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Fiat Forecasts Profit Surge This Year on Strength of Chrysler Auto Demand

February 1, 2012
4 min to read


Fiat SpA, the Italian carmaker that controls Chrysler Group LLC, forecast 2012 profit will surge as much as 88 percent as the American carmaker’s earnings rise.


Earnings before interest, taxes and one-time items, which Fiat calls trading profit, will increase this year to between 3.8 billion euros ($5 billion) and 4.5 billion euros from 2.39 billion euros in 2011, the Turin, Italy-based carmaker said in a statement today. That compares with a 3.24 billion-euro estimate for next year from 15 analysts surveyed by Bloomberg News.

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Sergio Marchionne, chief executive officer of both automakers, is counting on Chrysler to propel growth at Fiat, whose volume brands lost about 500 million euros in Europe last year as the region’s debt crisis causes consumers to hold back on purchases. Chrysler today reported U.S. deliveries surged 44 percent in January, the 22nd straight monthly year-on-year gain.


“Marchionne aims to aggressively capitalize on the spectacular recovery of the U.S. car market,” said Wolfram Mrowetz, chairman of investment firm Alisei SIM in Milan, who bought Fiat shares earlier this week.


“He’s betting on Chrysler sales as Europe remains a problem.”


Fiat rose 23 cents, or 5 percent, to 4.82 euros, the most since Jan. 16, in Milan trading today. The shares have gained 36 percent in 2012, valuing the carmaker at 6.06 billion euros.


The group’s fourth-quarter trading profit more than doubled to 765 million euros, beating an average estimate of 16 analysts for profit to reach 759 million euros. Revenue also more than doubled to 19.6 billion euros.

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Chrysler, which has been consolidated into Fiat’s results since June, reported trading profit last quarter of 639 million euros, offsetting a 15 million-euro loss at Fiat and its other European volume car brands. Super-car marque Ferrari’s profit slipped 11 percent to 100 million euros. Net income in 2011 for the group more than doubled to 1.33 billion euros.


“All of it” came from the American carmaker, the CEO said today of last year’s net income. “I have absolutely no intention of supporting that nonsensical arrangement. That’s the definition of what I call an unhappy marriage.”


Marchionne, who aims to merge Fiat with Chrysler by 2015 and boost revenue to more than 100 billion euros in 2014, is looking for a third partner in Europe to increase efficiencies and cut development costs in an effort to end the losses. Marchione said today he hasn’t start yet any discussion with potential partners.


“Fiat’s loss in the automotive business in the fourth quarter comes as a shock to us,” said Erich Hauser, a Credit Suisse analyst in London who’s ranked No. 1 by Bloomberg among analysts who cover Fiat based.


“The guidance for 2012 operating profit is outlandish,” said Hauser, who confirmed his “sell” rating on the shares.

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Fiat, which owns 58.5 percent of Chrysler, is willing to participate in an industry consolidation in Europe to compete with Volkswagen AG, the region’s biggest carmaker, Marchionne said last month. Fiat led a decline in auto sales in Europe last year with a 12 percent slump to 947,786 vehicles, according to the European Automobile Manufacturers’ Association in Brussels.


Marchionne said today that the purchase of the 41.5 percent Chrysler stake owned by the United Auto Workers union’s retiree health-care trust will be discussed in the second half.


Net debt at the end of 2011 rose to 5.5 billion euros from 500 million euros after Fiat incorporated Chrysler’s debt, the carmaker said today. Fiat expects debt to reach as much as 6 billion euros in 2012.


“Net debt is a key concern,” Stuart Pearson, a Morgan Stanley analyst in London, said in a note to investors Jan. 24 “The deep value within Fiat-Chrysler has always been in the terminal value of a merged and restructured organization. Unfortunately, 2012 is likely to see a step backwards from this goal if cash concerns slow essential investment.”


To create the necessary car-making efficiencies, automotive groups need to build from 8 million to 10 million vehicles a year, Marchionne, 59, said in January in Detroit. Currently only General Motors Co., Volkswagen and Toyota Motor Corp. are producing at or near that level. Fiat and Chrysler sold about half that figure last year.

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Marchionne’s renewed interest in teaming up with another company comes as he considers lowering his 2014 sales target to 5.7 million cars from a previous forecast of 5.9 million. Fiat may globally lose 500,000 vehicle sales annually as a result of the European debt crisis, he said last month. Fiat and Chrysler deliveries will total about 4.9 million autos in 2014, based on the average estimate of 10 analysts surveyed by Bloomberg News.


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