Fighting rumors of a management shakeup, Fiat patriarch Giovanni Agnelli has come out in support of the company's two top executives.
In a statement, Agnelli said Fiat group CEO Paolo Cantarella, 58, and Chairman Paolo Fresco, 69, will be re-elected at the general shareholders' meeting on May 14.
Agnelli, 81, is honorary chairman of Fiat. The Agnelli family controls Fiat through its IFI and IFIL financial holdings.
'IFI and IFIL will propose that Mr. Fresco be confirmed as chairman and Mr. Cantarella as CEO for another three-year term,' Agnelli said. '[They] both operate with my full confidence and that of the main shareholders.'
IFI and IFIL directly control 30 percent of Fiat group voting shares and - through a consultation pact with Assicurazioni Generali, Deutsche Bank and San Paolo IMI - can rely on another 8 percent of voting shares. It would be extremely difficult for the small owners of the other 62 percent of voting shares to mount an effective opposition if they chose to do so.
This is Agnelli's second public show of support for Fiat management this year. Turmoil surrounding the Fiat group's direction forced Agnelli to declare 'total trust' in Fresco and Cantarella at the end of February.
Fiat's share price has been tumbling since February 27, when Moody's credit agency put the group's long-term rating on negative credit watch.
Fiat shares plunged again at the end of April, when Standard & Poor's placed the group's short-term rating on negative credit watch. Standard & Poor's is concerned about Fiat's 'persisting poor financial performance and uncertainties regarding its ability to reduce debt leverage from current aggressive levels.'
Standard & Poor's is expected to announce the result of its credit review by the middle of this month. Many analysts expect a downgrading and say Standard & Poor's current A3 rating for Fiat short-term debt could be sharply reduced, perhaps even as low as junk-bond status. The lower the grade, the higher the cost of borrowing money.
Hit by the Moody's and Standard & Poor's warnings, falling vehicle sales and losses at its auto subsidiary, Fiat common shares fell below E13 on April 26 - a nine-year low.
Since the beginning of the year, Fiat shares have lost 27 percent of their value.
Agnelli said the fears pushing Fiat shares down are 'frankly exaggerated.' But he added: 'The general economic situation and the negative performance of some markets, particularly the car market, cannot fail to influence the company accounts.'
Fiat shares peaked at E35.41 on March 10, 2000, just before its tie-up with General Motors. At that time, Fiat's market capitalization was more than E17.15 billion.
In two years, the capitalization has fallen by almost E10 billion. It now stands at E7.42 billion, even though Fiat issued new shares in January that raised a fresh E1 billion.
In 2001, Fiat group lost E791 million after a net profit of E578 million the year before. It was the group's first net loss since 1993.
Loaded with net debt of E6 billion, the Fiat group launched a program to sell E2 billion in assets this year. In December and January, Fiat also raised E1 billion by issuing new stock and E2.1 billion by selling bonds convertible to General Motors shares.
The main problem is Fiat Auto. In the last three years, the passenger-car division has suffered a cumulative net loss of E2.79 billion. In 2001 alone, Fiat Auto had an operating loss of E549 million following a E44 million operating profit a year before. Net losses jumped from E599 million in 2000 to E1.44 billion last year.
In 2001, Fiat Auto revenues decreased 3.6 percent to E24.4 billion on unit sales that declined 10.8 percent. Fiat Auto is expected to remain in the red in 2002, but return to an operating profit in 2003.
Amid the mounting losses, Fiat Auto CEO Roberto Testore was ousted on December 10 and replaced by Giancarlo Boschetti, head of Fiat's Iveco heavy truck subsidiary.
In early June, Boschetti is expected to announce his turnaround plan for Fiat Auto.
Fiat Auto Holdings BV, the Dutch holding company that controls all of Fiat Auto SpA, is 80 percent owned by Fiat group and 20 percent by GM.
In his statement, Agnelli indicated Fiat does not plan to exercise its option to sell the remaining 80 percent of Fiat Auto to General Motors. The option becomes effective in January 2004.
Agnelli said: 'I want to reiterate that we firmly believe in the development of Fiat Auto, whose restructuring is proceeding briskly.'