Fiat Auto, with its first financial report since splitting with the Industrial companies, also impressed investors, but the deteriorating Brazil market means tough times ahead.
Fiat Auto’s first quarter trading profit (before interest, tax and one-time special items) rose to €251 million from €230 million in the same period. That might not seem much, but Commerzbank auto analyst Sascha Gommel pointed out some special circumstances which impressed him.
“Fiat’s profitability impresses given the poorest product pipeline in 2011 and the weakest geographic exposure among European manufacturers. We doubt that any other European manufacturer would improve comparable profitability at Fiat’s low capacity utilization in Europe,” Gommel said.
Bank America Merrill Lynch analyst Fraser Hill said Fiat’s reliance on Brazil for much of its profit is coming under pressure, as the recently booming market’s growth peters out. Brazilian unemployment is growing, inflation is building, and the central bank seeks to slow the economy down.
“Given that we estimate Brazil generates close to 15 per cent auto margins and that we also see 21 per cent growth in capacity by end 2012, the prospects for margin weakness in the Brazilian car market are clear in our view,” Hill said.
Hill cut his trading profit forecast for 2011 by 13 per cent, including a €30 million cut at the Ferrari subsidiary, and €50 million for Japan supply chain disruption costs.
Neil Winton – May 1, 2011
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