MILAN -- Fiat slashed losses at its core car unit in the second quarter in what analysts said were astonishing results for the Italian industrial group, sending its shares sharply higher on Thursday.
Fiat Auto, which dragged the group to a record loss in 2002, cut its trading loss to 88 million euros ($106 million) from 238 million in the second quarter of 2004.
As a group, Fiat doubled its trading profit to 360 million euros, much better than the 228 million median forecast of the analysts. Net profit was 217 million euros, thanks to the last break-up payment from former partner General Motors.
"It's incredible what they did with Fiat Auto. Unit sales fell and they slashed losses? This is absolutely mind-boggling," said Eric-Alain Michelis, an auto analyst at SG Securities.
Fiat Auto's unit sales fell 4.8 percent in April-June, partly bruised by a three-week trucker strike in Italy, but revenues rose 2.4 percent year-on-year to 5.01 billion euros.
"The second quarter has been a turning point but a huge amount of work remains to be done and clearly the Auto business is by far not out of the woods yet," Chief Executive Sergio Marchionne told analysts on a conference call.
The car industry is obsessed with volume sales, offering huge incentives to move cars but Marchionne has been determined to cut less profitable sales at the expense of the top line.
Fiat said revenues rose thanks to it selling more top-end cars, more favorable currency effects on its booming Brazilian sales and strong van sales in Europe and Latin America.
Marchionne's top task now is to improve quality and service in Fiat's infamous dealership network, the front line for sales.
The real test for Fiat Auto will come in September when it launches the new version of its best-selling Punto which will be key for reversing the sales slump which created Fiat's crisis. Fiat published the first pictures of the city car on Thursday.
"The Punto is at the heart of our profit drive," said Marchionne, who is also CEO of Fiat Auto. He forecast Fiat would sell 80,000 new Puntos in 2005, before rising to 360,000 a year.
Marchionne is due to meet unions and the Italian government on Aug. 3 to discuss his industrial plans.
He would not be drawn on issues up for discussion such as possibly selling a part of its Mirafiori factory and which cars Fiat will make where, but he did hint that there could be job cuts in Fiat's paint shops as new environmental laws come in.
Fiat confirmed its 2005 targets, which see the group posting a net profit and Fiat Auto narrowing its trading loss to 1.5 percent of sales before pulling back into profit in 2006.
Net industrial debt -- Fiat's headline figure under new IFRS accounting rules -- totalled 9.16 billion euros at the end of June versus 10.06 billion in March. It is due to drop in September when banks convert a 3 billion euro loan into equity.
Chief Financial Officer Luigi Gubitosi said Fiat could return to the debt market for the first time since its ratings were cut below investment grade in 2003. Fiat has 3.7 billion euros of bond coming due in the next 12 months.
"The bulk of our maturities come over this summer so if the market circumstances are good I can see Fiat going on the market in the near future," he told the conference call.