Fiat losses in Europe shrink on Marchionne investment cuts
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MILAN (Bloomberg) -- Fiat S.p.A. posted a narrower loss in Europe as CEO Sergio Marchionne cut investment in the region and delayed introduction of new models.
The loss before interest, taxes and one-time items in Europe, the Middle East and Africa was 184 million euros ($226 million) compared with a pro-forma loss of 406 million euros a year earlier, the Turin-based company said in a statement today.
Including Chrysler Group, which Fiat controls, Fiat's group trading profit almost doubled to 1.01 billion euros from 525 million euros, beating the 957.8 million-euro average of four analyst estimates compiled by Bloomberg.
The U.S. carmaker was consolidated into Fiat results in June 2011.
Fiat is reducing spending in Europe by 500 million euros in 2012 because of a fifth straight year of falling sales in the region, Marchionne said in an interview last month.
The planned Grand Punto hatchback, originally scheduled to be built in 2013, is being reconsidered and may be part of a partnership that Fiat may set up, he said at the time.
Fiat maintained a forecast that trading profit this year will be in a range from 3.8 billion euros to 4.5 billion euros.
The manufacturer shut a factory in Sicily at the end of 2011 and may close a second plant in Italy as Marchionne expects the auto market to remain at the current level for two to three years.
A decision hinges on whether Fiat and its unions can come up with a viable plan to use excess capacity to build cars for North America, Marchionne said July 3.
Europe slump
Carmakers' earnings are being hit by the slump of sales in the region. Volkswagen AG, Europe's largest carmaker, last week reported slowing earnings growth in the quarter, and second-ranked PSA/Peugeot-Citroen posted a first-half loss of 662 million euros at its automaking division and announced plans to eliminate 8,000 jobs.
Ford Motor Co. is predicting its losses in Europe will exceed $1 billion this year.
"Ford is pointing out a full-year European loss higher than $1 billion, while the Fiat loss should be around 500 million euros," Massimo Vecchio, an analyst at Mediobanca in Milan, wrote in a report to clients July 26.
"Peugeot and Ford results show that depleting cash into new models doesn't pay out in profits and clearly burden the balance sheet with debt." Marchionne, who plans to combine Fiat and Michigan-based Chrysler to boost revenue to more than 100 billion euros by 2014, is relying on the U.S. carmaker's profit as Fiat struggles to end losses in Europe.
Chrysler reported a second-quarter profit yesterday of $436 million compared with a year-earlier loss of $370 million. Fiat said earlier this month that it will boost its stake in Chrysler to 61.8 percent. The cumulative cost of that stake would be about $2.3 billion.
The additional 3.3 percent holding would be purchased from the United Auto Workers' VEBA retiree health-care trust in a transaction that Marchionne estimated would cost less than 200 million euros.
No Punto
Overcapacity in western Europe may more than double to about 2 million vehicles in 2012, according to IHS Automotive.
Marchionne, who currently holds the rotating presidency of the ACEA car-industry trade group in Europe, has been urging manufacturers to take action to scale back vehicle production.
Marchionne said earlier this month that the Punto's introduction would be a "failure" because European carmakers are cutting prices amid the auto market's contraction.
The CEO suggested that Volkswagen's pricing strategy is creating a "bloodbath," according to a report published July 26 in the International Herald Tribune, which cited him among industry executives as accusing the German carmaker of exploiting Europe's sovereign-debt crisis to expand its market share. Volkswagen has threatened to leave the ACEA in response to Marchionne's comments.
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