Fiat will need to boost its capital after it completes buyout of Chrysler, CEO says

Article by Andrew Christian, on April 11, 2013

Fiat CEO Sergio Marchionne gave a warning last Tuesday that its loss-producing operations in Europe will be weakened some more by the drawn-out decline of the region’s auto industry. He also said that Fiat may have to boost its capital after it completes an expected buyout of Chrysler.

At the annual shareholder meeting, Marchionne said that the European losses may be worse than forecasted in 2013.

However, Fiat still thinks that it is capable of hitting financial targets due to better earnings from more dynamic markets in the Americas and Asia. Referring to the decreasing car demand in Europe, Marchionne said that he “can’t see the bottom of the car market” for the first time in an extended period of time.

He was speaking at a news conference after the annual shareholder's meeting. Fiat doesn’t think that it will change its earnings goals on its first-quarter results that will be published on April 29, explaining that "the geographical distribution mix may change, considering Europe’s performance.

In 2012, Italian auto sales declined by 19.8% in 2012, when Fiat reported a loss of 738 million-euro ($963.65 million) before interest and tax. There are predictions that the European car market will decline by up to 5% this year.

In addition, he said that Fiat may have to increase more capital after it completes the buyout of 58.5%-owned Chrysler. He said that it will be required to boost its capital in the medium- to long-term. Marchionne said Fiat had adequate cash to evade a capital increase to purchase the Chrysler stake held by VEBA, a healthcare trust related to the United Auto Workers union.

However, after this acquisition, he said the company may be looking for more funds. Fiat may be required to pay from $3.3 billion to $4.2 billion for VEBA's 41.5%, based on an estimated valuation of between $8 billion and $10 billion for the unlisted automaker.

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