“We project free cash slow to remain negative through at least 2016”.
Fiat’s European Losses
Fiat will continue to lose money this year and next in Europe, while the usual healthy contribution from Latin America will fall sharply, Fitch Ratings said in a report.
Things had started to look up a bit in the second quarter, with the second-quarter loss reduced to €6 million from a loss of €69 million the year before, helped by sales of the Fiat 500, the new Fiat Ducato and Jeeps.
Fitch said in the report, which raised its rating on Fiat to stable from negative, that Fiat’s business profile had strengthened due to the increased integration of Chrysler.
“We expect integration to deepen further and to provide more synergies in the medium-term,” Fitch analyst Thomas Corcoran said.
The losses in Europe will be mitigated by Chrysler’s solid performance, other brands and the luxury ones. Cash-flow will be absorbed by rising investment to make up for the cuts made in past years.
“We project free cash slow to remain negative through at least 2016,” Corcoran said in the report.
Fiat Chrysler Automobiles (FAC) has a long-term plan which includes raising vehicle sales by more than two million by 2018. Alfa Romeo is charged with accounting for 400,000 of the target. Jeep must raise its sales to 1.9 million by 2018 from around 700,000 now. FAC CEO Sergio Marchionne wants earnings before interest and tax to increase from €3.5 billion in 2013 to between €8.7 billion and €9.8 billion by 2018.
Fitch said the plan has a chance of success.
“This plan makes strategic sense but will be costly as it entails an acceleration of capex and R&D and carries substantial execution risk. Some of the group’s brands are still perceived quite poorly and it can take time to increase sales sufficiently to maintain existing capacity in Europe. However, increasing sales at Maserati and Jeep are positive signals,” Corocoran said.
Fitch said it believes Fiat will refinance Chrysler’s debt in 2016 which will eliminate the current restrictions on the movement of cash within FAC.
FAC shares begin trading on the New York Stock Exchange on October 13. FAC headquarters will be London, while the company is registered in Holland.