Fiat Forecasts European Slump as Regional Losses Widen
Stock Chart for Fiat SpA (F)
Fiat SpA (F), the Italian carmaker that controls Chrysler Group LLC, forecast a prolonged downturn in the European market after reporting a wider loss in the region.
The third-quarter operating loss in Europe widened 61 percent to 219 million euros as revenue slumped 13 percent, the Turin, Italy-based carmaker said today. The company said it may not break even in the region until 2015 or 2016 after earlier targeting an end to losses in two years.
Chief Executive Officer Sergio Marchionne is cutting back on investment and holding off on bringing new Fiat vehicles to market because of Europe’s downturn, where industrywide sales are headed for their biggest annual drop in 19 years. The company said today 2012 trading profit will be at the lower end of a previous target of 3.8 billion euros to 4.5 billion euros.
“Events of the past 12 months have reinforced our negative view of the development of the European markets,” Marchionne said in a statement. “We see continuing weak trading conditions for the remainder of 2012, extending well into 2013 and at least part of 2014.”
Fiat dropped as much as 20 cents, or 5 percent, to 3.92 euros, the worst performer on the Bloomberg Europe Autos Index and Milan’s benchmark FTSE MIB Index, and was trading down 4.1 percent as of 4:18 p.m. local time. The stock has climbed 11 percent this year, valuing the company at 4.94 billion euros.
The Italian carmaker today said net debt at year’s end will be about 6.5 billion euros, compared with a previous forecast of as much as 6 billion euros. Net debt rose in the third quarter by 1.26 billion euros to 6.69 billion euros.
“The real story here is the balance sheet and finally we are seeing the cracks appears,” David Arnold, a sales specialist at Credit Suisse in London, said in a note to investors. “Fiat’s core has managed to consume 1.4 billion euros in cash within 92 days, or 15 million euros per day, much worse than what we are seeing anywhere else.”
In an effort to find a solution to woes in Europe, Marchionne approached PSA Peugeot Citroen and General Motors Co. (GM) earlier this month about a pan-European combination, three people familiar with the matter said. The Fiat CEO is looking for a partner to break the Italian carmaker out of its isolation in the region after GM and Peugeot announced an alliance earlier this year.
Fiat also cut revenue and profit goals for 2014 today. The Italian manufacturer now targets trading profit in a range of 4.7 billion euros to 5.2 billion euros, compared with an April 2010 forecast of about 7.5 billion euros. Revenue is set to increase to more than 94 billion euros, down from the previous forecast of 104 billion euros.
Third-quarter earnings before interest, taxes and one-time items, which Fiat calls trading profit, advanced 12 percent to 951 million euros on sales of Chrysler vehicles in North America. Revenue rose 16 percent to 20.4 billion euros.
Boosted by demand for 200 sedans and Jeep Grand Cherokee sport-utility vehicles Chrysler yesterday said its net income surged 80 percent to $381 million. The Auburn Hills, Michigan- based manufacturer also confirmed its 2012 forecast of about $1.5 billion in net income.
Fiat, which consolidated Chrysler last year after increasing its stake in the U.S. carmaker to more than 50 percent, also reduced its 2014 forecast for deliveries to at least 4.6 million vehicles from the original target of about 6 million.
The Italian manufacturer isn’t alone in struggling in Europe. The French government has had to support Peugeot (UG) by backing 7 billion euros in new bonds for its financing arm. Ford Motor Co. (F) is closing three plants in the region, Daimler AG (DAI) scrapped its profit target for next year, and Volkswagen AG (VOW) posted its largest drop in earnings since 2009 in the third quarter.
Fiat’s problems are compounded by its troubled home country, which accounts for half its sales in the region. Its plants in Italy, where car sales are on pace to plunge this year to the lowest level in more than three decades, are running at 50 percent of capacity, far below the 80 percent threshold typically considered profitable.
To counter the severe slump in European sales, Marchionne plans to use its Italian plants to export cars outside Europe. The automaker, which doesn’t intend to shut down additional factories in Italy, will build six new models in its home country for export in 2014, including an all-new Jeep model, two Alfa Romeo cars and a new Maserati. It also plans to introduce six vehicles in Europe next year.
Fiat also said it is in talks with the Italian government on actions to improve competitiveness of exports. The carmaker has suspended investments in Italy, cutting European spending by 500 million euros in 2012, and has delayed new models, including the Punto hatchback.
Marchionne, 60, has acknowledged that he neglected Europe while turning around Chrysler after it emergence from bankruptcy. While he ultimately would like to merge the two companies into a single global giant, he has said he wants to get Fiat back on track before that can happen.
“The European operations have deeply negative real value,” Harald Hendrikse, a Citigroup analyst in London who recommends selling Fiat shares, wrote in a note to investors.
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