Fiat will reduce its investments in Europe due to economic downturn

Article by Christian A., on August 2, 2012

The losses incurred by Italian carmaker Fiat S.p.A. in Europe have declined as its chief executive officer Sergio Marchionne managed to reduce its investments in the region and even postponed the launch of several new models. According to statement from Fiat, it posted a loss of around EUR184 million ($226 million) before interest, taxes and one-time items in Europe, the Middle East and Africa.

A year earlier, the Italian carmaker had a pro-forma loss of around EUR406 million. If Chrysler Group is included, the trading profit of the Fiat group would nearly double to around EUR1.01 billion from 525 million euros. It was able to surpass the EUR957.8 million 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 the Italian carmaker has cut its European spending by around EUR500 million 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 the trading profit for this will range from EUR3.8 billion to around EUR4.5 billion. At the end of last year, the Italian company closed a plant in Sicily.

A second plant in Italy may also be shut very soon. As Marchionne anticipates that the car market will stay at this level for between two and three more years. On July 3, Marchionne said that the decision would depend on whether the Italian carmaker and its unions will be able to achieve a workable plan to use additional capacity to produce cars for the North American market.
Understandably, the earnings of not just Fiat but other carmaker 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 around EUR662 million in the first half at its auto making division. It had announced that it intends to cut 8,000 jobs.

Just last month, Fiat announced an agreement with PSA/Peugeot-Citroen that would finalize its exit departure from Sevel Nord JV, a commercial van plant that they share in northern France. It was previously revealed that PSA will take full control of the Sevel Nord joint venture in Lieu Saint-Amand by the end of 2012. [source: Automotive News - sub. required]

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Topics: fiat, europe, investment

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