Tag Archive | "Fiat SpA"

Fiat Gears Up, Cautiously

When Fiat SpA launches a new version of its popular Panda city car Wednesday, the Italian auto maker is likely to trumpet it as the first victory in a €20 billion ($26 billion) campaign to revive its manufacturing in its home country.

But, faced with a slowing economy in Europe next year, the car maker risks having to curtail the plan that would more than double production capacity by 2014, according to The Wall Street Journal.

“We need to be cautious,” Fiat Chief Executive Sergio Marchionne said in an interview Tuesday. “We know and have been very clear on what we are doing with the Mirafiori plant [in Turin]. With the other two plants [Cassino, in Italy’s Lazio region, and Melfi, in the country’s south] we will have to watch what happens in the next five to six months before we make full commitments there.”

Thanks to the sovereign-debt crisis and a tempestuous relationship with labor unions, Fiat has already taken its time retooling its Italian factories. Market observers say any further delay could compromise its already-weak position against Volkswagen AG and other rivals in Europe where it has yet to fully renew its aging product offering.

Although its U.S. partner Chrysler Group LLC has enjoyed a strong recovery in sales in the U.S., Fiat has had no such luck in Western Europe, its traditional market. In the first 10 months of 2011, Fiat as a group suffered an 11 percent drop in unit sales, the largest decline among the region’s big auto makers, according to industry figures. Its market share fell nearly a percentage point to 7.3 percent. In the third quarter, Chrysler was responsible for two-thirds of the group’s profit. In Europe, Fiat is unprofitable and is trying to break even by 2014.

And next year doesn’t look promising. At a news conference earlier this month, Mr. Marchionne forecast a flat European car market—at best. “If you were to have a structural failure on the financial market or the euro, then all bets are off,” he said at the time.

Although Fiat has the money to survive 2012 and pay off any expiring debt, it could be forced to slash spending on its plan by more than €5 billion, said Morgan Stanley analyst Stuart Pearson. “It could compromise its investment in product,” Mr. Pearson said.

Under the plant-refurbishment plan, initially dubbed Fabbrica Italia, Fiat aims to boost capacity at the company’s five Italian factories to 1.4 million cars and vans by 2014—part of Mr. Marchionne’s wider strategy of gaining scale through Fiat’s merger with Chrysler, of which it owns 53.5 percent.

Nearly two years after the plan was unveiled, Fiat will show off the new Panda model, made at the Giambattista Vico plant in Pomigliano d’Arco, on Wednesday. “It sets a new bar because this is the most industrially advanced plant that Fiat or Chrysler has,” Mr. Marchionne said. “This is a huge step forward.”

But the second model from the program won’t come out for another year. And this means Fiat will depend on factories elsewhere in Europe—Serbia, for example—to refresh its lineup.

Part of the delay stems from Mr. Marchionne’s insistence on implementing new working conditions governing everything from coffee breaks to overtime before spending a single euro. He even threatened to move production outside Italy if he didn’t get what he wanted, saying that Fiat’s factories in the country had to become more efficient.

In the end, Mr. Marchionne succeeded in persuading workers to vote in favor of the changes at three factories, but this took the better part of a year. And on Tuesday, Fiat said it had reached an agreement with metalworkers unions to extend the new labor contract to all the remaining employees in its home country. The agreement, Mr. Marchionne said, will “allow us to move on and manage Fiat. We have been in gridlock forever.”

Fiat also briefly halted an investment of more than €1 billion at its Mirafiori factory after changing plans for a new model to be made there. The investment in the plant was further held up by a legal challenge from the Fiom-CGIL, the only union to hold out against the new working conditions.

Fiat’s predicament is in part the legacy of decisions made at the start of the financial crisis, observers say. When the crisis first struck in late 2008, the company cut spending and slowed the pace of product development, arguing that it was pointless to bring out new models when the market was in the doldrums. The result, however, is that Fiat has been slowly overtaken by its rivals, which kept rolling out new models.

Mr. Marchionne has acknowledged the danger of delaying new products for too long. “You’re going to tire yourself out of a market if you don’t keep the portfolio alive,” he said during a recent conference call. “The continuous introduction of products…is going to help, certainly in terms of maintaining [market] share,” he said.

And, he added, when it comes to keeping costs down, Fiat has the option it has repeatedly used in Italy of getting workers to stay home on reduced pay for months at a time.

But the bulk of Fiat’s efforts to catch up with rivals will only come to fruition in 2013 when a major overhaul of its product offering for Europe will see it roll out 11 new and updated models. Its refitted factories in Italy will contribute.

For UBS analyst Philippe Houchois, the fact that Fiat has decided to invest in Italy is more important than how much it invests.

He said it is a mistake to focus on the €20 billion figure. “When they announce these grand plans, car makers always highball the numbers,” he said.

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Fiat Names New North American Chief

Laura Soave, head of the Fiat brand for North America, is no longer employed by Chrysler Group LLC.

Effective Monday, she has been replaced by Timothy Kuniskis, a 19-year veteran of Chrysler who was director of product marketing for the Fiat and Chrysler brands.

Soave was still in the top Fiat position for North American last week at the Los Angeles auto show, but there had been growing speculation she would lose her job. The automaker announced today that she has left the company “and will pursue other interests.”

Asked if Soave was still in charge on Wednesday, Olivier Francois, head of the Fiat brand globally, said “sure, sure, sure” in an interview with The Detroit News.

The change in leadership comes on the heels of failed efforts to get Fiat dealerships up and running in the United States in a timely manner.

Sales of the Fiat 500, at about 15,800 through October, are far below what is needed to meet initial projections of 50,000 a year.

The Fiat advertising campaign, featuring actress and singer Jennifer Lopez, also has been criticized.

In Los Angeles, Fiat showed the new 2012 500 Abarth, a performance version of the tiny car, as well as the Gucci edition tailored more to women.

The Gucci edition goes on sale next month; the Abarth follows early next year. Fiat is also adding an electric 500 to the lineup next year.

“Tim brings broad expertise and leadership in dealer operations and marketing, where he has been already working with the team to shape the direction of the Fiat Brand,” Chrysler CEO Sergio Marchionne said in a statement.

“As North American Head of Fiat, much of his immediate focus will be working with the dealer body where his fresh perspective from the operational side, as well as that on the commercial side, will begin the Fiat Brand’s next chapter,” Marchionne said.

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Chrysler Plans More Fiat Dealerships as 500 Misses Sales Goals

Chrysler Group LLC, falling behind its North American sales goals for the Fiat 500, plans to open 20 more U.S. dealerships during 2012’s first quarter to sell the Italian brand.

North American sales of the Fiat 500 this year through October reached 21,380, a rate below Chief Executive Officer Sergio Marchionne’s forecast of 50,000 for 2011. The rollout was hindered by complications in opening new Fiat stores instead of using existing space at Chrysler dealerships, reported Bloomberg.

Olivier Francois, head of the Fiat brand worldwide, started a U.S. marketing campaign featuring singer Jennifer Lopez in September. He is overseeing the introduction of the performance version of the 500, the Abarth, scheduled to reach showrooms early next year.

“The process of launching a new brand with three models, the 500, Cabrio and Abarth, is a process that takes time,” Francois said in an interview in advance of the Los Angeles Auto Show. “We continue to increase our customer awareness.”

Marchionne said today in Toledo, Ohio, that the lack of Fiat outlets has held back sales of the 500.

“We need to continue to work on distribution,” Marchionne told reporters. “We’ve had 50 dealers, 60 dealers trying to sell the car. I think Ferrari has more dealers than that.” The CEO was in Toledo to announce a $1.7 billion investment to update a Jeep sport-utility vehicle.

Chrysler has opened more than 120 U.S. Fiat stores this year, Richard Palmer, chief financial officer, said during Fiat’s third-quarter earnings call with analysts on Oct. 28.

Gualberto Ranieri, a Chrysler spokesman, said 130 U.S. stores should be open by year’s end and Francois said the number will rise to 150 by March 31.

“I think that’s a good level,” Francois said. “What is very important is not the quantity but the quality.”

Chrysler, based in Auburn Hills, Michigan, is majority- owned by Turin, Italy-based Fiat SpA. Marchionne is CEO of both companies.

Fiat is targeting a merger with Chrysler within the next three years. Marchionne said today instability in Italy may affect the decision on where the combined company will be based.

“I would be lying to you if I told you it didn’t,” he said. “That’s not to say that the current situation will force us to move away from Italy. We’re committed to the industrial backbone of the country. The country has to make some tough choices going forward, and it has to make them now.”

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Fiat Targets Chrysler Merger Within Three Years to Boost Carmaker’s Profit

Fiat SpA targets a merger with Chrysler Group LLC within the next three years as the American carmaker becomes the profit driver of its Italian parent.

“There’s no single doubt that at some point of time between now and the conclusion of the 2014 plan, we need to find a corporate convergence between Fiat and Chrysler,” Sergio Marchionne, chief executive officer of both carmakers, said on a call today with analysts. “We are totally open to what the solution is going to yield.”

Fiat must first reach an agreement with the United Auto Workers on what to do with the 41.5 percent Chrysler stake that the union’s retiree health-care trust owns and get in place the necessary financing, Marchionne said, adding that there’s no “immediate need” for a merger as there is “a lot of time.”

Marchionne, 59, aims to combine the carmakers to reduce costs and achieve a target of more than 100 billion euros ($142 billion) in revenue by 2014 as he struggles to end Fiat’s European losses, which analysts estimate at 800 million euros a year. Fiat, which owns 53.5 percent of Chrysler, expects to get to 58.5 percent by the end of the year after meeting performance targets set during Chrysler’s 2009 bailout, reported Bloomberg.

Fiat’s biggest shareholder, Exor SpA, said in a statement late yesterday that both Fiat and Fiat Industrial are proposing to convert preferred and savings shares into common stock. Exor, the Agnelli family investment company whose CEO John Elkann is also Fiat’s chairman, said it plans to keep its holdings in Fiat and Fiat Industrial above 30 percent.

“If you want to read it as a means of preparing for a potential merger with Chrysler, you read it properly,” Marchionne said on today’s call. “The way in which this happens is totally open but we need to make sure that all the instruments are in place for that to happen relatively quickly.”

Fiat’s common shares tumbled 25 cents, or 5 percent, to close at 4.85 euros in Milan trading. The stock has dropped 28 percent this year, valuing the automaker at 6.04 billion euros.

Chrysler’s rebounding sales are helping prop up Fiat. Third-quarter earnings before interest, taxes and one-time items, which Fiat calls trading profit, rose to 851 million euros from 256 million euros a year earlier, the Turin, Italy- based carmaker said in a statement late yesterday.

Fiat raised its target for 2011 trading profit to more than 2.1 billion euros on the strength of Chrysler’s earnings. Chrysler’s third-quarter trading profit contributed 65 percent of overall results. Fiat fully consolidated Chrysler’s results for the first time. The carmaker reiterated a forecast for 2011 sales to exceed 58 billion euros.

The American carmaker’s third-quarter U.S. market share gained 1.8 percentage points to 11.4 percent, the company said yesterday. Fiat’s European market share in the period sank 0.6 percentage points to 6.5 percent.

“Chrysler is driving earnings,” said Emanuele Vizzini, chief investment officer at Investitori Sgr in Milan, who sold its Fiat shares in August and isn’t planning to buy now. “For Fiat, while trading profit is better than expected, revenues are weak as its problems in Italy are emerging.”

Net industrial debt climbed to 5.8 billion euros from 3.4 billion euros three months earlier, Fiat said yesterday. Industrial cash flow, excluding Chrysler, was a negative 1.41 billion euros.

“The real story is the cash burn,” said Erich Hauser, a Credit Suisse analyst in London. With the market anticipating net debt at Fiat’s industrial operations of 4.1 billion euros, “the poor cash flow during the third quarter highlights just how volatile Fiat’s balance sheet has become.”

Chrysler won’t consider an initial public offering until there is more clarity and stability in equity markets, Marchionne said today.

“I wouldn’t venture to do anything in this market today,” he said. “Regardless of how well we perform, I think it’s an ungrateful market. It’s distracted by a number of other things, some of which may be more relevant than our own issues.”

The maker of Fiat, Maserati and Ferrari cars posted a third-quarter net loss of 46 million euros compared with a profit of 170 million euros a year earlier. Profit was burdened by 138 million euros writedown of equity swaps related to stock options and 57 million euros in other one-time charges.

Fiat was downgraded one level by Fitch Ratings last week on concern that a combination with Chrysler will increase financial risk for the Italian carmaker. Fiat was lowered to BB, two steps below investment grade, from BB+, Fitch said. The rating company has a negative outlook on the manufacturer.

Moody’s Investors Service and Standard & Poor’s lowered their ratings on Fiat earlier this year, citing concerns that the integration with Chrysler will leave Fiat responsible for the American carmaker’s debt.

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Fiat Sticks to Profit Target

TURIN – Fiat SpA’s chief executive Wednesday stuck to his 2011-12 financial targets despite the weakening market in Europe, saying the Italian auto maker was doing well elsewhere, especially Brazil and the U.S.

“There’s no need to change the numbers,” Sergio Marchionne told reporters after the presentation of the Thema sedan and Voyager minivan, two new models for Lancia, Fiat’s small but upscale brand in Europe.

Fiat has revised its 2011 targets after taking control of its U.S. partner, Chrysler Group LLC, reported The Wall Street Journal. It expects an operating profit before exceptional items of €2.1 billion ($2.89 billion) on revenue in excess of €58 billion, including Chrysler’s contribution. The targets are only slightly higher than those achieved in 2010 because Fiat spun off its truck and tractor business into Fiat Industrial SpA at the end of that year.

Fiat has yet to publish a revision of its 2012 targets to take into account Chrysler.

“The good thing about at least parts of our business is that they are in cash-generation mode. The U.S. is in good shape. Latin America is in good shape. Europe continues to be a big area of concern,” he said.

In the first nine months of the year, Fiat, which now includes the Chrysler and Jeep brands in its numbers, suffered the biggest drop in unit sales among the region’s mass car manufacturers, down 12 percent to 735,494, according to industry figures. Its market share fell to 7.3 percent from 8.2 percent compared with a year earlier. By contrast, sales at Volkswagen AG grew by 7.9 percent.

Fiat makes nearly all of its profits in Brazil, where it is the market leader, and its merger with Chrysler has reduced its dependence on Europe.

Mr. Marchionne highlighted the difficulties Fiat faced in Europe this year and the next, especially in Italy, its biggest single market in the region. “This country right now is in gridlock and you need something to snap it out of its stupor,” he said of Italy, where Fiat commands a 30 percent market share.

Mr. Marchionne said a strike at Fiat plants called for Friday by Fiom, a small but influential union in Italy, would hurt the country’s image as a place to invest rather than the auto maker itself.

In the U.S., Chrysler, where Mr. Marchionne is also chief executive, has reached a tentative agreement on a new labor contract with the UAW. For it to become effective, the union must get its members’ approval.

“I am hopeful and confident that we will it through,” he said in reference to the UAW vote. “I think our people understand that this is the best thing I could achieve under the circumstances.

“The UAW and ourselves hammered out the best possible deal that we could…we know the limitations,” he added.

Mr. Marchionne said he wasn’t surprised by Tuesday’s downgrade of Fiat’s debt rating by Fitch Ratings Inc. the last of the three major agencies to do it.

“We have enough liquidity to deal with our requirements for quite a while.” By the end of the year, Fiat aims for €18 billion of cash and up to €5.5 billion in net industrial debt.

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Fitch Lowers Fiat Credit Rating on Chrysler Risk

Milan, Italy – The Fitch ratings agency has downgraded the credit rating of Italian automaker Fiat SpA because of risks linked to its combination with U.S. automaker Chrysler Group LLC.

Fitch said Tuesday that Fiat’s own operations may be disrupted by financial difficulties at Chrysler at a time when Fiat is under pressure at its standalone business, reported The Detroit News.

Fitch says the downgrade to BB from BB+ reflects Fiat’s “intrinsic weakness” in that it relies heavily on the Italian and Brazilian markets and only has a small presence in the growing markets in China, India and Russia.

In September, Moody’s downgraded Fiat’s ratings as well for similar reasons.

Fiat holds a 53.5 percent share in Chrysler, and expects to raise its stake to 58.3 percent by the end of the year.

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