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Chrysler Success Bails Out Fiat

Hard To Believe That Fiat Rescued Chrysler Three Years Ago
Chrysler Expected To Make Big Profits For 2012, While Fiat Hangs On

If anyone doubted Fiat CEO Sergio Marchionne’s wisdom in buying Chrysler of the U.S., the first quarter results would have put them straight.

The latest financial numbers show that Chrysler effectively kept the alliance in the black, as its huge profits more than compensated for Fiat’s losses.

Fiat-Chrysler’s net profit zoomed to €379 million in the first quarter from €37 million in the same period last year, but without the contribution of Chrysler, Fiat would have lost €273 million. Net debt rose to €5.8 billion from €5.5 billion.

Ominously after the results announcement, Fiat said weakness in Europe jeopardised its 2014 sales plan, but it didn’t elaborate.

“Fiat has lost market shares in a weak Europe and Brazil, putting volumes at risk. Chrysler’s free cash flows are not expected to offset the cash burn at Fiat, while capital spending need is growing,” said J.P.Morgan analyst Bernard Donges.

Fiat owns 58.5 per cent of Chrysler, with the rest owned by the UAW union’s healthcare trust. Chrysler last made a profit in 2005.

Not that bad
Credit Suisse analyst Erich Hauser thought Fiat’s position was worrying, after pointing out that given the age of its model mix in Europe, the 4.6 per cent negative profit margin was not that bad.

“What does however worry us about the situation in Europe is that Fiat was already losing money in 2011. With 2012 being worse across the board, we wonder just how earnings can recover,” Hauser said.

Chrysler said its target for the year is a profit of about $1.5 billion compared with $183 million in 2011. Analysts expect that at best, Fiat won’t be adding to that number for 2012.

Neil Winton – May 1, 2012

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