Moody's has downgraded Fiat's rating to 'B1' from 'Ba3', citing the Italian carmaker’s weak 2013 results and challenges in achieving its forecasted figures this year. Since a 'B1' rating is four notches below investment grade, it would now be more expensive for Fiat to raise financing to turn around its loss-making operations in Europe.
The ratings agency placed Fiat's rating under review for a possible downgrade in early January, days after the Italian carmaker inked a $4.35 billion agreement to fully control 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."
Despite the combination between Fiat and Chrysler already being completed, Moody's said it would have their ratings separate for the time being. The outlook on all Fiat's ratings has improved to stable from negative. Fiat expects lower profit after suffering from an 80-percent drop in core earnings in the final quarter of 2013. Chrysler and the Latin American region are two of Fiat’s main profit centers that helped it counter continuous losses in Europe.