Automaker will focus on Italy-based Alfa revamp to return Fiat to profit

Fiat may issue bond to boost liquidity after Chrysler merger, Marchionne tells paper

Automaker will focus on Italy-based Alfa revamp to return Fiat to profit

Marchionne says the Fiat-Chrysler merger will allow Fiat to channel investments into Italy.

Photo credit: Bloomberg
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TURIN -- Fiat Group could launch a convertible bond to increase its liquidity after its $4.35 billion deal to buy the rest of Chrysler Group, Fiat-Chrysler CEO Sergio Marchionne told an Italian newspaper.

Fiat will also focus its European strategy on revamping its Alfa Romeo brand after its planned merger with Chrysler and will keep production of the marque in Italy as it seeks to boost its European operations and protect jobs, Marchionne told La Repubblica in an interview published today.

He said a mandatory convertible bond could be an "appropriate measure" to finance investments following the deal announced Jan. 1 for Fiat to buy the 41.5 percent stake in Chrysler it does not already own.

Fiat is buying the stake from a retiree healthcare trust affiliated with the United Auto Workers union. Fiat will pay $1.75 billion in cash and the remaining sum will come from Chrysler's coffers.

Marchionne told La Repubblica that Fiat did not need a capital hike to finance the deal, which is expected to be closed by Jan. 20. "A capital hike [at Fiat] would be value destructive. There are different ways to finance investments … a convertible bond could be an appropriate solution," Marchionne was quoted as saying in his first interview since the deal was struck.

Marchionne did not comment on a potential 1.5 billion euro ($2.04 billion) size for the bond mentioned in media reports.

Fiat has had its Ba3 rating placed under review by Moody's credit ratings agency for a possible downgrade to reflect the effect on the Italian carmaker's cash position of its plans to take full control of Chrysler. Moody's said the acquisition will weaken Fiat's liquidity position at a time when the company is still free cash flow negative.

Marchionne told La Repubblica: "We will have a new plan and new models we announce in April. At that time, we will see where our debt level is. I'm not worried [by the debt] at all."

Alfa relaunch

Marchionne said his new strategy to turn around Fiat's money-losing operations in Europe will focus on a relaunch of Alfa Romeo. The sporty brand is a central pillar of the plan to return Fiat's European operations to profitability in 2015-2016 by moving upscale, he said.

Teams of designers and engineers are working "disguised" in various Italian premises to prepare new Alfa models, Marchionne said. These models "will change the perception of the brand and take it to absolute excellence," he said, adding that future Alfa models would no longer share engines with Fiat models.

Selling Alfa Romeo to a competitor was out of the question. Volkswagen has repeatedly expressed an interest in the unit. "They can go dream about it," Marchionne said.

Just as Chrysler's Jeep brand is sold globally but its DNA is authentically American, "Alfa should be authentically Italian," he said. "It will indeed remain at home."

Marchionne is betting on the Alfa brand because he believes it can deliver the global profile that the mass-market Fiat brand cannot and far greater sales volumes than top-end Maseratis, but the strategy has so far been met with skepticism. Fiat acquired the Alfa brand in 1986 and has since failed to revive it despite repeated attempts.

Fiat, Lancia brands

Fiat is reviewing the market positioning of its namesake brand and its Lancia upscale marque as it seeks to increase capacity use at its four underutilized Italian plants to export models worldwide, Marchionne said.

The Fiat brand will develop model families based around practical Pandas and upscale 500s, he said.

Lancia will be reduced to derivatives of the Ypsilon minicar and become an Italy-only brand. Nearly 80 percent of Lancia's sales are in Italy, according to industry statistics, and the Ypsilon accounts for 74 percent of Lancia's volume, data from market researcher JATO Dynamics shows.

Marchionne said the Fiat Group holding company will change its name after the automaker takes full control of Chrysler and the new merged Fiat-Chrysler would be listed where access to capital was easier. Fiat S.p.A. is currently listed on the Milan, Italy, stock exchange. Sources close to Fiat told Reuters last week that a primary listing in New York was most likely.

"We will go where the money is," Marchionne said. "There is no doubt that the most liquid market is the American one, the one in New York, but the board will decide. I am also willing to go to Hong Kong."

Marchionne said a potential move of the group's listing or headquarters outside Italy was symbolic and did not mean production would be moved.

Italy's coalition government, desperately trying to protect jobs, has been closely watching the merger talks for any signs that Fiat could further diminish its presence in the country.

The carmaker employs around 62,000 people in Italy, where unemployment is running at a 37-year record of 12.7 percent.

Marchionne sought to appease unions and politicians worried that the merger with Chrysler could signal a shift away from its home market, where Fiat was founded 115 years ago. He said the merger would allow Fiat to channel investments into Italy and help reinstate the thousands of workers on temporary layoff schemes.

"My pledge is: When the plan is fully operational, the Italian industrial network will be [fully utilized], market permitting, of course," he said. "With time -- if the market does not collapse again -- all [workers on temporary layoffs] will be reinstated."

Reuters contributed to this report

You can reach Luca Ciferri at lciferri@crain.com.

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