Chrysler Profits Become Larger After Transatlantic Translation
Fiat Rescued Chrysler From Oblivion; Could The Reverse Be True?
“Having been the only global carmaker willing to take a gamble on Chrysler, it is now clinging to it”
Fiat’s third quarter looked good at first, but after investment bankers had peaked behind the numbers, they weren’t so sure.
Fiat’s EBIT came in 21 per cent higher than expectations at €851 million, but according to Bank of America Merrill Lynch analyst Fraser Hill
described this was “entirely accounting driven”.
Deutsche Bank analyst Jochen Gehrke agreed, saying that the numbers benefitted from the technical treatment of 53.5 per cent owned Chrysler’s operating profit margin which became 5.9 per cent in Fiat’s accounts after appearing as 3.7 per cent under U.S. rules.
Credit Suisse analyst Erich Hauser didn’t think Fiat’s forecast of revenue in 2011 of $55 billion was credible, because it implies revenues in the fourth quarter of more than $15 billion, or 11 per cent more than the company’s best quarter so far in the second quarter. Hauser was also worried by “ballooning” net debt, which increased to $5.8 billion from $3.4 billion in the latest quarter.
Hauser believes that spending has to rise sharply too, but this comes at a bad time.
“We believe that following years of under-investment at Fiat, both Chrysler and Fiat have now reached a level where investments have to be made to ensure the company’s viability. Unfortunately the need to make these investments coincides with a slowdown in end-markets and further amplifies the cash drain that the business is facing from a working capital perspective,” Hauser said.
Saved by drowning man
Things might look tough for Fiat, but according to the Financial Times Lex column, the alliance with Chrysler might make the difference between life or death.
“A valiant soul dives in to save a drowning man only to be pulled under himself. Rarely, the initial victim gets his second wind and rescues the would-be saviour. Italy’s Fiat finds itself in the latter position. Having been the only global carmaker willing to take a gamble on Chrysler, it is now clinging to it,” said Lex.
Neil Winton – November 3, 2011
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