Fiat focuses on US, Brazil amid European woes
TURIN, Italy—Fiat and Chrysler are focusing on cash-generating businesses in the United States and Brazil to help weather growing uncertainty in the European auto market, CEO Sergio Marchionne said Wednesday.
Fiat, which took over Chrysler nearly 2 1/2 years ago, saw its credit rating downgraded this week over financial risks in its alliance with the U.S. carmaker, which has been recovering from bankruptcy. Crucially, it is under severe pressure in its home market of Italy, where unions are resisting more flexible work conditions and demand is fading.
Adding to uncertainty, the Italian government appears unable to swiftly implement the austerity and growth measures aimed at preventing the country -- Fiat's most important market -- from being swept into a spiraling debt market crisis.
"There is no doubt that a lot of elements are coming to play here, one of which may be an Italian factor. ... I don't know any more," Marchionne said. "The stock market is up 4, 5 percent one day, then down 3. It is totally moving on rumors. There is no factual basis. I haven't moved a forecast. I have moved nothing."
Marchionne has maintained 2011 forecasts of euro58 billion ($79 billion) in revenues with euro2.1 billion ($2.9 billion) in trading profit for the combined automakers.
But he said there was little he can do to calm the markets.
"It is embedding a perception of risk which is totally outside of my control for me to try to cover it. We are almost helpless on this. There is nothing I can tell you, or tell the market, that will make this go away."
The continuing economic uncertainty is hurting auto sales, particularly in Fiat's main Italian market. Fiat registered a 7.8 percent drop in sales last month compared with a year earlier while its European market share shrank to 6.5 percent in September from 7.2 percent a year earlier.
"It impacts consumer attitudes, and that is probably the most negative thing about all of this. It really negatively impacts moods," he said.
To maintain profitability, Marchionne said he is focusing on the cash-making parts of the business -- the U.S. and Brazilian markets -- while trying to build sales in the increasingly competitive European market, mainly outside of Italy where sales are at 30-year lows.
"They are still today the biggest profit contributors to Fiat. They need to be nurtured," Marchionne said of the U.S. and Brazil. "That's why I spend so much time there."
Ironically, it is Fiat's alliance with Chrysler that triggered downgrades by ratings agencies. Fitch was the last to weigh in on Tuesday, lowering the credit rating from to BB from BB+. It cited Fiat's "intrinsic weakness," its heavy reliance on the Italian and Brazilian markets, and exposure to increased financial risk due to the alliance with Chrysler.
Marchionne said Fiat is in a good cash position to continue with its investments in Italy and abroad for new production. Fiat expects to have euro18 billion in liquidity at the end of this year, according to its forecasts.
"We have enough liquidity now to deal with our requirements for quite a while," Marchionne said.
But he criticized unions in Italy that continue to challenge the new contracts with more flexible work hours that Fiat has agreed at three plants. The FIOM metalworkers union has announced a one-day strike Friday at all Fiat plants.
"I think the strike, personally, is a very bad idea. It is not the manner in which one would encourage investment in this country," Marchionne said, adding that he believes most Fiat workers support the new contracts, which have secured new investments at two plants near Fiat's Turin headquarters and one near Naples.
Marchionne attended Wednesday the European launch of the Lancia Voyager minivan and Thema luxury sedan, both based on Chrysler models and concrete examples of the tighter integration of the two companies. In all of Europe except Britain, Chrysler models will carry the Lancia badge.
The Thema luxury sedan is Lancia's re-entry into the premium market, after a two-year absence, at an affordable price of euro41,400. It is based on the Chrysler 300, but has been restyled and adapted for European markets with a soft leather interior, firmer suspension and redesigned front-end.
Lancia brand chief Saad Chehab said the car is the same size as the Audi A-8, but sells at a 15 percent discount over the smaller Audi A-6.
Both the Thema and Voyager will be manufactured in Canada, and aim at the higher end of Fiat's market, with neither expected to achieve huge volumes. Chehab said they expect to sell 10,000 Themas and 11,000 Voyagers a year.