Fiat Cuts Spending as Peugeot Sells Assets as Sales Slump

Fiat SpA Chief Executive Officer Sergio Marchionne
Fiat SpA Chief Executive Officer Sergio Marchionne. Photographer: Oliver Bunic/Bloomberg

Fiat SpA will cut investments in Europe by 500 million euros ($632 million) and PSA Peugeot Citroen plans to sell a larger stake in its trucking unit as the region’s automakers grapple with an extended market slump.

“The capital expenditure reduction is about half a billion euros from what we planned last year for 2012 in Europe,” Chief Executive Officer Sergio Marchionne said late yesterday in an interview in Madrid, where he’s heading the annual gathering of the European Automobile Manufacturers’ Association, or ACEA.

Peugeot, Europe’s second-biggest carmaker, plans to sell at least 50 percent of its profitable Gefco trucking unit, more than previously discussed, as it seeks to raise cash, Patrice Clos, a FO union representative and head of Gefco’s works council, said in a phone interview. Peugeot declined to comment.

The drop in European car sales accelerated in May to 8.4 percent, the eighth consecutive monthly decline, according to ACEA figures released today. Peugeot, Fiat and Renault SA have posted the steepest slumps in Europe this year, plummeting 15 percent or more in the first five months. Marchionne said in the interview that he doesn’t expect any second-half recovery.

“We’re definitely going to be at these lower sales levels for some time to come in Europe,” Richard Hilgert, a Chicago-based analyst for Morningstar Equity Research, said by telephone. “It’s going to be a long, slow recovery.”

Fiat will lower investment spending to 7 billion euros from the 7.5 billion euros the Turin-based carmaker had previously intended.

Shares Advance

A reduction “has a positive impact on the cash flow estimates,” Mediobanca SpA analysts wrote in a note to clients this morning.

Fiat gained as much as 15 cents, or 4.4 percent, to 3.62 euros, the biggest gainer on the nine-member Bloomberg European Autos Index, and was up 4.2 percent as of 1:34 p.m. in Milan trading. Peugeot traded 2.1 percent higher in Paris, giving the French carmaker a market value of 2.66 billion euros. The stock hit a 23-year low this week on concerns over slumping sales.

European auto registrations fell 8.4 percent in May to 1.15 million vehicles, the Brussels-based ACEA said in a statement. The accelerating decline pushed five-month sales down 7.3 percent to 5.64 million cars.

Peugeot announced plans in February to sell assets, including a stake in Gefco, as the Paris-based automaker grapples with European overcapacity and increasing debt. The French carmaker’s sales in Europe tumbled 15 percent in the first five months of 2012. Renault’s sales are down 19 percent and Fiat’s deliveries are 17 percent lower.

Gefco Sale

“The chief executive told us that more than half of the shares would be sold,” Clos said in a phone interview. Gefco Chief Executive Officer Yves Fargues provided the information at a works council meeting yesterday, Clos said.

The sale of a majority of the trucking unit “would mean that Gefco’s earnings would get deconsolidated in Peugeot’s accounts,” Florent Couvreur, an analyst at CM-CIC Securities, said by phone. “This would basically mean a 20 percent cut in their operating income.”

Gefco, a fully-owned Peugeot subsidiary, has attracted eight bidders so far, and Peugeot plans to narrow the field to three by the end of July, Clos said. The deal is slated to close by early September, which would be a month later than previously scheduled, he said, adding that Fargues didn’t provide details on valuation nor identify the bidders.

Production Overcapacity

Consumer confidence in Italy, Europe’s fourth-biggest auto market, fell to a 15-year low in May. General Motors Co.’s Opel unit, which with the Vauxhall brand posted an 8.6 percent drop in European sales in May, said on June 13 that it may close a German car plant.

“Mass-market European manufacturers such as Fiat, Peugeot and Renault have a core problem of material overcapacity on the order of magnitude of 20 percent to 30 percent,” said David Arnold, a London-based analyst at Credit Suisse Group AG, said. “As such, they face weakening end-market demand in both price and volumes relating to the broader euro-zone crisis.”

Fiat, which owns 58.5 percent of Chrysler Group LLC, has stopped additional investments and postponed the introduction of new models in Europe. Marchionne plans to eventually merge Fiat and the American carmaker in a bid to increase sales to more than 100 billion euros by 2014 and reduce the Italian manufacturer’s reliance on Europe.

Model Delays

Marchionne said that the new Grande Punto model, which was originally scheduled to be built beginning in 2013, “is one of the projects we are reconsidering in line with the changes” of the market in Europe. Fiat is discussing partnerships “with several people, and in some cases our architectures, including the one for the Punto, are involved in the talks,” he said.

A recovery in Europe “depends on many factors: first Greece, then the way in which the Euro currency will continue and what Europe will do to sustain growth,” Marchionne said in the interview.

European carmaker CEOs meeting in Madrid haven’t made any progress on a common plan to address the region’s overcapacity issues, Marchionne said.

“I think my proposal will just remain a Marchionne idea,” he said. “If there’s no coordination by the European Union,” every carmaker in Europe will “do it by itself,” he said before a gala dinner with the other executives.

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