Fiat rating cut by Moody's on earnings worry, outlook

MILAN (Reuters) -- Moody's cut Fiat's rating to 'B1' from 'Ba3' on Tuesday, citing weak 2013 results and challenges it sees for the Italian carmaker in achieving its guidance this year, given eroding profitability in its Latin American market.

A 'B1' rating is four notches below investment grade, making it more expensive for Fiat to raise much-needed financing to turn around its money-losing European operations.

The ratings agency placed Fiat's rating under review for a possible downgrade in early January, just days after the company struck a $4.35 billion deal to take full control of its U.S. unit Chrysler.

"We have downgraded Fiat's ratings following its weaker-than-expected performance in fiscal year 2013 and our view that the company faces significant challenges in terms of achieving its outlook guidance for the current fiscal year," Falk Frey, Moody's lead analyst for Fiat, said in a statement.

"We are also concerned that Fiat may not be able to offset any further profitability deterioration in its Latin American operation through anticipated improvements in other regions and in its luxury and performance division," Frey added.

Despite the tie-up between Fiat and Chrysler already being completed, Moody's said it would keep its ratings on the two companies separate for the time being. The outlook on all Fiat's ratings has improved to stable from negative, it said.

Fiat has cut its 2014 profit forecast after an 80-percent slump in Latin American core earnings in the final quarter of last year. Besides Chrysler, the Latin American region -- and in particular Brazil -- was one of the group's main profit centers that helped offset continuous losses in Europe.

The group's results were hit by an end to car sales incentives in Brazil, higher input costs, currency effects and a cooling off of Latin American economies.

Brazil used to account for about one fifth of Fiat profits, and the sudden and sharp slowdown in the region has analysts worried that the decline may now be structural.

Fiat merged with Chrysler to create the world's seventh-largest auto group, also hoping to use the U.S. firm's cash pool to revamp its loss-making operations in Europe. Moody's said Fiat's access to that cash was constrained in the short term given the U.S. firm's existing credit and bond agreements.

The car group's overreliance on a weak European market, rising price pressures, an overcapacity in its home market in Italy and the lack of any major new volume model launch this year also contributed to the ratings downgrade, Moody's added.

Standard & Poor's last month confirmed its 'BB-' rating on the Italian automaker's long-term debt, keeping its outlook stable. Fitch Ratings said the Chrysler deal had no immediate impact on the automaker's ratings, but added that a full rating review would be conducted in early 2014.

Contact Automotive News

Have an opinion about this story? Click here to submit a Letter to the Editor, and we may publish it in print.

Or submit an online comment below. (Terms and Conditions)

Jeep joins Nissan, Honda and others getting big benefit from European production

Nick Gibbs
12:01 am U.S. ET | Feb. 10 2016

Fiat Chrysler's decision to build the new Jeep Renegade in Italy is paying off, helped by strong dem ...
 Read More ›

Ford faces tough decision on B-Max

Douglas A. Bolduc
12:01 am U.S. ET | Feb. 9 2016

When Ford of Europe President Jim Farley says that the automaker must be even more selective on the ...
 Read More ›

'Autopia' future promoted by Google and Apple will hurt traditional carmakers

Luca Ciferri
12:01 am U.S. ET | Feb. 8 2016

Industry disrupters such as Google and Apple are better funded than their potential rivals from the ...
 Read More ›

Automotive News Europe celebrates 20 years; watch this space for future trends

12:01 am U.S. ET | Feb. 5 2016

In an industry reshaping at the speed of light, Automotive News Europe brings you reliable, relevant and unbiased coverage of the auto business. ...
 Read More ›

How GM's 'shampoo princess' is restoring Opel's image

12:01 am U.S. ET | Feb. 4 2016

Opel marketing chief Tina Mueller, a former cosmetics executive dubbed the "shampoo princess," is pl ...
 Read More ›

Nissan claims win in Europe, but Toyota had more sales

12:01 am U.S. ET | Jan. 29 2016

Nissan claims it has achieved a long-stated goal of becoming the No. 1 Asian automaker in Europe by ...
 Read More ›

How GM zoomed past VW in China

Yang Jian
12:01 am U.S. ET | Jan. 25 2016

The Volkswagen Group was China's largest automaker in 2013 and 2014, but last year, General Motors r ...
 Read More ›

ZF executive 'remarkably comfortable' in one-on-one chat with Obama

Bryan Johnson
3:21 pm U.S. ET | Jan. 21 2016

The most commonly asked question I've received in the past 24 hours is: “Were you nervous?R ...
 Read More ›

What Nissan learned from Mercedes for Infiniti Q30 production

6:06 am U.S. ET | Jan. 20 2016

Nissan made some costly changes to build the Infiniti Q30 and QX30 compact cars at its UK factory. ...
 Read More ›

Aston Martin asks suppliers for cost cuts

Nick Gibbs
9:31 am U.S. ET | Jan. 14 2016

Aston Martin is asking suppliers to reduce costs by 10 percent annually as part of wider cost-cutting moves as the niche automaker adopts the practices of a mass-market... ...
 Read More ›

2015 Assembly map

Latest Headlines

More »