Fiat will reduce its investments in Europe due to economic downturn

Article by Christian Andrei, on August 2, 2012

Fiat S.p.A.’s losses in Europe have declined as CEO Sergio Marchionne reduced its investments in the region and postponed the launch of several new models. According to Fiat’s statement, it had a loss of 184 million euros ($226 million) before interest, taxes and one-time items in Europe, the Middle East and Africa.

A year earlier, it had a pro-forma loss of 406 million euros. If Chrysler Group is included, Fiat’s group trading profit would nearly double to 1.01 billion euros from 525 million euros. It was able to surpass the 957.8 million-euro average of the estimates from the four analysts in Bloomberg’s survey.

In June 2011, Chrysler (which is now controlled by Fiat) was consolidated into Fiat results. In Marchionne’s interview last month, he said that Fiat has cut European spending by 500 million euros in 2012 due to five consecutive years of declining sales in the region.

Marchionne said that the company is reconsidering its plan to build the Grand Punto hatchback, which was initially set to be built in 2013. He said back then that it may be included in the partnership that Fiat may establish. Fiat maintained its prediction that this year’s trading profit will range from 3.8 billion euros to 4.5 billion euros. At the end of last year, it closed a plant in Sicily.

A second plant in Italy may also be shut very soon. Marchionne anticipates that the car market will stay at this level for 2 to 3 more years. On July 3, Marchionne said that the decision would depend on whether Fiat and its unions will be able to achieve a workable plan to use additional capacity to produce cars for North America.

The earnings are affected by the declining sales in the region. Last week, Volkswagen AG, Europe's largest carmaker, reported that its earnings growth had slowed in the quarter. PSA/Peugeot-Citroen, which ranks second, reported a loss of 662 million euros in the first half at its automaking division. It had announced that it intends to cut 8,000 jobs. [source: Automotive News - sub. required]

Topics: fiat, europe, investment

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