Fiat Scraps Dividend After Forecasting European Slump

Fiat SpA, the Italian automaker that controls Chrysler Group LLC, scrapped its 2012 dividend to preserve cash after forecasting the slump in European auto demand will continue this year.

Fiat, which would have posted a 1.04 billion-euro ($1.41 billion) loss in 2012 without Chrysler, expects sales unchanged in Europe this year at about 1 million vehicles, the Turin-based automaker said today. Deliveries last year in the region dropped 14 percent.

Fiat, which had net industrial debt at the end of 2012 of 6.55 billion euros, said today it may sell as much as 5 billion euros in bonds by the end of 2014 to “optimize the management” of debt. Europe’s auto market is forecast to slump for a sixth straight year and Ford Motor Co. said yesterday the region’s outlook deteriorated last quarter.

“In Europe, the situation won’t be drastically different in 2013,” Chief Executive Officer Sergio Marchionne said today. “We are working at the speed of light” to meet a target of breaking even in the region by 2016 at the latest.

Fiat dropped 23 cents, or 4.8 percent, to close at 4.46 euros in Milan today. The stock has gained 18 percent this year, valuing the company at 5.57 billion euros.

Fourth-quarter trading profit, or earnings before interest, taxes and one-time items, rose 29 percent to 987 million euros That beat the 941 million-euro average estimate of four analysts surveyed by Bloomberg. The Europe loss almost halved to 121 million euros.

U.S. Gains

Marchionne, who stuck to his target to increase 2013 profit to as high as 4.5 billion euros, said he doesn’t expect further deterioration in Fiat’s performance in its home region this year. The CEO is also counting on U.S. sales to help offset the slump in Europe, where Fiat lost 704 million euros last year.

“North America, South America and Asia are still saving Fiat’s European operations,” said Andrea Sianesi, the associate dean of the MIP business school at the Milan Polytechnic. “It’s almost surprising they managed to reduce losses in the region.”

Auburn Hills, Michigan-based Chrysler reported a 68 percent jump in fourth-quarter net income to $378 million. Chrysler’s U.S. sales have increased for 33 straight months and its market share has risen three years in a row. Chrysler’s 2012 deliveries climbed 21 percent to 1.65 million, which included a 20 percent increase for Ram pickups. The Ram 1500 this month received the North American Truck/Utility of the Year award.

Europe Plan

Fiat wants to fix its European business before finalizing a planned merger with Chrysler, which the Italian company controls through a 58.5 percent holding. The turnaround plan in Europe, where auto demand is in the midst of a six-year contraction, calls for 16 upscale cars, including an Alfa Romeo SUV, a small Jeep and six models at the luxury Maserati division, to fill under-used assembly lines in Italy.

An event today to inaugurate a new Maserati factory near Turin underscored the Italian carmaker’s upscale shift. The factory produces the revamped Quattroporte four-door coupe and will add the smaller Ghibli later this year. Fiat plans to spend 2 billion euros by 2014 to expand Maserati and Alfa Romeo into global luxury marques.

Fiat’s isn’t alone in its struggles in Europe. Ford lost $1.75 billion in the region in 2012 and surprised investors by increasing its estimate on losses to about $2 billion this year. Ford, which is shutting three plants in Europe, said the outlook for the region deteriorated in the final three months of 2012.

Chrysler Stake

The Italian manufacturer plans to raise its holding in Chrysler to 65 percent by exercising options. Fiat and the United Auto Workers retiree health-care trust that controls the remaining shares in Chrysler are disputing the valuation amid the trust’s steps to sell part of its Chrysler stake in an initial public offering.

Fiat may try to buy VEBA’s holding in Chrysler before the union fund seeks an IPO of the manufacturer, as the Italian company has no interest in “diluting” control, Marchionne said on Jan. 14. The carmaker has enough cash to acquire the stake, while it may sell assets to keep debt under control, he said.

Marchionne said today he plans to acquire the rest of Chrysler, “as soon as I can afford it,” adding that he doesn’t have to complete the deal this year and that it’s “very unlikely” Fiat will sell new shares to buy the stake.

“I just need the financial structure to do it,” he said. “The faster we can do it, the better I’ll feel.”

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