Marchionne Sees Fiat Narrowing 2013 Loss at European Unit
Fiat SpA (F), the Italian carmaker that controls Chrysler Group LLC, plans to narrow losses in Europe this year as sales may recover in the second half.
“We are dragging the bottom, but it’s the bottom” for industry sales in the region, Sergio Marchionne, chief executive officer of both Fiat and Chrysler, said today in an interview at the North American International Auto Show in Detroit. At the same time, “pricing is not great, and that continues to be the most troublesome part of the European market.” A revival in demand in the second six months of 2013 is “possible.”
Marchionne is relying on Auburn Hills, Michigan-based Chrysler to sustain group earnings as he works to make Fiat’s mass-market brands in Europe profitable before merging the two manufacturers. The Turin-based carmaker has forecast a 700 million-euro ($935 million) loss in 2012 in the region, where industrywide sales are at almost a two-decade low, and the CEO has said Fiat will break even there in 2015 at earliest.
“The small-cars segment is going to be challenging, so life is going to remain tough for Fiat in 2013,” said Mike Tyndall, a London-based analyst at Barclays Plc. It will be “a year of transition, and in theory a year of spending,” for Fiat in Europe.
Fiat rose 6.3 percent to 4.38 euros at the close in Milan, the highest price since Oct. 17. That propelled the stock to a 5.3 percent gain in the past 12 months, valuing the carmaker at 5.48 billion euros.
The European car market is set to contract for a sixth consecutive year in 2013 after reaching the lowest delivery figure since 1995 last year, according to trade-group estimates. Marchionne told reporters at the Detroit show today that volume auto producers together probably lost 5 billion euros in Europe in 2012, and companies need to find a “solution” to restore earnings in the region.
Marchionne reiterated that Fiat and Chrysler should combine into one company, in response to a question about buying the remaining 41.5 percent stake in the U.S. carmaker owned by the United Auto Workers Retiree Medical Benefits Trust, a health-insurance fund for former employees.
Fiat may seek to buy the trust’s holding before the fund stages an initial public offering in Chrysler using some of its stock, as the Italian company has no interest in “diluting” control, Marchionne said. Chrysler is complying with the trust’s demand last week to begin registration of the holdings before a possible IPO, the CEO said. The fourth quarter is the earliest that a share sale could occur, he said.
“I understand their objective,” Marchionne said. “They need to see the position monetized. If they want to do it through an IPO, we’ll do an IPO.” At the same time, the trust “is not a long-term shareholder,” he said. “They want cash.”
The Italian manufacturers would have enough resources to finance a purchase of the trust’s stake, and no other funds would have to be raised, Marchionne said. An IPO that Fiat is considering for its Magneti Marelli components unit would be used to reduce debt rather than financing a Chrysler transaction, he said.
Fiat may look for another partner in Asia, it doesn’t plan any combination in Europe, including with General Motors Co. (GM)’s Opel division, Marchionne said. The CEO said in October that he hadn’t spoken to GM about Opel since his unsuccessful attempt to buy the Ruesselsheim, Germany-based brand in 2009.
The possibility of a deal with Opel is “very, very limited, and I wouldn’t count on it,” Marchionne told reporters today. “Meanwhile, there are possibilities for finding new alliances in Asia.”
GM’s losses in Europe, where its Opel brand is twinned with the Vauxhall marque in the U.K., have totaled $17.3 billion since 1999. The U.S. company is trying to revive earnings in the region through a vehicle-development partnership with Paris-based PSA Peugeot Citroen (UG), which is also working to return to profit. Opel’s interim CEO Thomas Sedran reiterated on Jan. 10 that the division is “not for sale.”