88 225 (13) (32) 540 € 339 € 445 € (244) € (267) € 6,056 € 5,133 € € 2 € — € 30 € 272 € — € 6 € 2 € 1 € 313 (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. 2017 | ANNUAL REPORTConsolidated Financial StatementsNotes to the Consolidated Financial Statements223 NAFTA LATAM APAC Mass-Market Vehicles EMEA Maserati Components (€ million) Other activities Unallocated items & eliminations FCA € 69,992 € 6,431 € 4,885 € 20,350 € 2,411 € 9,770 € 844 € (4,088) € 110,595 (1) (194) (25) (304) (13) (3,095) (456) 4,088 — € 69,991 € 6,237 € 4,860 € 20,046 € 2,398 € 6,675 € 388 € — € 110,595 — € — € — € — € — € 46 € — € 1 € — € — € — € — € — € 3 € — € — € — € — € — € — € — € 20 € 23 € 8 € — € — € — € — € — € — € 2 € (1) € € € € 93 166 2,366 — € — € — € — € — € 11 € (1) € 2 € 761 142 834 163 144 118 53 (46) 213 € 105 € 395 € (150) € (184) € 4,794 € € € € € € € € 761 € — € 834 € — € — € — € — € 163 € — € 142 € — € — € 144 € — € (11) € (97) € — € 16 € 40 € — € € 4,450 € (87) € — € 22 € — € 41 € 52 € € 3 € — € (78) € 219 € — € (2) € (12) € — € 130 2015 Revenues Revenues from transactions with other segments Revenues from third party customers Net profit from continuing operations Tax expense Net financial expenses Adjustments: Change in estimate for future recall campaign costs(1) Tianjin (China) port explosions(2) NAFTA capacity realignment(3) Currency devaluations(4) NHTSA Consent Order and amendment(5) Impairment expense Restructuring costs/(reversal) Other Adjusted EBIT Share of profit of equity method investees (1) Amount represents the change in estimate for estimated future recall campaign costs for the U.S. and Canada recognized within Cost of revenues - refer to Note 20, Provisions; (2) Amount relates to the write-down of inventory (€53 million) and incremental incentives (€89 million) for vehicles affected by the explosions at the Port of Tianjin in August 2015; (3) Amount represents costs from implementation of plan to realign existing NAFTA capacity - comprised of €422 million for asset impairments, €236 million for payment of supplemental unemployment benefits due to extended downtime at certain plants and €176 million for write off of capitalized development expenditures with no future benefit; (4) €80 million was due to adoption of SIMADI exchange rate at June 30, 2015 (refer to Note 3, Scope of consolidation, and €83 million was due to the devaluation of the Argentinian Peso resulting from changes in monetary policy; (5) Refer to Note 20, Provisions. 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: North America Italy Brazil Poland Serbia Other countries Total Non-current assets (other than financial instruments, deferred tax assets and post-employment benefits assets) € At December 31 2017 (€ million) 34,099 € 12,458 5,137 1,151 639 2,536 2016 35,833 12,558 6,310 1,117 660 2,582 € 56,020 € 59,060 2017 | ANNUAL REPORT224 29. EXPLANATORY NOTES TO THE CONSOLIDATED STATEMENT OF CASH FLOWS Non-cash items For the year ended December 31, 2017, Other non-cash items of €(199) million primarily €406 million related to the revaluation of investments accounted for by using the equity method, partially offset by €229 million of impairments and other amounts that were not individually material. For the year ended December 31, 2016, Other non-cash items of €111 million primarily included €225 million of impairments, which were partially offset by other amounts that were not individually material. For the year ended December 31, 2015, Other non-cash items of €812 million primarily included (i) €713 million non- cash charges for impairments which primarily related to asset impairments in connection with the realignment of the Group’s manufacturing capacity in NAFTA to better meet market demand and (ii) €80 million charge recognized as a result of the adoption of the SIMADI exchange rate to re-measure the net monetary assets of the Group’s Venezuelan subsidiary in U.S. Dollar (as described in Note 3. Scope of consolidation) (reported, for the effect on cash and cash equivalents, within Translation exchange differences). Operating activities For the year ended December 31, 2017, the €1,666 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 €1,086 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 €1,519 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 €471 million increase in inventories primarily related to the increased production of new vehicle models in EMEA and the €776 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 €295 million primarily reflected the net payment of taxes and deferred expenses. For the year ended December 31, 2015, the net increase of €3,206 million in provisions mainly related to an increase in the warranty provision, which included the change in estimate for future recall campaign costs in NAFTA, and higher accrued sales incentives primarily related to increased sales volumes in NAFTA. In addition, the €958 million increase in inventories reflected the increased consumer demand for our vehicles and inventory buildup in NAFTA due to production changeovers and the €1,571 million increase in trade payables mainly related to increased production levels in EMEA. Furthermore, the change in other payables and receivables of €580 million primarily reflected the net payment of taxes and deferred expenses. Financing activities For the year ended December 31, 2017, net cash used in financing activities was primarily the result of the (i) repayment of other long-term debt, net of proceeds, of €889 million, which included (a) the U.S.$1,826 million (€1,721 million) of cash used for the voluntary prepayment of the outstanding principal and accrued interest of FCA US’s Tranche B Term Loan due 2017 and (b) the repayment of a note 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. 2017 | ANNUAL REPORTConsolidated Financial StatementsNotes to the Consolidated Financial Statements225 For the year ended December 31, 2016, net cash used in financing activities was primarily the result of the (i) repayment of other long-term debt for a total of €4,618 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, as well as (ii) 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, 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 €1,342 million, which included the proceeds from the €250 million loan entered into with the EIB in December 2016 as described in Note 21, Debt. For the year ended December 31, 2015, net cash from financing activities was primarily the result of (i) the prepayment of the FCA US Secured Senior Notes and the repayment at maturity of two notes issued under the MTN Programme for a total of €7,241 million and (ii) the repayment of other long-term debt for a total of €4,412 million, which were partially offset by (iii) net proceeds of €866 million from the Ferrari IPO as described in Note 3, Scope of consolidation, (iv) proceeds from the issuance of the Notes by FCA for a total of €2,840 million as described in Note 21, Debt, (v) €3,061 million provided by other long-term borrowings and (vi) net proceeds from the €2.0 billion Ferrari Bridge Loan and Ferrari Term Loan, which are reflected within cash flows used in financing activities - discontinued operations in the Consolidated Statement of Cash Flows. The following is a reconciliation of liabilities arising from financing activities for the year ended December 31, 2017: Total Debt at January 1, 2017 Derivative (assets)/liabilities and collateral at January 1, 2017 Total Liabilities from financing activities at January 1, 2017 Cash flows Foreign exchange effects Fair value changes Changes in scope of consolidation Other changes Total Liabilities from financing activities at December 31, 2017 Derivative (assets)/liabilities and collateral at December 31, 2017 Total Debt at December 31, 2017 € € € € € € € € € (€ million) 24,048 150 24,198 (4,470) (1,311) (286) (83) (283) 17,765 (206) 17,971 Interest expense and taxes paid During the year December 31, 2017, the Group paid interest of €1,190 million and received interest of €299 million. During the year ended December 31, 2016, the Group paid interest of €1,676 million and received interest of €370 million. During the year ended December 31, 2015, the Group, including Ferrari, paid interest of €2,087 million and received interest of €469 million. Amounts indicated are also inclusive of interest rate differentials paid or received on interest rate derivatives. During the year ended December 31, 2017, the Group made income tax payments, net of refunds, totaling €533 million. During the year ended December 31, 2016, the Group made income tax payments, net of refunds, totaling €622 million. During the year ended December 31, 2015, the Group, including Ferrari, made income tax payments, net of refunds, totaling €664 million. 2017 | ANNUAL REPORT226 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 Credit risk is the risk of economic loss arising from the failure to collect a receivable. Credit risk encompasses the direct risk of default and the risk of a deterioration of the creditworthiness of the counterparty. The Group’s credit risk differs in relation to the activities carried out. In particular, dealer financing and operating and financial lease activities that are carried out through the Group’s financial services companies are exposed both to the direct risk of default and the deterioration of the creditworthiness of the counterparty, while the sale of vehicles and spare parts is mostly exposed to the direct risk of default of the counterparty. These risks are however mitigated by the fact that collection exposure is spread across a large number of counterparties and customers. Overall, the credit risk regarding the Group’s trade receivables and receivables from financing activities is concentrated in the European Union, Latin America and North American markets. In order to test for impairment, significant receivables from corporate customers and receivables for which collectability is at risk are assessed individually, while receivables from end customers or small business customers are grouped into homogeneous risk categories. A receivable is considered impaired when there is objective evidence that the Group will be unable to collect all amounts due specified in the contractual terms. Objective evidence may be provided by the following factors: significant financial difficulties of the counterparty, the probability that the counterparty will be involved in an insolvency procedure or will default on its installment payments, the restructuring or renegotiation of open items with the counterparty, changes in the payment status of one or more debtors included in a specific risk category and other contractual breaches. The calculation of the amount of the impairment loss is based on the risk of default by the counterparty, which is determined by taking into account all the information available as to the customer’s solvency, the fair value of any guarantees received for the receivable and the Group’s historical experience. The maximum credit risk to which the Group is potentially exposed at December 31, 2017 is represented by the carrying amounts of financial assets in the financial statements 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. 2017 | ANNUAL REPORTConsolidated Financial StatementsNotes to the Consolidated Financial Statements227 Dealers and final customers for which the Group provides financing are subject to specific assessments of their creditworthiness under a detailed scoring system; in addition to carrying out this screening process, the Group also obtains financial and non-financial guarantees for risks arising from credit granted. 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 (€2,578 million at December 31, 2016) contained balances totaling €5 million (€4 million at December 31, 2016), which have been written down on an individual basis. Of the remainder, balances totaling €46 million are past due by up to one month (€34 million at December 31, 2016), while balances totaling €21 million are past due by more than one month (€19 million at December 31, 2016). 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 (€5,276 million at December 31, 2016) contain balances totaling €15 million (€9 million at December 31, 2016) which have been written down on an individual basis. Of the remainder, balances totaling €271 million are past due by up to one month (€228 million at December 31, 2016), while balances totaling €233 million are past due by more than one month (€228 million at December 31, 2016). 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 instruments that are measured at fair value, there was no exposure to sovereign debt securities at December 31, 2017 which might lead to significant risk of repayment. Liquidity risk Liquidity risk is the risk if 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 various funding sources. 2017 | ANNUAL REPORT228 In 2016, in conjunction with the amendments to the credit agreements that govern the Tranche B Term Loans of FCA US entered into in March 2016, the covenants restricting the provision of guarantees and payment of dividends by FCA US for the benefit of the rest of the Group were eliminated and FCA US’s cash management activities are no longer managed separately from the rest of the Group. FCA has not provided any guarantee, commitment or similar obligation in relation to any of FCA US’s financial indebtedness, nor has it assumed any kind of obligation or commitment to fund FCA US. Certain notes issued by FCA and its subsidiaries (other than FCA US and its subsidiaries) include covenants which may be affected by circumstances related to FCA US as well as certain other relevant subsidiaries, including cross-default clauses which may accelerate repayments in the event that FCA US fails to pay certain of its 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, commodity price risk and interest rate 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. 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. 2017 | ANNUAL REPORTConsolidated Financial StatementsNotes to the Consolidated Financial Statements229 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. 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 monetary 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 monetary assets and liabilities reported in Euro, even when corresponding items are unchanged in the respective local currency of these companies. 2017 | ANNUAL REPORT230 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 2017 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, cross-currency interest rate and currency swaps) at December 31, 2017 resulting from a 10 percent change in the exchange rates would have been approximately €1,010 million (€1,453 million at December 31, 2016). 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, 2017, resulting from a hypothetical 10 percent change in market interest rates, would have been approximately €71 million (approximately €56 million at December 31, 2016). 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, 2017, 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 €27 million (€30 million at December 31, 2016). 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. 2017 | ANNUAL REPORTConsolidated Financial StatementsNotes to the Consolidated Financial Statements231 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, 2017, a hypothetical 10 percent change in the price of the commodities at that date would have caused a fair value loss of €51 million (€35 million at December 31, 2016). 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 20, 2018, which is the date the financial statements were authorized for issuance. In January 2018, as a result of the distribution of the Company’s entire interest in GEDI to holders of FCA common shares on July 2, 2017, the Compensation Committee of FCA approved a conversion factor of 1.003733 that was applied to outstanding awards under the LTI Plan to make equity award holders whole for the resulting diminution in the value of an FCA common share. There was no change to the total cost of these awards to be amortized over the remaining vesting period as a result of these adjustments. On January 11, 2018, a special bonus payment was announced of $2,000 (approximately €1,670) to approximately 60,000 FCA hourly and salaried employees in the United States, excluding senior leadership, during the second quarter of 2018 for an estimated total cost including applicable social taxes, of approximately $130 million (€109 million). 2017 | ANNUAL REPORTCompany Financial Statements AT DECEMBER 31, 2017 Index to Company Financial Statements Income Statement ________________________________________________________________________________ 234 Statement of Financial Position ____________________________________________________________________ 235 Notes to the Company Financial Statements _________________________________________________________ 236 Other Information _________________________________________________________________________________ 246 Disclosures pursuant to Decree Article 10 EU-Directive on Takeovers __________________________________ 248 234 Income Statement Income Statement (in € million) Result from investments Other operating income Personnel costs Other operating costs Net financial expenses Profit before taxes Income taxes Profit from continuing operations Profit from discontinued operations Profit Note 1 2 3 4 5 6 Years Ended December 31 € 2017 3,877 € 61 (12) (166) (281) 3,479 12 3,491 — € 3,491 € 2016 2,237 31 (11) (162) (301) 1,794 9 1,803 — 1,803 The accompanying notes are an integral part of the Company Financial Statements. 2017 | ANNUAL REPORTCompany Financial Statements235 Statement of Financial Position At December 31 2016 27 25,238 3,670 28,935 560 17 216 1 794 31,162 € 29,729 € 27 € 27,323 3,228 30,578 239 15 329 1 584 € € 19 € 5,817 11,825 (333) 3,491 20,819 39 3,742 11 3,792 2 7 6,142 — 400 6,551 € 31,162 € 19 5,766 12,936 (1,356) 1,803 19,168 39 4,079 13 4,131 2 15 6,081 47 285 6,430 29,729 Statement of Financial Position (in € million) Note 2017 Assets Property, plant and equipment Investments in Group companies and other equity investments Other financial assets Total Non-current assets Current financial assets Trade receivables Other current receivables Cash and cash equivalents Total Current assets Total Assets Equity and Liabilities Equity Share capital Capital reserves Legal reserves Retained profit/(loss) Profit for the year Total Equity Liabilities Provisions for employee benefits and other provisions Non-current debt Other non-current liabilities Total Non-current liabilities Provisions for employee benefits and other current provisions Trade payables Current debt Other financial liabilities Other debt Total Current liabilities Total Equity and liabilities 7 8 9 10 11 12 13 14 15 16 17 18 19 20 9 21 The accompanying notes are an integral part of the Company Financial Statements. 2017 | ANNUAL REPORTCompany Financial Statements236 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. ACCOUNTING POLICIES Basis of preparation The 2017 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. 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, 2017. 2017 | ANNUAL REPORTCompany Financial StatementsNotes to the Company Financial Statements237 COMPOSITION AND PRINCIPAL CHANGES 1. Result from investments The following table summarizes the Result from investments: Share of the profit/(loss) of Group companies Gains from disposal of investments Dividends from other companies Total Result from investments Years Ended December 31 2017 (€ million) 3,827 € 49 1 3,877 € 2016 2,234 — 3 2,237 € € Result from investments primarily related to the Company’s share in the net profit or loss of subsidiaries and associates. 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: Revenues from services rendered to, and other income from, Group companies and other related parties Other revenues and income from third parties Total Other operating income € € Years Ended December 31 2017 (€ million) 31 30 61 € € 2016 31 — 31 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, 2017, of €12 million (€11 million in 2016) primarily related to wages and salaries. The average number of employees in 2017 was 48 (51 in 2016). 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. 2017 | ANNUAL REPORT238 5. Net financial expenses The following table summarizes Net financial expenses: Financial income Financial expense Currency exchange (losses)/gains Net gains/(losses) on derivative financial instruments Total Net financial expenses Years Ended December 31 2017 (€ million) 194 € (457) (101) 83 (281) € 2016 293 (582) (29) 17 (301) € € 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 the lower average outstanding amounts of these loans during 2017 as compared to 2016, following the U.S. $1.5 billion loan repayment which occurred in September 2016. 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 2017 as compared to 2016. Currency exchange losses of €101 million for the year ended December 31, 2017 reflected the net impact of revaluation of the Euro against the U.S. Dollar on loans extended to FCA NAH LLC and the unsecured senior debt securities issued in April 2015, both denominated in U.S. Dollar, described above. These losses were partially offset by €83 million Net gains on derivative instruments. 6. Income taxes Income taxes were a gain of €12 million in 2017 (gain of €9 million in 2016), primarily relating 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 resulting from the adoption of the equity method is tax neutral. 7. Property, plant and equipment At December 31, 2017, the carrying amount of property, plant and equipment was €27 million (€27 million at December 31, 2016), consisting of the gross carrying amount of assets of €70 million (€68 million at December 31, 2016) and accumulated depreciation of €43 million (€41 million at December 31, 2016), of which €25 million related to the Company’s property in Turin (€25 million at December 31, 2016). No buildings were 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. 8. Investments in Group companies and other equity investments The following table summarizes Investments in Group companies and other equity investments: Investments in Group companies Other equity investments Total Investments in Group companies and other equity investments 2017 2016 Change At December 31 € € (€ million) 27,300 23 27,323 € € 25,087 151 25,238 € € 2,213 (128) 2,085 2017 | ANNUAL REPORTCompany Financial StatementsNotes to the Company Financial Statements239 Investments in Group companies were subject to the following changes during 2017 and 2016: Balance at beginning of year Capital injection into joint ventures Transactions related to Ferrari reorganization Net Acquisition/(Disposal) of subsidiaries from/to Group companies Net contributions made to subsidiaries Dividends received from subsidiaries Share of the profit/(loss) of Group companies Cumulative translation adjustments and other OCI movements Other Balance at end of year 2017 (€ million) 2016 € 25,087 € 22,033 — — 383 125 (264) 3,827 (2,031) 173 82 (52) 43 1,471 (1,293) 2,234 556 13 € 27,300 € 25,087 The increase in Investments in Group companies in 2017 primarily related to the Share of the profit/(loss) of Group companies of €3,827 million, net acquisition of subsidiaries 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 Fiat Chrysler UK LLP of €264 million. The increase in Investments in Group companies in 2016 primarily related to the Share of the profit/(loss) of Group companies of €2,234 million and net contributions made to subsidiaries of €1,471 million, partially offset by dividends received from FCA North America Holdings LLC and Fiat Chrysler UK LLP of €1,293 million. The €128 million decrease in Other equity investments related to the sale of 15,948,275 common shares in CNHI (carrying value of €132 million at December 31, 2016), which was partially offset by approximately €4 million relating to the fair value remeasurement of the residual equity investments. 9. Other financial assets At December 31, 2017, Other financial assets amounted to €3,228 million (€3,670 million at December 31, 2016), primarily represented by U.S. $3.9 billion of intercompany loans extended to FCA NAH LLC. The €442 million decrease in Other financial assets was fully attributable to foreign exchange differences due to the revaluation of the Euro against the U.S. Dollar. 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 US. The carrying amount of €735 million at December 31, 2017 (€836 million at December 31, 2016), 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 €2,476 million at December 31, 2017, related to the outstanding principal amount only, with no accrued interest receivable due (€2,850 million at December 31, 2016 that included a principal amount of €2,818 million and accrued interest of €32 million, separately reported within Current financial assets). 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 €0.4 million of intercompany derivative liabilities at December 31, 2017 included within Other financial liabilities (€47 million at December 31, 2016). 2017 | ANNUAL REPORT240 10. Current financial assets At December 31, 2017, Current financial assets primarily related to a short-term intercompany deposit of €201 million with Fiat Chrysler Finance Europe S.A. At December 31, 2016, Current financial assets primarily related to a short-term intercompany deposit of €500 million with Fiat Chrysler Finance Europe S.A. and accrued interest receivable on the intercompany loans to FCA NAH LLC of €32 million, as reported within Other financial assets. 11. Trade receivables At December 31, 2017, 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, 2017, Other current receivables amounted to €329 million, a net increase of €113 million as compared to December 31, 2016, and consisted of the following: 2017 2016 Change At December 31 Receivable from Group companies for consolidated Italian corporate tax € VAT receivables Italian corporate tax receivables Other Total Other current receivables (€ million) € 112 € 63 18 23 153 134 19 23 € 329 € 216 € 41 71 1 — 113 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 2017 and prior years. 13. Cash and cash equivalents At December 31, 2017, Cash and cash equivalents totaled €1 million (€1 million as at December 31, 2016) 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. 2017 | ANNUAL REPORTCompany Financial StatementsNotes to the Company Financial Statements241 14. Equity Changes in Shareholders’ equity during 2017 were as follows: (€ million) At December 31, 2015 Allocation of prior year result Mandatory Convertible Securities Share-based compensation Net profit for the year Current period change in OCI, net of taxes Legal Reserve Other changes At December 31, 2016 Allocation of prior year result Share-based compensation Net profit for the year Current period change in OCI, net of taxes Legal Reserve Other changes Legal Reserves: Cumulative translation adjustment reserve / OCI 1,438 € Share Capital 17 € Capital Reserves € 3,805 Legal Reserves: Other € 11,744 Retained profit/(loss) (533) € Profit/ (loss) for the year 334 € Total equity € 16,805 — 2 — — — — — 19 — — — — — — — 1,908 98 — — — (45) 5,766 — 115 — — — (64) — — — — 632 — — — (1,910) — — — 1,032 — 2,070 10,866 — — — (1,839) — — — — — — 728 — 334 (334) — — — — (1,032) (125) (1,356) 1,803 — — — (728) (52) — — 1,803 — — — 1,803 (1,803) — 3,491 — — — — — 98 1,803 632 — (170) 19,168 — 115 3,491 (1,839) — (116) At December 31, 2017 € 19 € 5,817 € 231 € 11,594 € (333) € 3,491 € 20,819 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 primarily to foreign exchange differences. Shareholders’ equity increased by €2,363 million in 2016, primarily due to profit for the year of €1,803 million and movements in OCI of €632 million, relating to foreign exchange differences and the remeasurement of defined benefit plans. Share capital At December 31, 2017, the fully paid-up share capital of FCA amounted to €19 million (€19 million at December 31, 2016) and consisted of 1,540,089,690 common shares and 408,941,767 special voting shares, all with a par value of €0.01 each (1,527,965,719 common shares and 408,941,767 special voting shares at December 31, 2016). Capital reserves At December 31, 2017, capital reserves amounting to €5,817 million (€5,766 million at December 31, 2016) 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 December 2016, capital reserves increased €1,908 million as a result of conversion of the equity component of the Mandatory Convertible Securities issued in 2014. 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, 2017, legal reserves amounted to €11,594 million (€10,866 million at December 31, 2016) and mainly related to development costs capitalized by subsidiaries of €9,697 million (€9,359 million at December 31, 2016), the earnings of subsidiaries subject to certain restrictions to distributions to the parent company of €1,893 million (€1,503 million at December 31, 2016), and the reserve in respect of special voting shares of €4 million (€4 million at December 31, 2016). Legal reserves also included unrealized currency translation gains and losses and other OCI components of €231 million (€2,070 million at December 31, 2016). 2017 | ANNUAL REPORT242 Dividends In order to further fund the capital requirements of the Group’s five-year business plan, the Board of Directors has decided not to recommend a dividend on FCA common shares for 2017. 15. Provisions for employee benefits and other provisions At December 31, 2017, provisions for employee benefits and other provisions totaled €39 million, in line with 2016. 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, 2017, non-current debt totaled €3,742 million, representing a decrease of €337 million over December 31, 2016, and consisted of the following: Third-party debt: - Unsecured senior debt securities Total third-party debt Intercompany debt: - Intercompany financial payables Total intercompany debt Total Non-current debt 2017 2016 Change At December 31 (€ million) € € € € € 3,726 3,726 16 16 3,742 € € € € € 4,063 4,063 16 16 4,079 € € € € € (337) (337) — — (337) At December 31, 2017, Non-current debt of €3,742 million (€4,079 million at December 31, 2016), 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 decrease of €337 million as compared to December 31, 2016 was almost fully attributable to foreign exchange differences following the revaluation of the Euro against the U.S. Dollar. 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. 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 “Initial 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 “Initial 2023 Notes”) at par. The Initial 2020 Notes and the Initial 2023 Notes, collectively referred to as “the Initial 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 Initial Notes. On June 17, 2015, subject to the terms and conditions set forth in our prospectus, FCA commenced an offer to exchange up to €1.4 billion (U.S.$1.5 billion) aggregate principal amount of new 4.5 percent unsecured senior debt securities due 2020 (“2020 Notes”), for any and all of our outstanding Initial 2020 Notes issued on April 14, 2015, and up to €1.4 billion (U.S.$1.5 billion) aggregate principal amount of new 5.25 percent unsecured senior debt securities due 2023 (“2023 Notes”), for any and all of the outstanding Initial 2023 Notes issued on April 14, 2015. The 2020 Notes and the 2023 Notes, collectively referred to as “the Notes”, were identical in all material respects to the Initial Notes, except that the Notes did not contain restrictions on transfer. The exchange offer expired on July 23, 2015. Substantially all of the Initial Notes were tendered for the Notes. 2017 | ANNUAL REPORTCompany Financial StatementsNotes to the Company Financial Statements243 17. Other non-current liabilities At 31 December 2017, other non-current liabilities totaled €11 million: Other non-current liabilities Total Other non-current liabilities 2017 2016 Change At December 31 (€ million) € € 11 11 € € 13 13 € € (2) (2) 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: Provisions for employee benefits and other current provisions Total Provisions for employee benefits and other current provisions € € 2 2 € € 2 2 € € — — 2017 2016 Change At December 31 (€ million) 19. Trade payables At December 31, 2017, trade payables totaled €7 million, a decrease of €8 million from December 31, 2016, and consisted of the following: Trade payables due to third parties Intercompany trade payables Total trade payables 2017 2016 Change At December 31 (€ million) 3 4 7 € € 8 7 15 € € (5) (3) (8) € € Trade payables are due within one year and their carrying amount at the reporting date is deemed to approximate their fair value. 20. Current debt At December 31, 2017, current debt totaled €6,142 million, a €61 million increase over December 31, 2016 and related to: Intercompany debt: - Current account with Fiat Chrysler Finance S.p.A. - Current account with Fiat Chrysler Finance Europe S.A. Total intercompany debt Third party debt: - Advances on factored receivables - Accrued interest payable Total third party debt Total current debt 2017 2016 Change At December 31 (€ million) € € € € 99 5,981 6,080 — 62 62 6,142 € € € € 84 5,932 6,016 — 65 65 6,081 € € € € 15 49 64 — (3) (3) 61 2017 | ANNUAL REPORT244 Current intercompany debt of €6,080 million (€6,016 million at December 31, 2016) is denominated in Euro and the carrying amount is in line with 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 €62 million relates to the unsecured senior debt securities referred to in Note 16, Non- current debt. 21. Other debt At December 31, 2017, Other debt totaled €400 million, a net increase of €115 million over December 31, 2016, and included the following: Intercompany other debt: - Consolidated Italian corporate tax - Consolidated VAT - Other Total intercompany other debt Other debt and taxes payable: - Distribution payable - Taxes payable - Accrued expenses - Other payables Total Other debt and taxes payable Total Other debt 2017 2016 Change At December 31 (€ million) € 149 239 2 € 113 158 3 390 € 274 € — € — € 1 4 5 10 400 € € 2 4 5 11 285 € € 36 81 (1) 116 — (1) — — (1) 115 € € € € € At December 31, 2017, intercompany debt relating to consolidated VAT of €239 million (€158 million at December 31, 2016) 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 €149 million (€113 million at December 31, 2016) consisted of compensation payable for tax losses and Italian corporate tax credits contributed by Italian subsidiaries participating in the domestic tax consolidation program for 2017, 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. 22. Guarantees granted, commitments and contingent liabilities Guarantees granted At December 31, 2017, guarantees issued totaled €9,318 million (€11,823 million at December 31, 2016) wholly provided on behalf of Group companies. The decrease of €2,505 million as compared to 31 December 2016 related principally to the repayment of bonds from Fiat Chrysler Finance Europe S.A. The main guarantees outstanding at 31 December 2017 were as follows: €5,845 million for bonds issued; €1,641 million for borrowings, of which €620 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 €1,829 million for VAT reimbursements related to the VAT consolidation scheme in Italy. 2017 | ANNUAL REPORTCompany Financial StatementsNotes to the Company Financial Statements245 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, 2017, to which reference should be made. 23. Audit fees The following table reports fees paid to the independent auditor Ernst & Young, or entities in their network, for audit and other services: (€ thousand) Audit of the (consolidated and company) financial statements Other audit Tax advice Total Years Ended December 31 2017 18,601 € 398 100 2016 19,180 761 241 19,099 € 20,182 € € 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 options) is included in the Remuneration of Directors section of this Annual Report. 25. Subsequent events The Group has evaluated subsequent events through February 20, 2018, which is the date the financial statements were authorized for issuance, as described in Note 31, Subsequent Events, within the Consolidated Financial Statements. February 20, 2018 The Board of Directors John Elkann Sergio Marchionne Andrea Agnelli Tiberto Brandolini d’Adda Glenn Earle Valerie A. Mars Ruth J. Simmons Ronald L. Thompson Michelangelo A. Volpi Patience Wheatcroft Ermenegildo Zegna 2017 | ANNUAL REPORT246 Other Information Other Information 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 articles 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. 2017 | ANNUAL REPORTCompany Financial Statements247 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 in the case of interim distributions of profits, the Board of Directors 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. 2017 | ANNUAL REPORT248 Disclosures pursuant to Decree Article 10 EU-Directive on Takeovers 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 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 31 December 2017, the issued share capital of the Company consisted of 1,540,089,690 common shares, representing 79 per cent. of the aggregate issued share capital and 408,941,767 special voting shares, representing 21 per cent. 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 chapter “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% 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. 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, such 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. 2017 | ANNUAL REPORTCompany Financial Statements249 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, will be altered or will be 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 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). 2017 | ANNUAL REPORT250 2017 | ANNUAL REPORTCompany Financial StatementsNotes to the Company Financial Statements251 Appendix -- FCA Companies AT DECEMBER 31, 2017 2017 | ANNUAL REPORTCompany Financial StatementsNotes to the Company Financial Statements252 Fiat Chrysler Automobiles N.V. Amsterdam Netherlands 19,490,315 EUR -- -- -- -- Controlling company Parent Company Subsidiaries consolidated on a line-by-line basis Mass-Market Vehicles NAFTA AUTO TRANSPORT SERVICES LLC Wilmington U.S.A. 100 USD 100.00 FCA US LLC Autodie LLC Wilmington U.S.A. 10,000,000 USD 100.00 FCA US LLC 100.000 100.000 Chrysler Mexico Investment Holdings Cooperatie U.A. Amsterdam Netherlands — EUR 100.00 FCA INVESTMENT HOLDINGS LLC 99.990 FCA MINORITY LLC 0.010 100.000 100.000 100.000 100.000 CPK Interior Products Inc. Windsor Canada 1,000 CAD 100.00 FCA Canada Inc. Extended Vehicle Protection LLC Wilmington U.S.A. — USD 100.00 FCA US LLC FCA AUBURN HILLS OWNER LLC Wilmington U.S.A. 100 USD 100.00 FCA REALTY LLC FCA Canada Cash Services Inc. Toronto Canada 1,000 CAD 100.00 FCA US LLC FCA Canada Inc. Windsor Canada — CAD 100.00 FCA ONTARIO HOLDINGS Limited 100.000 FCA Caribbean LLC Wilmington U.S.A. 100 USD 100.00 FCA US LLC FCA DEALER CAPITAL LLC Wilmington U.S.A. FCA INTERNATIONAL OPERATIONS LLC Wilmington U.S.A. — USD — USD 100.00 FCA US LLC 100.00 FCA US LLC FCA INTERNATIONAL SERVICES LLC Wilmington U.S.A. — USD 100.00 FCA US LLC FCA INVESTMENT HOLDINGS LLC Wilmington U.S.A. 173,350,999 USD 100.00 FCA US LLC 100.000 100.000 100.000 100.000 100.000 FCA Mexico, S.A. de C.V. Santa Fe Mexico 238,621,186 MXN 100.00 Chrysler Mexico Investment Holdings 99.997 Cooperatie U.A. FCA MINORITY LLC FCA MID LLC Wilmington U.S.A. 2,700,000 USD 100.00 FCA US LLC FCA MINORITY LLC Wilmington U.S.A. — USD 100.00 FCA US LLC FCA ONTARIO HOLDINGS Limited Toronto Canada 1,000 CAD 100.00 FCA US LLC FCA REAL ESTATE SERVICES LLC Wilmington U.S.A. 100 USD 100.00 FCA US LLC FCA REALTY LLC Wilmington U.S.A. 168,769,528 USD 100.00 FCA US LLC FCA Service Contracts LLC Wilmington U.S.A. 100,000,000 USD 100.00 FCA US LLC FCA TRANSPORT LLC Wilmington U.S.A. — USD 100.00 FCA US LLC FCA US Insurance Company Plymouth U.S.A. 60,000 USD 100.00 FCA North America Holdings LLC FCA US LLC Wilmington U.S.A. 10 USD 100.00 FCA North America Holdings LLC Banco Fidis S.A. Betim Brazil 509,021,104 BRL 100.00 Fidis S.p.A. LATAM FCA FIAT CHRYSLER AUTOMOVEIS BRASIL LTDA. 0.003 100.000 100.000 100.000 100.000 100.000 100.000 100.000 100.000 100.000 75.000 25.000 CG Venezuela UK Holdings Limited Slough Berkshire United Kingdom 100 GBP 100.00 FCA North America Holdings LLC 100.000 CMA Componentes e Modulos Automotivos Industria e Comercio Automotivos Ltda CMP Componentes e Modulos Plasticos Industria e Comercio Ltda. Nova Goiana Brazil 1,000 BRL 100.00 CMP Componentes e Modulos 99.900 Plasticos Industria e Comercio Ltda. FCA Fiat Chrysler Participacoes Brasil Limitada 0.100 Contagem Brazil 121,358,092 BRL 100.00 FCA FIAT CHRYSLER AUTOMOVEIS 56.049 BRASIL LTDA. FCA Powertrain Brasil Industria e Comercio de Motores ltda 43.951 2017 | ANNUAL REPORTAppendix - FCA Companies at December 31, 2017NameRegistered OfficeCountryShare capitalCurrency% of Group consolidationInterest held by% interestheld% votingrights253 FCA AUTOMOBILES ARGENTINA S.A. Buenos Aires Argentina 476,464,366 ARS 100.00 FCA FIAT CHRYSLER AUTOMOVEIS 100.000 BRASIL LTDA. FCA Chile Importadora Limitada Santiago Chile 41,800,000 CLP 100.00 FCA US LLC FCA MINORITY LLC FCA Compania Financiera S.A. Buenos Aires Argentina 526,027,891 ARS 100.00 Fidis S.p.A. 99.990 0.010 100.000 FCA FIAT CHRYSLER AUTOMOVEIS BRASIL LTDA. Betim Brazil 14,628,993,087 BRL 100.00 FCA Fiat Chrysler Participacoes Brasil 75.118 Limitada FCA Italy S.p.A. 24.882 FCA IMPORTADORA S.R.L. Buenos Aires Argentina 29,335,170 ARS 100.00 FCA AUTOMOBILES ARGENTINA S.A. 98.000 FCA Argentina S.A. 2.000 FCA Powertrain Brasil Industria e Comercio de Motores Ltda Campo Largo FCA Rental Locadora de Automoveis Ltda Belo Horizonte Brazil 197,792,500 BRL 100.00 FCA Fiat Chrysler Participacoes Brasil 100.000 Limitada Brazil 60,769,200 BRL 100.00 FCA Fiat Chrysler Participacoes Brasil 100.000 Limitada FCA S.A. de Ahorro para Fines Determinados Buenos Aires Argentina 109,535,149 ARS 100.00 FCA AUTOMOBILES ARGENTINA S.A. 100.000 ALFA ROMEO (SHANGHAI) AUTOMOBILES SALES CO. Ltd. Shanghai Chrysler Group (China) Sales Ltd. Beijing FCA (Hong Kong) Automotive Limited Hong Kong FCA (SHANGHAI) AUTO PARTS TRADING CO., LTD. Shanghai FCA Asia Pacific Investment Co., Ltd. Shanghai FCA Australia Pty. Ltd. Port Melbourne FCA Automotive Finance Co. Ltd. Shanghai APAC 19,000,000 CNY 100.00 Fiat Chrysler Automobiles N.V. 100.000 10,000,000 EUR 100.00 FCA (Hong Kong) Automotive Limited 100.000 10,000,000 EUR 100.00 FCA US LLC 100.000 19,000,000 CNY 100.00 Fiat Chrysler Automobiles N.V. 100.000 4,500,000 CNY 100.00 FCA (Hong Kong) Automotive Limited 100.000 People’s Rep. of China People’s Rep. of China People’s Rep. of China People’s Rep. of China People’s Rep. of China Australia 143,629,774 AUD 100.00 CNI C.V People’s Rep. of China 750,000,000 CNY 100.00 Fidis S.p.A. 100.000 100.000 FCA Engineering India Private Limited Chennai India 99,990 INR 100.00 Chrysler Netherlands Distribution B.V. 99.990 FCA INDIA AUTOMOBILES Private Limited FCA JAPAN Ltd. Mumbai India 4,819,900,000 INR 100.00 FCA Italy S.p.A. FCA DUTCH OPERATING LLC Minato-Ku. Tokyo Japan 104,789,875 JPY 100.00 CG EU NSC LIMITED 0.010 100.000 60.000 Fiat Group Automobiles Japan K.K. 40.000 FCA Korea Limited Seoul South Korea 32,639,200,000 KRW 100.00 FCA US LLC FCA Powertrain Technologies Shanghai R&D Co. Ltd. Shanghai People’s Rep. of China 10,000,000 EUR 100.00 FCA ITALY HOLDINGS S.p.A. 100.000 100.000 Fiat Group Automobiles Japan K.K. Mopar (Shanghai) Auto Parts Trading Co. Ltd. Minato-Ku. Tokyo Shanghai Japan 100,000,000 JPY 100.00 Fiat Chrysler Automobiles N.V. 100.000 People’s Rep. of China 5,000,000 USD 100.00 FCA Asia Pacific Investment Co. Ltd. 100.000 EMEA Abarth & C. S.p.A. Alfa Romeo S.p.A. Alfa Romeo U.S.A. S.p.A. Turin Turin Turin Italy Italy Italy 1,500,000 EUR 100.00 FCA Italy S.p.A. 120,000 EUR 100.00 FCA Italy S.p.A. 120,000 EUR 100.00 FCA Italy S.p.A. 100.000 100.000 100.000 2017 | ANNUAL REPORTSubsidiaries consolidated on a line-by-line basis (continued)NameRegistered OfficeCountryShare capitalCurrency% of Group consolidationInterest held by% interestheld% votingrights254 C.R.F. Società Consortile per Azioni Orbassano Italy 45,000,000 EUR 100.00 FCA Italy S.p.A. FCA ITALY HOLDINGS S.p.A. Magneti Marelli S.p.A. Maserati S.p.A. Comau S.p.A. Teksid S.p.A. CF GOMMA DEUTSCHLAND GmbH Düsseldorf Germany 26,000 EUR 100.00 FCA ITALY HOLDINGS S.p.A. CG EU NSC LIMITED Cardiff United Kingdom 1 GBP 100.00 CNI C.V. CG Italia Operations S.p.A. Turin Italy 53,022 EUR 100.00 Chrysler Italia S.r.l. FCA US LLC Chrysler Austria Gesellschaft mbH in liquidation Vienna Austria 4,300,000 EUR 100.00 Chrysler Deutschland GmbH Chrysler Belgium Luxembourg NV/SA Brussels Belgium 28,262,700 EUR 100.00 CG EU NSC LIMITED Chrysler Deutschland GmbH Berlin Germany 20,426,200 EUR 100.00 FCA US LLC Chrysler International GmbH Stuttgart Germany 25,000 EUR 100.00 CG EU NSC LIMITED Chrysler Italia S.r.l. Turin Italy 100,000 EUR 100.00 CG EU NSC LIMITED Chrysler Jeep International S.A. Brussels Belgium 1,860,000 EUR 100.00 CG EU NSC LIMITED FCA MINORITY LLC FCA MINORITY LLC 92.000 2.000 2.000 2.000 1.000 1.000 100.000 100.000 94.300 5.700 100.000 99.998 0.002 100.000 100.000 100.000 99.998 0.002 Chrysler Netherlands Distribution B.V. Amsterdam Netherlands 90,000 EUR 100.00 Chrysler Netherlands Holding 100.000 Cooperatie U.A. Chrysler South Africa (Pty) Limited Midrand South Africa 200 ZAR 100.00 FCA Italy S.p.A. Chrysler Switzerland GmbH in liquidation Chrysler UK Limited Schlieren Switzerland 2,000,000 CHF 100.00 CG EU NSC LIMITED Slough Berkshire United Kingdom 46,582,132 GBP 100.00 CG EU NSC LIMITED CNI C.V. Easy Drive S.r.l. Amsterdam Netherlands — USD 100.00 FCA US LLC Turin Italy 10,400 EUR 100.00 FCA Italy S.p.A. FCA AUSTRIA GmbH Vienna Austria 37,000 EUR 100.00 FCA Italy S.p.A. FCA Center Italia S.p.A. FCA AUSTRO CAR GmbH Vienna Austria 35,000 EUR 100.00 FCA AUSTRIA GmbH FCA Belgium S.A. Auderghem Belgium 18,651,691 EUR 100.00 FCA Italy S.p.A. FCA SWITZERLAND S.A. FCA ITALY HOLDINGS S.p.A. FCA Center Italia S.p.A. Turin Italy 2,000,000 EUR 100.00 FCA Italy S.p.A. FCA CENTRAL AND EASTERN EUROPE KFT. Budapest Hungary 150,000,000 HUF 100.00 FCA Italy S.p.A. FCA Customer Services Centre S.r.l. Turin Italy 2,500,000 EUR 100.00 FCA Italy S.p.A. FCA Denmark A/S FCA FINLAND Oy Glostrup Denmark 55,000,000 DKK 100.00 FCA Italy S.p.A. Vantaa Finland 50,000 EUR 100.00 FCA Italy S.p.A. FCA Fleet & Tenders S.R.L. Turin Italy 7,370,000 EUR 100.00 FCA Italy S.p.A. FCA France Trappes France 96,000,000 EUR 100.00 FCA Italy S.p.A. FCA GERMANY AG Frankfurt Germany 82,650,000 EUR 100.00 FCA Italy S.p.A. FCA GREECE S.A. Argyroupoli Greece 62,783,499 EUR 100.00 FCA Italy S.p.A. FCA Group Marketing S.p.A. Turin Italy 100,000,000 EUR 100.00 FCA ITALY HOLDINGS S.p.A. FCA SWITZERLAND S.A. 100.000 100.000 100.000 100.000 99.000 1.000 98.000 2.000 100.000 99.998 0.002 100.000 100.000 100.000 100.000 100.000 100.000 100.000 99.000 1.000 100.000 100.000 2017 | ANNUAL REPORTAppendix - FCA Companies at December 31, 2017Subsidiaries consolidated on a line-by-line basis (continued)NameRegistered OfficeCountryShare capitalCurrency% of Group consolidationInterest held by% interestheld% votingrights255 FCA ITALY HOLDINGS S.p.A. FCA Italy S.p.A. FCA Melfi S.r.l. FCA Middle East FZ-LLC Turin Turin Melfi Dubai Italy Italy Italy United Arab Emirates 1,089,071,587 EUR 100.00 FCA Italy S.p.A. 800,000,000 EUR 100.00 Fiat Chrysler Automobiles N.V. 276,640,000 EUR 100.00 FCA Italy S.p.A. 100.000 100.000 100.000 300,000 AED 100.00 FCA INTERNATIONAL OPERATIONS 100.000 LLC FCA Motor Village Austria GmbH Vienna Austria 37,000 EUR 100.00 FCA AUSTRIA GmbH FCA MOTOR VILLAGE BELGIUM S.A. Auderghem Belgium 8,571,393 EUR 100.00 FCA Belgium S.A. FCA MOTOR VILLAGE FRANCE S.A.S Trappes France 2,977,680 EUR 100.00 FCA France FCA Italy S.p.A. Frankfurt Germany 8,700,000 EUR 100.00 FCA GERMANY AG 100.000 99.988 0.012 99.997 100.000 FCA MOTOR VILLAGE GERMANY GmbH FCA MOTOR VILLAGE PORTUGAL S.A. FCA MOTOR VILLAGE SPAIN, S.L. FCA MOTOR VILLAGE SWITZERLAND S.A. Amadora Portugal 50,000 EUR 100.00 FCA PORTUGAL, S.A. 100.000 Alcalá De Henares Spain 1,454,420 EUR 100.00 Fiat Chrysler Automobiles Spain S.A. 100.000 Meyrin Switzerland 13,000,000 CHF 100.00 FCA SWITZERLAND S.A. 100.000 FCA Netherlands B.V. Lijnden Netherlands 5,672,250 EUR 100.00 FCA Italy S.p.A. FCA NORWAY AS Fornebu Norway 103,200 NOK 100.00 FCA Italy S.p.A. FCA POLAND Spólka Akcyjna Bielsko-Biala Poland 660,334,600 PLN 100.00 FCA Italy S.p.A. FCA PORTUGAL, S.A. Porto Salvo Portugal 1,000,000 EUR 100.00 FCA Italy S.p.A. FCA POWERTRAIN POLAND Sp. z o.o. Bielsko-Biala Poland 269,037,000 PLN 100.00 FCA ITALY HOLDINGS S.p.A. 100.000 100.000 100.000 100.000 100.000 FCA Real Estate Germany GmbH Frankfurt Germany 25,000 EUR 100.00 FCA MOTOR VILLAGE GERMANY 100.000 GmbH FCA REAL ESTATE SERVICES FRANCE SAS Trappes France 37,000 EUR 100.00 FCA Real Estate Services S.p.A. 100.000 FCA Real Estate Services S.p.A. Turin Italy 150,679,554 EUR 100.00 FCA Italy S.p.A. FCA Russia AO Moscow Russia 574,665,000 RUB 100.00 FCA US LLC FCA MINORITY LLC FCA SERBIA DOO KRAGUJEVAC Kragujevac Serbia 30,707,843,314 RSD 66.67 FCA Italy S.p.A. FCA SWEDEN AB Kista Sweden 10,000,000 SEK 100.00 FCA Italy S.p.A. FCA SWITZERLAND S.A. Schlieren Switzerland 21,400,000 CHF 100.00 FCA Italy S.p.A. FCA VERSICHERUNGSSERVICE GmbH Fiat Chrysler Automobiles (FCA) Egypt Limited Heilbronn Germany 26,000 EUR 100.00 FCA GERMANY AG Fiat Chrysler Rimaco SA New Cairo Egypt 240,000 EGP 100.00 FCA US LLC FCA MINORITY LLC Fiat Chrysler Automobiles Ireland DAC Dublin Ireland 5,078,952 EUR 100.00 FCA Italy S.p.A. FIAT CHRYSLER AUTOMOBILES MIDDLE EAST FZE Dubai United Arab Emirates 1,000,000 AED 100.00 Fiat Chrysler Automobiles N.V. Bouskoura Morocco 101,000,000 MAD 100.00 FCA Italy S.p.A. Fiat Chrysler Automobiles Morocco S.A. Fiat Chrysler Automobiles Spain S.A. Alcalá De Henares FIAT CHRYSLER AUTOMOBILES UK Ltd Slough Berkshire FIAT CHRYSLER MOTOR VILLAGE Ltd. Slough Berkshire United Kingdom United Kingdom Spain 8,079,280 EUR 100.00 FCA Italy S.p.A. 44,600,000 GBP 100.00 FCA Italy S.p.A. FCA SWITZERLAND S.A. Fiat Group Automobiles South Africa (Proprietary) Ltd Bryanston South Africa 640 ZAR 100.00 FCA Italy S.p.A. 100.000 1,500,000 GBP 100.00 FIAT CHRYSLER AUTOMOBILES UK 100.000 Ltd 100.000 99.999 0.001 66.670 100.000 100.000 51.000 49.000 99.000 1.000 100.000 100.000 100.000 99.998 0.002 100.000 2017 | ANNUAL REPORTSubsidiaries consolidated on a line-by-line basis (continued)NameRegistered OfficeCountryShare capitalCurrency% of Group consolidationInterest held by% interestheld% votingrights256 Fidis S.p.A. i-FAST Automotive Logistics S.r.l. i-FAST Container Logistics S.p.A. Turin Turin Turin Italy Italy Italy 250,000,000 EUR 100.00 FCA Italy S.p.A. 1,250,000 EUR 100.00 FCA Italy S.p.A. 2,500,000 EUR 100.00 FCA Italy S.p.A. Mecaner S.A. Urdùliz Spain 3,000,000 EUR 100.00 FCA Italy S.p.A. NEW BUSINESS 38 S.p.A. Società di Commercializzazione e Distribuzione Ricambi S.p.A. in liquidation Pomigliano d’Arco Turin Italy Italy 1,000,000 EUR 100.00 FCA Real Estate Services S.p.A. 100,000 EUR 100.00 FCA Italy S.p.A. 100.000 100.000 100.000 100.000 100.000 100.000 VM Motori S.p.A. Cento Italy 21,008,000 EUR 100.00 FCA ITALY HOLDINGS S.p.A. 100.000 Luxury Vehicles Maserati Maserati S.p.A. Modena Italy 40,000,000 EUR 100.00 Fiat Chrysler Automobiles N.V. Maserati (China) Cars Trading Co., Ltd. Shanghai People’s Rep. of China 10,000,000 USD 100.00 Maserati S.p.A. Maserati (Suisse) S.A. Schlieren Switzerland 1,000,000 CHF 100.00 Maserati S.p.A. Maserati Canada Inc. Vancouver Canada — CAD 100.00 Maserati S.p.A. Maserati Deutschland GmbH Wiesbaden Germany 500,000 EUR 100.00 Maserati S.p.A. Maserati GB Limited Slough Berkshire United Kingdom 20,000 GBP 100.00 Maserati S.p.A. Maserati Japan KK Tokyo Japan 18,000,000 JPY 100.00 Maserati S.p.A. Maserati North America Inc. Wilmington U.S.A. 1,000 USD 100.00 Maserati S.p.A. Maserati West Europe societé par actions simplifiée Paris France 37,000 EUR 100.00 Maserati S.p.A. Tridente Real Estate S.r.l. Modena Italy 11,570,000 EUR 100.00 Maserati S.p.A. 100.000 100.000 100.000 100.000 100.000 100.000 100.000 100.000 100.000 100.000 Components Magneti Marelli Magneti Marelli S.p.A. Corbetta Italy 254,325,965 EUR 99.99 Fiat Chrysler Automobiles N.V. 99.991 100.000 Administracion Magneti Marelli Sistemi Sospensioni Mexicana S.R.L. de C.V. AUTOMOTIVE LIGHTING (THAILAND) CO. LTD Mexico City Mexico 3,000 MXN 88.11 Magneti Marelli Promatcor Sistemi 99.000 Sospensioni Mexicana S.R.L. de C.V. Automotive Lighting Rear Lamps Mexico S. de r.l. de C.V. 1.000 Bangkok Thailand 10,000,000 THB 99.96 Automotive Lighting Reutlingen GmbH 99.970 Automotive Lighting Brotterode GmbH Brotterode Germany 7,270,000 EUR 99.99 Automotive Lighting Reutlingen GmbH 100.000 Automotive Lighting Italia S.p.A. Venaria Reale Italy 12,000,000 EUR 99.99 Automotive Lighting Reutlingen GmbH 100.000 Automotive Lighting LLC Wilmington U.S.A. 25,001,000 USD 100.00 Magneti Marelli Holding U.S.A. LLC 100.000 Automotive Lighting o.o.o. Rjiasan Russia 1,086,875,663 RUB 99.99 Automotive Lighting Reutlingen GmbH 100.000 Automotive Lighting Rear Lamps France S.a.s. Automotive Lighting Rear Lamps Mexico S. de r.l. de C.V. Saint Julien du Sault El Marques Queretaro France 5,134,480 EUR 99.99 Automotive Lighting Italia S.p.A. 100.000 Mexico 50,000 MXN 100.00 Magneti Marelli Holding U.S.A. LLC 100.000 Automotive Lighting Reutlingen GmbH Reutlingen Germany 1,330,000 EUR 99.99 Magneti Marelli S.p.A. 100.000 Automotive Lighting S.R.O. Jihlava Automotive Lighting UK Limited Changchun Magneti Marelli Automotive Lighting System Co. Ltd. Chadwell Heath Changchun Czech Republic United Kingdom People’s Rep. of China 927,637,000 CZK 99.99 Automotive Lighting Reutlingen GmbH 100.000 40,387,348 GBP 99.99 Magneti Marelli S.p.A. 100.000 190,000,000 CNY 60.00 Automotive Lighting Reutlingen GmbH 60.000 2017 | ANNUAL REPORTAppendix - FCA Companies at December 31, 2017Subsidiaries consolidated on a line-by-line basis (continued)NameRegistered OfficeCountryShare capitalCurrency% of Group consolidationInterest held by% interestheld% votingrights257 CHANGCHUN MAGNETI MARELLI POWERTRAIN COMPONENTS Co.Ltd. Changchun People’s Rep. of China 5,600,000 EUR 51.00 Magneti Marelli S.p.A. Fiat CIEI S.p.A. in liquidation Corbetta Italy 220,211 EUR 99.99 Magneti Marelli S.p.A. Hefei Magneti Marelli Exhaust Systems Co.Ltd. Hefei People’s Rep. of China 3,900,000 EUR 51.00 Magneti Marelli S.p.A. 51.000 100.000 51.000 Industrias Magneti Marelli Mexico S.A. de C.V. Tepotzotlan Mexico 50,000 MXN 99.99 Magneti Marelli Sistemas Electronicos 99.998 Mexico S.A. Servicios Administrativos Corp. IPASA S.A. 0.002 100.000 100.000 Magneti Marelli (China) Co. Ltd. Shanghai People’s Rep. of China 17,500,000 USD 99.99 Magneti Marelli S.p.A. Magneti Marelli After Market Parts and Services S.p.A. Corbetta Italy 7,000,000 EUR 99.99 Magneti Marelli S.p.A. Magneti Marelli Aftermarket GmbH Heilbronn Germany 100,000 EUR 99.99 Magneti Marelli After Market Parts and 100.000 Services S.p.A. Magneti Marelli Aftermarket Sp. z o.o. Katowice Poland 2,000,000 PLN 99.99 Magneti Marelli After Market Parts and 100.000 Services S.p.A. Magneti Marelli Argentina S.A. Buenos Aires Argentina 465,205 ARS 99.99 Magneti Marelli S.p.A. Magneti Marelli France S.a.s. Magneti Marelli Automotive Cluj S.r.l. Cluj Napoca Romania 9,010,000 RON 99.99 Magneti Marelli S.p.A. Magneti Marelli Automotive Components (Changsha) Co. Ltd Magneti Marelli Automotive Components (Guangzhou) Co.,Ltd. Magneti Marelli Automotive Components (WUHU) Co. Ltd. Magneti Marelli Automotive d.o.o. Kragujevac Changsha Guangzhou Wuhu People’s Rep. of China People’s Rep. of China People’s Rep. of China 5,400,000 USD 99.99 Magneti Marelli S.p.A. 10,000,000 EUR 99.99 Magneti Marelli S.p.A. 32,000,000 USD 99.99 Magneti Marelli S.p.A. Kragujevac Serbia 154,200,876 RSD 99.99 Magneti Marelli S.p.A. Magneti Marelli Automotive Electronics (Guangzhou) Co. Limited Guangzhou Magneti Marelli Automotive Lighting (Foshan) Co. Ltd Foshan People’s Rep. of China People’s Rep. of China 16,100,000 USD 99.99 Magneti Marelli S.p.A. 10,800,000 EUR 99.99 Magneti Marelli S.p.A. 95.000 5.000 100.000 100.000 100.000 100.000 100.000 100.000 100.000 Santo Andre Brazil 585,411,633 BRL 99.99 Magneti Marelli After Market Parts and 100.000 Services S.p.A. Itauna Brazil 6,402,500 BRL 99.99 Plastic Components and Modules 100.000 Automotive S.p.A. Buenos Aires Argentina 9,999,971 ARS 99.99 Magneti Marelli S.p.A. Magneti Marelli Argentina S.A. 96.260 3.740 100.000 100.000 Magneti Marelli d.o.o. Kragujevac Kragujevac Serbia 1,363,504,543 RSD 99.99 Magneti Marelli S.p.A. Hortolandia Brazil 100,000 BRL 99.99 Magneti Marelli S.p.A. Magneti Marelli Cofap Fabricadora de Pecas Ltda Magneti Marelli Componentes Plasticos Ltda Magneti Marelli Conjuntos de Escape S.A. Magneti Marelli do Brasil Industria e Comercio Ltda Magneti Marelli Espana S.A. Llinares del Valles Spain 781,101 EUR 99.99 Magneti Marelli Iberica S.A. 100.000 Magneti Marelli France S.a.s. Trappes France 19,066,824 EUR 99.99 Magneti Marelli S.p.A. Magneti Marelli GmbH Stuttgart Germany 200,000 EUR 99.99 Magneti Marelli S.p.A. Magneti Marelli Holding U.S.A. LLC Wixom U.S.A. 10 USD 100.00 FCA North America Holdings LLC Magneti Marelli Iberica S.A. Santpedor Spain 389,767 EUR 99.99 Magneti Marelli S.p.A. Magneti Marelli India Private Ltd Gurugram India 150,000,000 INR 99.99 Magneti Marelli S.p.A. Magneti Marelli International Trading (Shanghai) Co. LTD Shanghai People’s Rep. of China 200,000 USD 99.99 Magneti Marelli S.p.A. Magneti Marelli Japan K.K. KohoKu-Ku- Yokohama- Kanagawa Japan 360,000,000 JPY 99.99 Magneti Marelli S.p.A. 100.000 100.000 100.000 100.000 100.000 100.000 100.000 2017 | ANNUAL REPORTSubsidiaries consolidated on a line-by-line basis (continued)NameRegistered OfficeCountryShare capitalCurrency% of Group consolidationInterest held by% interestheld% votingrights258 Magneti Marelli Mako Elektrik Sanayi Ve Ticaret Anonim Sirketi Bursa Turkey 50,005 TRY 99.94 Automotive Lighting Reutlingen GmbH 99.842 PLASTIFORM PLASTIK SANAY ve TICARET A.S. Sistemi Comandi Meccanici Otomotiv Sanayi Ve Ticaret A.S. 0.052 0.052 Magneti Marelli Motopropulsion France SAS Argentan France 37,002 EUR 99.99 Magneti Marelli S.p.A. 100.000 Magneti Marelli North America Inc. Wilmington U.S.A. 7,491,705 USD 99.99 Magneti Marelli Cofap Fabricadora de 100.000 Pecas Ltda Magneti Marelli of Tennessee LLC Auburn Hills U.S.A. 1,300,000 USD 100.00 Magneti Marelli Holding U.S.A. LLC 100.000 Magneti Marelli Poland Sp. z o.o. Sosnowiec Poland 83,500,000 PLN 99.99 Automotive Lighting Reutlingen GmbH 100.000 Magneti Marelli Powertrain (Hefei) Co. Ltd Hefei People’s Rep. of China 70,000,000 CNY 99.99 Magneti Marelli S.p.A 100.000 Magneti Marelli Powertrain India Private Limited Magneti Marelli Powertrain Mexico S. de r.l. de c.v. Gurugram India 450,000,000 INR 51.00 Magneti Marelli S.p.A. Mexico City Mexico 3,000 MXN 99.99 Magneti Marelli S.p.A. Automotive Lighting Rear Lamps Mexico S. de r.l. de C.V. 51.000 99.967 0.033 Magneti Marelli Powertrain Slovakia s.r.o. Kechnec Slovak Republic 12,000,000 EUR 99.99 Magneti Marelli S.p.A. 100.000 Magneti Marelli Powertrain U.S.A. LLC Sanford U.S.A. 25,000,000 USD 100.00 Magneti Marelli Holding U.S.A. LLC 100.000 Magneti Marelli Promatcor Sistemi Sospensioni Mexicana S.R.L. de C.V. Mexico City Mexico 3,000 MXN 87.99 Sistemi Sospensioni S.p.A. 88.000 Magneti Marelli Repuestos S.A. Buenos Aires Argentina 75,262,000 ARS 99.99 Magneti Marelli After Market Parts and 81.943 Contagem Brazil 1,090,694,874 BRL 99.99 Magneti Marelli S.p.A. Services S.p.A. Magneti Marelli Cofap Fabricadora de Pecas Ltda 18.057 72.808 Automotive Lighting Reutlingen GmbH 27.192 Tepotzotlan Mexico 50,000 MXN 99.99 Magneti Marelli S.p.A. Servicios Administrativos Corp. IPASA S.A. 99.998 0.002 100.000 100.000 Magneti Marelli Slovakia s.r.o. Kechnec Slovak Republic 103,006,639 EUR 99.99 Magneti Marelli S.p.A. Johannesburg South Africa 7,550,000 ZAR 99.99 Magneti Marelli S.p.A. Bursa Turkey 520,000 TRY 99.99 Sistemi Sospensioni S.p.A. 100.000 Bielsko-Biala Poland 70,050,000 PLN 99.99 Sistemi Sospensioni S.p.A. 100.000 Toluca Mexico 3,000 MXN 99.99 Magneti Marelli S.p.A. Gurugram India 500,000,000 INR 51.00 Magneti Marelli S.p.A. Magneti Marelli Powertrain Mexico S. de r.l. de c.v. 99.967 0.033 51.000 Malaysian Automotive Lighting SDN. BHD Simpang Ampat MM I&T Sas Valbonne Sophia Antipolis Malaysia 6,000,000 MYR 79.99 Automotive Lighting Reutlingen GmbH 80.000 France 607,000 EUR 99.99 Magneti Marelli S.p.A. 100.000 MMH Industria e Comercio De Componentes Automotivos Ltda Plastic Components and Modules Automotive S.p.A. Nova Goiana Brazil 130,926,000 BRL 99.99 Magneti Marelli Sistemas Automotivos 100.000 Industria e Comercio Ltda Turin Italy 10,000,000 EUR 99.99 Plastic Components and Modules 100.000 Holding S.p.A. Magneti Marelli Sistemas Automotivos Industria e Comercio Ltda Magneti Marelli Sistemas Electronicos Mexico S.A. Magneti Marelli South Africa (Proprietary) Limited Magneti Marelli Suspansiyon Sistemleri Ticaret Limited Sirketi Magneti Marelli Suspension Systems Bielsko Sp. z.o.o. Magneti Marelli Toluca Mexico S. de R.L. de CV. Magneti Marelli Um Electronic Systems Private Limited 2017 | ANNUAL REPORTAppendix - FCA Companies at December 31, 2017Subsidiaries consolidated on a line-by-line basis (continued)NameRegistered OfficeCountryShare capitalCurrency% of Group consolidationInterest held by% interestheld% votingrights259 Turin Italy 10,000,000 EUR 99.99 Magneti Marelli S.p.A. 100.000 Sosnowiec Poland 21,000,000 PLN 99.99 Plastic Components and Modules 100.000 Automotive S.p.A. Sosnowiec Poland 29,281,500 PLN 99.99 Plastic Components and Modules 100.000 Poland S.A. Bursa Turkey 715,000 TRY 99.94 Magneti Marelli Mako Elektrik Sanayi Ve 100.000 Ticaret Anonim Sirketi Nova Goiana Brazil 75,200,160 BRL 50.00 Plastic Components and Modules 50.000 Plastic Components and Modules Holding S.p.A. Plastic Components and Modules Poland S.A. Plastic Components Fuel Systems Poland Sp. z o.o. PLASTIFORM PLASTIK SANAY ve TICARET A.S. PSMM Pernambuco Componentes Automotivos Ltda Servicios Administrativos Corp. IPASA S.A. Col. Chapultepec Mexico 1,000 MXN 99.99 Magneti Marelli Sistemas Electronicos 99.990 Automotive S.p.A. Mexico S.A. Industrias Magneti Marelli Mexico S.A. de C.V. 0.010 Sistemi Comandi Meccanici Otomotiv Sanayi Ve Ticaret A.S. Bursa Turkey 90,000 TRY 99.89 Magneti Marelli Mako Elektrik Sanayi Ve 99.956 Ticaret Anonim Sirketi Sistemi Sospensioni S.p.A. Soffiaggio Polimeri S.r.l. Corbetta Leno Italy Italy 37,622,179 EUR 99.99 Magneti Marelli S.p.A. 100.000 45,900 EUR 84.99 Plastic Components and Modules 85.000 Automotive S.p.A. Tecnologia de Iluminacion Automotriz S.A. de C.V. Juarez Mexico 50,000 MXN 100.00 Automotive Lighting LLC Automotive Lighting Rear Lamps Mexico S. de r.l. de C.V. Ufima S.A.S. - Societe en liquidation Trappes France 44,940 EUR 99.99 Magneti Marelli S.p.A. Teksid FCA Partecipazioni S.p.A. 99.998 0.002 65.020 34.980 Teksid S.p.A. Turin Italy 71,403,261 EUR 100.00 Fiat Chrysler Automobiles N.V. 100.000 Compania Industrial Frontera S.A. de C.V. Frontera Mexico 11,376,600 MXN 100.00 Teksid Hierro de Mexico S.A. de C.V. 99.999 Teksid Inc. Funfrap-Fundicao Portuguesa S.A. Cacia Portugal 13,697,550 EUR 83.61 Teksid S.p.A. Teksid Aluminum S.r.l. Carmagnola Italy 5,000,000 EUR 100.00 Fiat Chrysler Automobiles N.V. Teksid do Brasil Ltda Betim Brazil 714,696,013 BRL 100.00 Teksid S.p.A. Teksid Hierro de Mexico S.A. de C.V. Frontera Mexico 297,167,800 MXN 100.00 Teksid S.p.A. Teksid Inc. Farmington Hills U.S.A. 100,000 USD 100.00 Teksid S.p.A. Teksid Iron Poland Sp. z o.o. Skoczow Poland 48,122,256 PLN 100.00 Teksid S.p.A. Comau Comau S.p.A. Grugliasco Italy 48,013,959 EUR 100.00 Fiat Chrysler Automobiles N.V. COMAU (KUNSHAN) Automation Co. Ltd. Kunshan Comau (Shanghai) Engineering Co. Ltd. Shanghai Comau (Shanghai) International Trading Co. Ltd. Shanghai People’s Rep. of China People’s Rep. of China People’s Rep. of China 8,000,000 USD 100.00 Comau S.p.A. 5,000,000 USD 100.00 Comau S.p.A. 200,000 USD 100.00 Comau S.p.A. Comau Argentina S.A. Buenos Aires Argentina 500,000 ARS 100.00 Comau S.p.A. FCA Argentina S.A. 0.001 83.607 100.000 100.000 100.000 100.000 100.000 100.000 100.000 100.000 100.000 97.000 3.000 Comau Automatizacion S.de R.L. C.V. Cuautitlan Izcalli Mexico 62,204,118 MXN 100.00 Comau Mexico S.de R.L. de C.V. 100.000 Comau Canada Inc. Windsor Canada 100 CAD 100.00 Comau LLC Comau Deutschland GmbH Boblingen Germany 1,330,000 EUR 100.00 Comau S.p.A. Comau do Brasil Industria e Comercio Ltda. Betim Brazil 102,742,653 BRL 100.00 Comau S.p.A. 100.000 100.000 100.000 2017 | ANNUAL REPORTSubsidiaries consolidated on a line-by-line basis (continued)NameRegistered OfficeCountryShare capitalCurrency% of Group consolidationInterest held by% interestheld% votingrights260 Comau France S.A.S. Trappes France 6,000,000 EUR 100.00 Comau S.p.A. Comau Iaisa S.de R.L. de C.V. Cuautitlan Izcalli Mexico 17,181,062 MXN 100.00 Comau Mexico S.de R.L. de C.V. Comau India Private Limited Pune India 239,935,020 INR 100.00 Comau S.p.A. Comau Deutschland GmbH Comau LLC Wilmington U.S.A. 100 USD 100.00 FCA North America Holdings LLC Comau Mexico S.de R.L. de C.V. Cuautitlan Izcalli Mexico 99,349,172 MXN 100.00 Comau S.p.A. Comau Poland Sp. z o.o. Bielsko-Biala Poland 3,800,000 PLN 100.00 Comau S.p.A. Comau Romania S.R.L. Oradea Romania 23,673,270 RON 100.00 Comau S.p.A. Comau Russia OOO Moscow Russia 4,770,225 RUB 100.00 Comau S.p.A. Comau Service Systems S.L. Madrid Spain 250,000 EUR 100.00 Comau S.p.A. Comau Trebol S.de R.L. de C.V. Tepotzotlan Mexico 16,168,211 MXN 100.00 Comau Mexico S.de R.L. de C.V. Comau U.K. Limited Rugby United Kingdom 2,502,500 GBP 100.00 Comau S.p.A. Other Activities: Holding companies and Other companies Deposito Avogadro S.p.A. Turin Italy 5,100,000 EUR 100.00 FCA Partecipazioni S.p.A. FCA Argentina S.A. Buenos Aires Argentina 5,292,117 ARS 100.00 FCA Services S.p.A. Comau Deutschland GmbH FCA Fiat Chrysler Participacoes Brasil Limitada Fiat Chrysler Rimaco Argentina S.A. FCA AUTOMOBILES ARGENTINA S.A. FCA Fiat Chrysler Participacoes Brasil Limitada Nova Lima Brazil 11,174,292,755 BRL 100.00 Fiat Chrysler Automobiles N.V. FCA Italy S.p.A. FCA Real Estate Services S.p.A. FCA Group Purchasing France S.a.r.l. Trappes France 7,700 EUR 100.00 FCA Group Purchasing S.r.l. FCA Group Purchasing Poland Sp. z o.o. FCA Group Purchasing S.r.l. FCA Information Technology, Excellence and Methods S.p.A. Bielsko-Biala Poland 300,000 PLN 100.00 FCA Group Purchasing S.r.l. Turin Turin Italy Italy 600,000 EUR 100.00 FCA Partecipazioni S.p.A. 500,000 EUR 100.00 FCA Services S.p.A. FCA Italy S.p.A. FCA North America Holdings LLC Wilmington U.S.A. — USD 100.00 Fiat Chrysler Automobiles N.V. FCA Partecipazioni S.p.A. FCA Security Societa consortile per azioni Turin Turin Italy Italy 50,000,000 EUR 100.00 FCA Italy S.p.A. 152,520 EUR 90.13 FCA Partecipazioni S.p.A. FCA Italy S.p.A Fiat Chrysler Automobiles N.V. Magneti Marelli S.p.A. FCA ITALY HOLDINGS S.p.A. FCA Melfi S.r.l. Comau S.p.A. C.R.F. Società Consortile per Azioni Teksid S.p.A. FCA Services S.p.A. Sistemi Sospensioni S.p.A. FCA Servizi per l’Industria S.c.p.A. 100.000 100.000 99.990 0.010 100.000 100.000 100.000 100.000 99.000 1.000 100.000 100.000 100.000 100.000 90.961 9.029 0.009 0.001 55.037 44.578 0.385 100.000 100.000 100.000 99.000 1.000 100.000 100.000 64.152 13.171 4.430 1.496 1.081 0.656 0.621 0.605 0.570 0.514 0.433 0.426 2017 | ANNUAL REPORTAppendix - FCA Companies at December 31, 2017Subsidiaries consolidated on a line-by-line basis (continued)NameRegistered OfficeCountryShare capitalCurrency% of Group consolidationInterest held by% interestheld% votingrightsSubsidiaries consolidated on a line-by-line basis (continued) 261 Teksid Aluminum S.r.l. Fiat Chrysler Finance S.p.A. Fidis S.p.A. Automotive Lighting Italia S.p.A. FCA Group Marketing S.p.A. FCA Group Purchasing S.r.l. FCA Real Estate Services S.p.A. Servizi e Attività Doganali per l’Industria S.p.A. Sisport S.p.A. - Società sportiva dilettantistica Plastic Components and Modules Automotive S.p.A. FCA Center Italia S.p.A. Abarth & C. S.p.A. Fiat Chrysler Risk Management S.p.A. Maserati S.p.A. Magneti Marelli After Market Parts and Services S.p.A. Deposito Avogadro S.p.A. Easy Drive S.r.l. FCA Customer Services Centre S.r.l. FCA Fleet & Tenders S.R.L. FCA Information Technology, Excellence and Methods S.p.A. i-FAST Automotive Logistics S.r.l. i-FAST Container Logistics S.p.A. FCA Services Belgium N.V. Brugge Belgium 62,000 EUR 100.00 FCA Services S.p.A. Servizi e Attività Doganali per l’Industria S.p.A. FCA Services d.o.o. Kragujevac Kragujevac Serbia 15,047,880 RSD 100.00 FCA Services S.p.A. FCA Services Germany GmbH Ulm Germany 200,000 EUR 100.00 FCA Services S.p.A. FCA Services Hispano-Lusa S.A. Madrid Spain 2,797,054 EUR 100.00 FCA Services S.p.A. FCA Services Polska Sp. z o.o. Bielsko-Biala Poland 3,600,000 PLN 100.00 FCA Services S.p.A. FCA Services S.p.A. Turin Italy 3,600,000 EUR 100.00 FCA Partecipazioni S.p.A. FCA Services Support Malaysia SDN. BHD. Kuala Lumpur Malaysia 2,000,000 MYR 100.00 FCA Services S.p.A. FCA Services Support Mexico S.A. de C.V. Mexico City Mexico 100 MXN 100.00 FCA Services S.p.A. Servizi e Attività Doganali per l’Industria S.p.A. FCA Services U.S.A., Inc. Wilmington U.S.A. 500,000 USD 100.00 FCA Services S.p.A. FCA Servizi per l’Industria S.c.p.A. Turin Italy 1,652,669 EUR 87.70 FCA Italy S.p.A. FCA Partecipazioni S.p.A. Fiat Chrysler Automobiles N.V. FCA Security Società consortile per azioni Teksid S.p.A. Abarth & C. S.p.A. 0.425 0.367 0.256 0.201 0.129 0.081 0.081 0.081 0.078 0.051 0.035 0.031 0.031 0.031 0.029 0.017 0.017 0.017 0.017 0.017 0.016 0.016 99.960 0.040 100.000 100.000 100.000 100.000 100.000 100.000 99.000 1.000 100.000 51.000 11.500 5.000 3.000 2.000 1.500 2017 | ANNUAL REPORTNameRegistered OfficeCountryShare capitalCurrency% of Group consolidationInterest held by% interestheld% votingrights262 C.R.F. Società Consortile per Azioni Comau S.p.A. FCA Group Marketing S.p.A. FCA Information Technology, Excellence and Methods S.p.A. FCA Services S.p.A. Fiat Chrysler Finance S.p.A. Fidis S.p.A. Magneti Marelli S.p.A. Maserati S.p.A. Deposito Avogadro S.p.A. 1.500 1.500 1.500 1.500 1.500 1.500 1.500 1.500 1.500 0.500 Fiat Chrysler Automobiles Services UK Limited Basildon United Kingdom 18,750,000 GBP 100.00 FCA Partecipazioni S.p.A. 100.000 Fiat Chrysler Financas Brasil Ltda. Nova Lima Brazil 2,469,701 BRL 100.00 Fiat Chrysler Finance S.p.A. FCA Fiat Chrysler Participacoes Brasil Limitada Fiat Chrysler Finance Canada Ltd. Calgary Canada 10,099,885 CAD 100.00 Fiat Chrysler Automobiles N.V. Fiat Chrysler Finance et Services S.A.S. Trappes France 3,700,000 EUR 100.00 FCA Services S.p.A. Fiat Chrysler Finance Europe S.A. Luxembourg Luxembourg 86,494,000 EUR 100.00 Fiat Chrysler Automobiles N.V. Fiat Chrysler Finance North America Inc. Wilmington U.S.A. 190,090,010 USD 100.00 FCA North America Holdings LLC Fiat Chrysler Finance S.p.A. Turin Italy 224,440,000 EUR 100.00 Fiat Chrysler Automobiles N.V. Fiat Chrysler Finance US Inc. Wilmington U.S.A. 100 USD 100.00 FCA North America Holdings LLC Fiat Chrysler Polska Sp. z o.o. Warsaw Poland 25,500,000 PLN 100.00 FCA Partecipazioni S.p.A. Fiat Chrysler Rimaco SA Lugano Switzerland 350,000 CHF 100.00 FCA Partecipazioni S.p.A. Fiat Chrysler Risk Management S.p.A. Turin Italy 120,000 EUR 100.00 FCA Partecipazioni S.p.A. Fiat Chrysler UK LLP London United Kingdom 5,000,250,001 USD 100.00 Fiat Chrysler Automobiles N.V. Maserati North America Inc. Fiat U.S.A. Inc. New York U.S.A. 16,830,000 USD 100.00 Fiat Chrysler Automobiles N.V. Neptunia Assicurazioni Marittime S.A. Lugano Switzerland 10,000,000 CHF 100.00 Fiat Chrysler Rimaco SA New Business 30 S.r.l. Turin Italy 100,000 EUR 100.00 FCA Partecipazioni S.p.A. 99.994 0.006 100.000 100.000 100.000 100.000 100.000 100.000 100.000 100.000 100.000 99.995 0.005 100.000 100.000 100.000 Sadi Polska-Agencja Celna Sp. z o.o. Bielsko-Biala Poland 500,000 PLN 100.00 Servizi e Attività Doganali per l’Industria 100.000 Servizi e Attività Doganali per l’Industria S.p.A. Turin Sisport S.p.A. - Società sportiva dilettantistica Turin Italy Italy 520,000 EUR 100.00 FCA Services S.p.A. 100.000 S.p.A. 889,049 EUR 100.00 FCA Partecipazioni S.p.A. 100.000 Joint arrangements Mass-Market Vehicles APAC Fiat India Automobiles Private Limited Ranjangaon India  24,451,596,600 INR  50.00 FCA Italy S.p.A. EMEA Società Europea Veicoli Leggeri-Sevel S.p.A. Atessa Italy  68,640,000 EUR  50.00 FCA Italy S.p.A. Jointly-controlled entities accounted for using the equity method  50.000  50.000 Mass-Market Vehicles NAFTA United States Council for Automotive Research LLC Southfield U.S.A.  100 USD  33.33 FCA US LLC  33.330 2017 | ANNUAL REPORTAppendix - FCA Companies at December 31, 2017Subsidiaries consolidated on a line-by-line basis (continued)NameRegistered OfficeCountryShare capitalCurrency% of Group consolidationInterest held by% interestheld% votingrights263 Jointly-controlled entities accounted for using the equity method (continued) GAC FIAT Chrysler Automobiles Co. Ltd. Changsha People’s Rep. of China APAC 6,000,000,000 CNY 50.00 Fiat Chrysler Automobiles N.V. 21.667 FCA Asia Pacific Investment Co. Ltd. 18.333 FCA Italy S.p.A. 10.000 GAC FIAT CHRYSLER AUTOMOBILES SALES CO. Ltd. Changsha People’s Rep. of China 200,000,000 CNY 50.00 GAC FIAT Chrysler Automobiles Co. 100.000 EMEA Ltd. FCA BANK S.p.A. Turin Italy 700,000,000 EUR 50.00 FCA Italy S.p.A. FCA AUTOMOTIVE SERVICES UK LTD. Slough Berkshire United Kingdom 50,250,000 GBP 50.00 FCA BANK S.p.A. FCA Bank Deutschland G.m.b.H. Heilbronn Germany 39,600,000 EUR 50.00 FCA BANK S.p.A. FCA Bank G.m.b.H. Vienna Austria 5,000,000 EUR 50.00 FCA BANK S.p.A. Fidis S.p.A. FCA CAPITAL BELGIUM S.A. Auderghem Belgium 3,718,500 EUR 50.00 FCA BANK S.p.A. FCA CAPITAL DANMARK A/S Glostrup Denmark 14,154,000 DKK 50.00 FCA BANK S.p.A. FCA CAPITAL ESPANA E.F.C. S.A. Alcalá De Henares Spain 26,671,557 EUR 50.00 FCA BANK S.p.A. FCA CAPITAL FRANCE S.A. Trappes France 11,360,000 EUR 50.00 FCA BANK S.p.A. FCA CAPITAL HELLAS S.A. Argyroupoli Greece 1,200,000 EUR 50.00 FCA BANK S.p.A. FCA Capital Nederland B.V. Lijnden Netherlands 3,085,800 EUR 50.00 FCA BANK S.p.A. FCA CAPITAL NORGE AS Fornebu Norway 100,800 NOK 50.00 FCA CAPITAL DANMARK A/S FCA CAPITAL PORTUGAL INSTITUIÇÃO FINANCIERA DE CRÉDITO SA FCA CAPITAL RE Designated Activity Company Porto Salvo Portugal 10,000,000 EUR 50.00 FCA BANK S.p.A. Dublin Ireland 1,000,000 EUR 50.00 FCA BANK S.p.A. FCA Capital Suisse S.A. Schlieren Switzerland 24,100,000 CHF 50.00 FCA BANK S.p.A. FCA CAPITAL SVERIGE AB Kista Sweden 50,000 SEK 50.00 FCA CAPITAL DANMARK A/S FCA DEALER SERVICES ESPANA S.A. Alcalá De Spain 25,145,299 EUR 50.00 FCA BANK S.p.A. Henares FCA DEALER SERVICES PORTUGAL S.A. FCA DEALER SERVICES UK LTD. Porto Salvo Portugal 500,300 EUR 50.00 FCA BANK S.p.A. Slough Berkshire United Kingdom 20,500,000 GBP 50.00 FCA BANK S.p.A. FCA INSURANCE HELLAS S.A. Argyroupoli Greece 60,000 EUR 49.99 FCA CAPITAL HELLAS S.A. FCA LEASING FRANCE SNC Trappes France 8,954,581 EUR 50.00 FCA CAPITAL FRANCE S.A. FCA Leasing GmbH Vienna Austria 40,000 EUR 50.00 FCA BANK S.p.A. FCA Leasing Polska Sp. z o.o. Warsaw Poland 24,384,000 PLN 50.00 FCA BANK S.p.A. FCA-Group Bank Polska S.A. Warsaw Poland 125,000,000 PLN 50.00 FCA BANK S.p.A. Ferrari Financial Services GMBH Pullach i. Isartal Germany 1,777,600 EUR 25.00 FCA BANK S.p.A. LEASYS FRANCE S.A.S. Trappes France 3,000,000 EUR 50.00 Leasys S.p.A. Leasys S.p.A. LEASYS UK LTD. Turin Italy 77,979,400 EUR 50.00 FCA BANK S.p.A. Slough Berkshire United Kingdom 19,000,000 GBP 50.00 Leasys S.p.A. 50.000 100.000 100.000 50.000 25.000 99.999 100.000 100.000 99.999 100.000 100.000 100.000 100.000 100.000 100.000 100.000 100.000 100.000 100.000 99.975 99.998 100.000 100.000 100.000 50.000 100.000 100.000 100.000 FER MAS Oto Ticaret A.S. Istanbul Turkey 5,500,000 TRY 37.64 Tofas-Turk Otomobil Fabrikasi A.S. 99.418 Koc Fiat Kredi Tuketici Finansmani A.S. Istanbul Turkey 30,000,000 TRY 37.86 Tofas-Turk Otomobil Fabrikasi A.S. 100.000 Tofas-Turk Otomobil Fabrikasi A.S. Levent Turkey 500,000,000 TRY 37.86 FCA Italy S.p.A. 37.856 2017 | ANNUAL REPORTNameRegistered OfficeCountryShare capitalCurrency% of Group consolidationInterest held by% interestheld% votingrights264 Jointly-controlled entities accounted for using the equity method (continued) Components Magneti Marelli Hubei Huazhoung Magneti Marelli Automotive Lighting Co. Ltd Hubei Province People’s Rep. of China 138,846,000 CNY 50.00 Automotive Lighting Reutlingen GmbH 50.000 Magneti Marelli Motherson Auto System Private Limited Magneti Marelli Motherson India Holding B.V. Magneti Marelli Motherson Shock Absorbers (India) Private Limited Magneti Marelli SKH Exhaust Systems Private Limited Magneti Marelli Talbros Chassis Systems Pvt. Ltd. New Delhi India 1,500,000,000 INR 50.00 Magneti Marelli S.p.A. Magneti Marelli Motherson India Holding B.V. Lijnden Netherlands 2,114,074 EUR 50.00 Magneti Marelli S.p.A. Pune India 2,269,000,000 INR 50.00 Magneti Marelli S.p.A. Gurugram India 274,190,000 INR 50.00 Magneti Marelli S.p.A. Faridabad India 235,600,000 INR 50.00 Sistemi Sospensioni S.p.A. SAIC MAGNETI MARELLI Powertrain Co. Ltd Shanghai People’s Rep. of China 23,000,000 EUR 50.00 Magneti Marelli S.p.A. 37.333 — 25.333 100.000 50.000 50.000 50.000 50.000 50.000 SKH Magneti Marelli Exhaust Systems Private Limited Gurugram India 95,450,000 INR 46.62 Magneti Marelli S.p.A. 46.621 50.000 Zhejiang Wanxiang Magneti Marelli Shock Absorbers Co. Ltd. Zhenjiang- Jangsu People’s Rep. of China 100,000,000 CNY 50.00 Magneti Marelli S.p.A. 50.000 Teksid Hua Dong Teksid Automotive Foundry Co. Ltd. Zhenjiang- Jangsu People’s Rep. of China 385,363,500 CNY 50.00 Teksid S.p.A. 50.000 Subsidiaries accounted for using the equity method Mass-Market Vehicles EMEA AC Austro Car Handelsgesellschaft m.b.h. & Co. OHG Vienna Austria — EUR 100.00 FCA AUSTRO CAR GmbH 100.000 ALFA ROMEO LLC. Auburn Hills U.S.A. — USD 100.00 FCA North America Holdings LLC Chrysler France S.A.S. Trappes France 460,000 EUR 100.00 CG EU NSC LIMITED Chrysler Jeep Ticaret A.S. Istanbul Turkey 5,357,000 TRY 100.00 CG EU NSC LIMITED FCA US LLC Chrysler Polska Sp.z o.o. Warsaw Poland 30,356,000 PLN 100.00 CG EU NSC LIMITED Fiat Automobiles S.p.A. in liquidation Turin Italy 120,000 EUR 100.00 FCA Italy S.p.A. FIAT CHRYSLER AUTOMOBILES CR s.r.o. Prague FIAT CHRYSLER AUTOMOBILES SR s.r.o. Bratislava Czech Republic Slovak Republic 1,000,000 CZK 100.00 FCA Italy S.p.A. 33,194 EUR 100.00 FCA Italy S.p.A. Fiat Professional S.p.A. in liquidation Turin Italy 120,000 EUR 100.00 FCA Italy S.p.A. GESTIN POLSKA Sp. z o.o. Bielsko-Biala Poland 500,000 PLN 100.00 FCA POLAND Spólka Akcyjna 100.000 100.000 99.960 0.040 100.000 100.000 100.000 100.000 100.000 100.000 Italcar SA Casablanca Morocco 4,000,000 MAD 99.90 Fiat Chrysler Automobiles Morocco S.A. 99.900 Lancia Automobiles S.p.A. in liquidation Turin NEW BUSINESS 37 S.p.A. Turin Italy Italy 120,000 EUR 100.00 FCA Italy S.p.A. 50,000 EUR 100.00 FCA Real Estate Services S.p.A. Sirio Polska Sp. z o.o. Bielsko-Biala Poland 1,350,000 PLN 100.00 FCA POLAND Spólka Akcyjna 100.000 100.000 100.000 Components Magneti Marelli Cofap Fabricadora de Pecas Ltda Santo Andre Brazil 75,720,716 BRL 68.34 Magneti Marelli do Brasil Industria e 68.350 Comau Comercio Ltda COMAU (THAILAND) CO. LTD Bangkok Thailand 10,000,000 THB 100.00 Comau S.p.A. 99.997 2017 | ANNUAL REPORTAppendix - FCA Companies at December 31, 2017NameRegistered OfficeCountryShare capitalCurrency% of Group consolidationInterest held by% interestheld% votingrights265 Subsidiaries accounted for using the equity method (continued) COMAU Czech s.r.o. Ostrava Czech Republic 5,400,000 CZK 100.00 Comau S.p.A. 100.000 Comau Do Brasil Facilities Ltda. Santo Andre Brazil 10,000,000 BRL 100.00 Comau do Brasil Industria e Comercio 100.000 Ltda. Comau Robot ve Sistemleri A.S Bursa Turkey 1,210,000 TRY 100.00 Comau S.p.A. IUVO SRL SYNEXO S.R.L. Pontedera Italy 61,224 EUR 26.01 SYNEXO S.R.L. Grugliasco Italy 10,000 EUR 51.00 Comau S.p.A. Other Activities: Holding companies and Other companies 100.000 51.000 51.000 Fiat (Beijing) Business Co., Ltd. Beijing People’s Rep. of China 3,000,000 USD 100.00 FCA Partecipazioni S.p.A. 100.000 Fiat Chrysler Rimaco Argentina S.A. Buenos Aires Argentina 150,000 ARS 99.96 Fiat Chrysler Rimaco SA Fiat Chrysler Rimaco Brasil Corretagens de Seguros Ltda. Belo Horizonte Brazil 365,525 BRL 100.00 Fiat Chrysler Rimaco SA Subsidiaries valued at cost Mass-Market Vehicles NAFTA FCA Co-Issuer Inc. Wilmington U.S.A. 100 USD 100.00 FCA US LLC FCA DUTCH OPERATING LLC Wilmington U.S.A. FCA Foundation Bingham Farms U.S.A. — USD — USD 100.00 CNI C.V. 100.00 FCA US LLC 99.960 99.998 100.000 100.000 100.000 FCA INTERMEDIATE MEXICO LLC Wilmington U.S.A. 1 USD 100.00 Chrysler Mexico Investment Holdings 100.000 Cooperatie U.A. Fundacion Chrysler, I.A.P. Santa Fe Mexico — MXN 100.00 FCA Mexico, S.A. de C.V. FUNDACION FCA, A.C. Mexico Mexico 2 MXN 100.00 FCA Mexico, S.A. de C.V. EMEA FCA MINORITY LLC 100.000 50.000 50.000 Orbassano Italy 49,000 EUR 100.00 FCA ITALY HOLDINGS S.p.A. 100.000 Amsterdam Netherlands — EUR 100.00 CNI C.V. Associazione Tecnica dell`Automobile Consulting & Solutions s.r.l. in liquidation Chrysler Netherlands Holding Cooperatie U.A. Chrysler UK Pension Trustees Limited Slough Berkshire United Kingdom CODEFIS Società consortile per azioni Turin Consorzio ATA - FORMAZIONE Pomigliano d’Arco Italy Italy FCA DUTCH OPERATING LLC 1 GBP 100.00 Chrysler UK Limited 120,000 EUR 51.00 FCA Italy S.p.A. 18,319 EUR 100.00 C.R.F. Società Consortile per Azioni FCA Real Estate Services S.p.A. CONSORZIO FCA CNHI ENERGY Turin Italy 7,000 EUR 57.14 Comau S.p.A. FCA Italy S.p.A. Plastic Components and Modules Automotive S.p.A. Teksid S.p.A. Consorzio Servizi Balocco Turin Italy 10,100 EUR 86.11 FCA Italy S.p.A. Maserati S.p.A. Abarth & C. S.p.A. FCA Real Estate Services S.p.A. FAS FREE ZONE Ltd. Kragujevac Kragujevac Serbia 2,281,603 RSD 66.67 FCA SERBIA DOO KRAGUJEVAC 100.000 FCA Russia S.r.l. Turin Italy 253,565 EUR 100.00 FCA Italy S.p.A. 100.000 Fiat Motor Sales Ltd Slough Berkshire United Kingdom 1,500,000 GBP 100.00 FIAT CHRYSLER AUTOMOBILES UK 100.000 Ltd 99.000 1.000 100.000 51.000 90.998 9.002 14.286 14.286 14.286 14.286 80.663 2.901 1.554 0.990 2017 | ANNUAL REPORTNameRegistered OfficeCountryShare capitalCurrency% of Group consolidationInterest held by% interestheld% votingrights266 Subsidiaries valued at cost (continued) OOO “CABEKO” Nizhniy Novgorod Russia 181,869,062 RUB 100.00 FCA Russia S.r.l. FCA Italy S.p.A. VM North America Inc. Auburn Hills U.S.A. 1,000 USD 100.00 FCA Italy S.p.A. 99.591 0.409 100.000 Components Magneti Marelli SBH EXTRUSAO DO BRASIL LTDA. Betim Brazil 15,478,371 BRL 99.99 Plastic Components and Modules 100.000 Consorzio Fermag in liquidation Bareggio Italy 144,608 EUR 68.00 Comau S.p.A. Other Activities: Holding companies and Other companies Comau Automotive S.p.A. 68.000 100.000 100.000 FCA Newco LLC Wilmington U.S.A. Fiat Chrysler Finance Netherlands B.V. Amsterdam Netherlands Fiat Common Investment Fund Limited London United Kingdom 1 USD 1 EUR 2 GBP 100.00 Maserati North America Inc. 100.00 Fiat Chrysler Automobiles N.V. 100.00 Fiat Chrysler Automobiles Services UK 100.000 Limited Fiat Oriente S.A.E. in liquidation Cairo Egypt 50,000 EGP 100.00 FCA Partecipazioni S.p.A. Isvor Fiat India Private Ltd. in liquidation New Delhi India 1,750,000 INR 100.00 FCA Partecipazioni S.p.A. New Business 29 S.c.r.l. Turin Italy 50,000 EUR 100.00 FCA Partecipazioni S.p.A. Fiat Chrysler Automobiles N.V. New Business 31 S.p.A. New Business 35 s.r.l. New Business 36 s.r.l. Turin Turin Turin Italy Italy Italy 120,000 EUR 100.00 FCA Partecipazioni S.p.A. 50,000 EUR 100.00 FCA Partecipazioni S.p.A. 50,000 EUR 100.00 FCA Partecipazioni S.p.A. Associated companies accounted for using the equity method 100.000 100.000 80.000 20.000 100.000 100.000 100.000 Mass-Market Vehicles APAC Hangzhou IVECO Automobile Transmission Technology Co., Ltd. Hangzhou People’s Rep. of China 795,000,000 CNY 50.00 FCA Partecipazioni S.p.A. 50.000 EMEA Arab American Vehicles Company S.A.E. Cairo Egypt 6,000,000 USD 49.00 FCA US LLC 49.000 Components Magneti Marelli FMM Pernambuco Componentes Automotivos Ltda Nova Goiana Brazil  209,180,100 BRL  49.00 Plastic Components and Modules  49.000 Automotive S.p.A. HMC MM Auto Ltd New Delhi India 434,500,000 INR 40.00 Magneti Marelli S.p.A. 40.000 Iveco-Motor Sich, Inc. Zaporozhye Ukraine 26,568,000 UAH 38.62 FCA Partecipazioni S.p.A. Other Activities: Holding companies and Other companies Otoyol Sanayi A.S. in liquidation Samandira- Kartal/ Istanbul Turkey 52,674,386 TRY 27.00 FCA Partecipazioni S.p.A. 38.618 27.000 Associated companies valued at cost Mass-Market Vehicles LATAM FCA Venezuela LLC Wilmington U.S.A. 132,474,694 USD 100.00 CG Venezuela UK Holdings Limited 100.000 Consorzio per la Reindustrializzazione Area di Arese S.r.l. in liquidation Arese Innovazione Automotive e Metalmeccanica Scrl Santa Maria Imbaro Italy Italy EMEA 20,000 EUR 30.00 FCA Italy S.p.A. 115,000 EUR 23.75 FCA Italy S.p.A. C.R.F. Società Consortile per Azioni Sistemi Sospensioni S.p.A. 30.000 15.077 8.465 0.211 2017 | ANNUAL REPORTAppendix - FCA Companies at December 31, 2017NameRegistered OfficeCountryShare capitalCurrency% of Group consolidationInterest held by% interestheld% votingrights267 Associated companies valued at cost (continued) Tecnologie per il Calcolo Numerico- Centro Superiore di Formazione S.c. a r.l. Trento Italy 100,000 EUR 25.00 C.R.F. Società Consortile per Azioni 25.000 Turin Auto Private Ltd. in liquidation Mumbai India 43,300,200 INR 50.00 FCA ITALY HOLDINGS S.p.A. 50.000 Components Magneti Marelli Bari Servizi Industriali S.c.r.l. DTR VMS Italy S.r.l. Modugno Passirano Italy Italy 24,000 EUR 25.00 Magneti Marelli S.p.A. 1,000,000 EUR 40.00 Magneti Marelli S.p.A. Mars Seal Private Limited Mumbai India 400,000 INR 24.00 Magneti Marelli France S.a.s. Matay Otomotiv Yan Sanay Ve Ticaret A.S. Bursa Turkey 3,800,000 TRY 28.00 Magneti Marelli S.p.A. PSMM Campania S.r.l. Torrice Italy 18,000,000 EUR 30.00 Plastic Components and Modules Other Activities: Holding companies and Other companies Automotive S.p.A. ANFIA Automotive S.c.r.l. Turin Italy 20,000 EUR 20.00 C.R.F. Società Consortile per Azioni Auto Componentistica Mezzogiorno - A.C.M. Melfi Società Consortile a responsabilità limitata Turin Italy 40,000 EUR 35.25 FCA Melfi S.r.l. Sistemi Sospensioni S.p.A. FCA Information Technology, Excellence and Methods S.p.A. FCA Italy S.p.A. Magneti Marelli S.p.A. 25.000 40.000 24.000 28.000 30.000 5.000 5.000 5.000 5.000 23.500 11.750 FMA-Consultoria e Negocios Ltda São Paulo Brazil 1 BRL 50.00 FCA Fiat Chrysler Participacoes Brasil 50.000 Limitada Parco Industriale di Chivasso Società Consortile a responsabilità limitata Chivasso Italy 10,000 EUR 25.80 FCA Partecipazioni S.p.A. Talent Garden Fondazione Agnelli S.r.l. Turin Italy 40,000 EUR 30.00 FCA Partecipazioni S.p.A. 25.800 30.000 2017 | ANNUAL REPORTNameRegistered OfficeCountryShare capitalCurrency% of Group consolidationInterest held by% interestheld% votingrights268 2017 | ANNUAL REPORTIndependent Auditor’s Report 270 Independent Auditor’s Report Ernst & Young Accountants LLP Boompjes 258 3011 XZ Rotterdam, Netherlands Postbus 2295 3000 CG Rotterdam, Netherlands Tel: +31 88 407 10 00 Fax: +31 88 407 89 70 ey.com Independent auditor’s report To: the shareholders and audit committee of Fiat Chrysler Automobiles N.V. Report on the audit of the financial statements 2017 included in the annual report Our opinion We have audited the financial statements 2017 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, 2017 and of its result and its cash flows for 2017 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, 2017 and of its result for 2017 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, 2017 • The following statements for 2017: 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 balance sheet as at December 31, 2017 • The company income statement for 2017 • 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 accountantsorganisaties (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. Ernst & Young Accountants LLP is a limited liability partnership incorporated under the laws of England and Wales and registered with Companies House under number OC335594. The term partner in relation to Ernst & Young Accountants LLP is used to refer to (the representative of) a member of Ernst & Young Accountants LLP. Ernst & Young Accountants LLP has its registered office at 6 More London Place, London, SE1 2DA, United Kingdom, its principal place of business at Boompjes 258, 3011 XZ Rotterdam, the Netherlands and is registered with the Chamber of Commerce Rotterdam number 24432944. Our services are subject to general terms and conditions, which contain a limitation of liability clause. 2017 | ANNUAL REPORT 271 Page 2 Materiality Materiality €400 million Benchmark applied 5% of Adjusted EBIT (earnings before interest and income taxes) Explanation In 2017 we have changed the basis used to set our materiality: as a consequence of the close to break-even economic results in previous years, we had set up our materiality at approximately 0.5% of Group Revenues. Since FCA is showing a positive trend in profitability, we set our planning materiality at 5% of the average EBIT adjusted for certain exceptional non-recurring items. This average includes a forward looking-element. Based on perspectives and expectations of the users of the financial statements in the context of our understanding of the entity and the environment in which it operates, we determined the materiality for the financial statements as a whole at €400 million (2016: €400 million). 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 six reportable segments being NAFTA, EMEA, LATAM, APAC, Maserati and Components, 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 145 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 20 entities. Other procedures are performed on a further 120 entities. 2017 | ANNUAL REPORT 272 Independent Auditor’s Report Page 3 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 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 on LATAM goodwill and Income taxes with focus on recoverability of the Italian deferred tax assets are audited directly by the group engagement team in addition to the other procedures the group team is responsible for. • The group engagement team visited at least once the local management and the auditors of the components which are significant based on size and their related risk: FCA US, FCA Italy and FCA Brazil. For each of these locations we reviewed the audit files of the component auditor and determined the sufficiency and appropriateness of the work performed. • The group engagement team visited FCA China to visit local management and the component auditor 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 81% of the group’s total assets and 84% of revenues. Location percentage of coverage: Revenues Total Assets Full scope Specific scope Other procedures By performing the procedures mentioned above at group components, 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 judgment, 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. The key audit matters in 2017 are consistent with those reported in the prior year. 2017 | ANNUAL REPORT 273 Page 4 Risk Our audit approach Key observations communicated to the Audit Committee Valuation of goodwill and other non-current assets with indefinite useful lives, with particular reference on LATAM goodwill 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 respect to LATAM, given the importance of the assumptions in relation to the continuation of certain tax benefits, we agree with the continued disclosure of this assumption in the consolidated financial statements. At December 31, 2017 the recorded amount of goodwill and other non- current assets with indefinite useful lives was €10,396 million and €2,994 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 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. 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. 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 CGUs identified continue to be appropriate in the current year and tested the allocation of asset and liabilities to the carrying value of each CGU. • 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 2018- 2022 and 2018-2026 for LATAM • evaluated the appropriateness of the use of these forecasts in light of the historical accuracy of the Company’s forecasts • The 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 2017 | ANNUAL REPORT 274 Independent Auditor’s Report Page 5 Risk Our audit approach Key observations communicated to the Audit Committee materially impact the valuation of recoverable. Finally, we reviewed the adequacy of the disclosures made 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. Risk Our audit approach Key observations communicated to the Audit Committee Based on the procedures performed, we concluded that the deferred tax asset balances for Brazil and Italy, at December 31, 2017, are materially correct. Income taxes – recoverability of the Brazilian and Italian deferred tax assets At December 31, 2017, the Company had deferred tax assets on deductible temporary differences of €5,858 million which were recognized and €940 million which were not recognized. At the same date the Company also had deferred tax assets in respect of tax losses carried forward of €978 million which were recognized and €3,740 million which were not recognized. The recognized and unrecognized amounts related to Brazil are €148 million and €1,139 million respectively. The recognized and unrecognized amounts related to Italy are €898 million and €2,358 million respectively. The recognition and recoverability of the deferred tax assets in Brazil and 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. 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 these tax jurisdictions, 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 evaluated the appropriateness of the write down in the second quarter of the year of certain 2017 | ANNUAL REPORT 275 Page 6 Risk Our audit approach Key observations communicated to the Audit Committee Brazilian deferred tax assets previously recognized. • 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. Risk Our audit approach Provision for NAFTA product warranty and recall campaigns At December 31, 2017 the provisions for product warranties and recall campaigns amounted to €6,725 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 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 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 judgments 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 Key observations communicated to the Audit Committee 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, 2017. 2017 | ANNUAL REPORT 276 Independent Auditor’s Report Page 7 Risk Our audit approach Key observations communicated to the Audit Committee actions are recorded in Cost of Sales in the Consolidated Income Statements. Finally, we reviewed the adequacy of the disclosures made by the Company in this area. Due to the size and the uncertainty and potential volatility of these estimated future costs and other factors, such as 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. 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: • • Contains the information as required by Part 9 of Book 2 of the Dutch Civil Code Is consistent with the financial statements and does not contain material misstatements 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 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 pursuant to 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. 2017 | ANNUAL REPORT 277 Page 8 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. Our responsibilities for the audit of the financial statements Our objective is to plan and perform the audit assignment 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 have detected all material errors and fraud. 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 judgment and have maintained professional skepticism throughout the audit, in accordance with Dutch Standards on Auditing, ethical requirements and independence requirements. Our audit included e.g.: • 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 2017 | ANNUAL REPORT 278 Independent Auditor’s Report Page 9 • 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. From the matters communicated with the audit committee, we determine those matters that were of most significance in the audit of the financial statements of the current period and are therefore the key audit matters. 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 20, 2018 Ernst & Young Accountants LLP /s/ P.W.J. Laan 2017 | ANNUAL REPORT 279 Contact Corporate Office: 25 St James’s Street, London SW1A 1HA - U.K. Tel. ++44 (0) 207 7660311 2017 | ANNUAL REPORTPrinting This document is printed on eco-responsible IGLOO Offset, a 100% recycled paper produced by Arjowiggins Graphic. The internal pages are printed on 100 gsm paper and the cover is 300 gsm. graphic papers By using this paper, rather than a non-recycled paper, the environmental impact was reduced by: 280 kg of landfill CO2 41 kg of CO2 414 km travel in the average European car 8,195 liters of water 481 455 kWh of energy kg of wood Graphic design and editorial coordination Sunday Turin, Italy Printing Tipografia Sosso Grugliasco (TO), Italy Printed in Italy April 2018 Graphic design and editorial coordination Sunday Turin, Italy Printing Tipografia Sosso Grugliasco (TO), Italy Printed in Italy April 2018 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. 2017 annual report2017 annual report 

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