Fiat forecasts prolonged European slump as regional quarterly losses grow
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MILAN (Bloomberg) -- Fiat forecasts a prolonged downturn in the European market after reporting third-quarter operating losses in Europe grew 61 percent to 219 million euros ($284 million) from a year earlier.
"We see continuing weak trading conditions [in Europe] for the remainder of 2012, extending well in 2013 and at least part of 2014," CEO Sergio Marchionne said in a statement today.
The automaker said global third-quarter earnings before interest, taxes and one-time items, which Fiat Group calls trading profit, advanced 12 percent to 951 million euros on sales of its Chrysler vehicles in North America. Revenue rose 16 percent to 20.4 billion euros.
Boosted by demand for Chrysler 200 sedans and Jeep Grand Cherokee SUVs, Chrysler said on Monday that its net income surged 80 percent to $381 million. The U.S.-based manufacturer, which is controlled by Fiat, also confirmed its 2012 forecast of about $1.5 billion in net income.
Fiat Group said net debt in the third quarter rose by 1.26 billion euros to 6.69 billion euros.
Europe downturn
Marchionne is cutting back on investment and holding off on bringing new Fiat vehicles to market because of Europe's downturn, in which industrywide sales are headed for their biggest annual drop in 19 years.
The company said today that 2012 trading profit in the region will be at the lower end of a previous target of 3.8 billion euros to 4.5 billion euros.
Revenue in Europe dropped 13 percent to 3.82 billion euros in the quarter, Fiat said.
"The real story here is the balance sheet and finally we are seeing the cracks appear," 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."
Fiat isn't alone in struggling in Europe. The French government has had to support PSA/Peugeot-Citroen by backing 7 billion euros in new bonds for its financing arm. Ford Motor Co. is closing three plants in the region, Daimler has scrapped its profit target for next year, and Volkswagen posted its largest drop in earnings since 2009 in the third quarter.
Italian plunge
Fiat's problems are bigger than many rivals' because its troubled home country 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 is considering building Chrysler models in Italy, including Jeeps, for export to North America. The Italian government is evaluating tax rebates on export goods to help Fiat. 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.
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