Fiat CEO will 'fight like hell' to make profits

Fiat CEO Sergio Marchionne says he will “fight like hell” to ensure his company makes money this year and criticized bosses who already have admitted their companies will make a loss this year.

“I think the first duty of a leader is to keep his company in the black. To accept - and announce - at the beginning of the year that you will lose money is the worst sign of leadership you could give to your troops,” he said.

He said that such defeatist statements make it seem like losing money is OK, which makes management complacent, hurts employee moral and slows recovery.

Marchionne's views on this subject are relevant because five years ago he rescued the then-ailing Italian industrial giant. He did so by setting and reaching seemingly impossible targets.

The outspoken Italian-Canadian executive did not say who he was referring to. However, since January CEOs of automakers such as Christian Streiff of PSA/Peugeot-Citroen and Carl-Peter Forster of General Motors Europe have said their companies will suffer losses this year.

“Car markets have gone from bad to horrible so far this year, but I will fight like hell to keep Fiat Group Automobiles profitable in 2009,” Marchionne said in an interview last week at the Geneva auto show.

He admitted that remaining profitable would be particularly hard in the first quarter because Italy and Brazil -- Fiat Auto's two biggest markets -- both suffered sales declines.

“Nevertheless, I refuse to accept even the idea that our auto operations will lose money and I am reviewing all spending budgets on a daily basis” to prevent this from happening, Marchionne said.

In the current global downturn, the Fiat executive says a CEO's priority should shift from the long-term big picture to the short-term focus of saving cash and remaining profitable.

“Running an automaker these days is like driving in dense fog. You have just 100 meters of visibility so you must continuously adapt to what you suddenly face,” he said.

Fiat Auto is cutting costs everywhere. The reductions range from delaying or canceling model launches, slashing marketing and advertising spending, severely reducing travel expenses and opting out of appearing at auto shows.

The company is taking these steps so that it can drop its breakeven point below the current level of 1.84 million units a year. Last year, Fiat sold 2.15 million units worldwide, down 3.6 percent from 2.23 million the year before.

In announcing its 2008 financial results on January 22, Fiat said it planned to sell 1.9 million units worldwide this year - slightly above its breakeven point - but this prediction was based on market forecasts that now appear very overoptimistic.

Fiat had predicted western Europe's new-car sales will decline 11 percent this year, while financial analysts and market forecasters currently predict a slide of between 16 percent and 20 percent.

Fiat also predicted eastern Europe would drop 11 percent while forecasters expect a decline ranging from 20 percent to 30 percent.

For the Fiat group, Marchionne in January predicted that a 20 percent decline in global demand across all its sectors this year would reduce the group's trading profit (operating profit before extraordinary items) to a little more than 1 billion euros and net profit to 300 million euros.

In 2008, Fiat reported a 4.3 percent increase in trading profit to 3.4 billion euros and 16.2 percent decline in net profit to 1.7 billion euros.

Fiat did not provide a forecast for its automobile business.

Last year, Fiat Group Automobiles (which includes the Abarth, Alfa Romeo, Fiat passenger cars, Fiat Professional light commercial vehicles and Lancia brands), plus Maserati and Ferrari, reported 1.1 billion euros in cumulated operating profit, up 0.8 percent on the year before.

For 2009, financial analysts expect Ferrari and Maserati to remain profitable, while forecasts for Fiat Group Automobiles are mixed.

Goldman Sachs predicts FGA will just breakeven this year. In 2008 its trading profit was 691 million euros.

Intermonte predicts a 300 million euro operating loss - 158 million coming in the in the first quarter - while Morgan Stanley expects 422 million euro loss in the full year.