News Column

Chrysler Feels Fiat Losses, Bikes Outsell New Cars in Italy

Oct. 4, 2012

Brent Snavely

Fiat

As the European economic crisis grows deeper, new-car sales have fallen below bicycle sales in Italy for the first time since World War II, intensifying pressure on Chrysler to make enough money in North America to eclipse the continuing European loss Fiat is expected to report later this month.

Unemployment is now 10.7 percent in Italy -- far below Spain's 25.1 percent, but nearly twice Germany's 5.5 percent, according to Eurostat, the European Union's statistical office.

"The middle class ...is basically disappearing," said Gianluca Spina, dean of the business school at Politecnico de Milano in Italy. "It is something really new for this country."

News this week that Italians bought slightly more bicycles than motor vehicles last year (1,750,000 vs 1,748,000) underscored how bad things are.

Chrysler and Fiat CEO Sergio Marchionne continues to work on forging Fiat and Chrysler into a single global automaker. But Fiat's strong dependence on one country's consumers -- nearly one-third of all cars sold in Italy are either a Fiat, Alfa Romeo, Lancia, Maserati or Ferrari -- makes it particularly vulnerable. Italy accounts for about 60% of Fiat's European sales.

In Europe, Fiat's year-to-date sales have declined 17.1 percent through August, more than twice the industry's 7.1 percent decline, according to the European Automobile Manufacturers Association.

"I do not expect really a surge in car sales in Italy in the next six months at least," Spina said. "And, in this landscape, I would say the position of the Fiat/Chrysler Group is worse than other groups."

Fiat's strength is in small to midsize cars for the European market -- precisely the cars that Italy's middle class buys.

"For the middle class, there is really no money in their pockets," Spina said.

To be sure, other countries -- such as Greece and Spain -- are in worse shape and virtually all automakers are losing money in Europe.

Ford expects to lose $1 billion this year and is cutting several hundred salaried jobs through a buyout program. GM is in the middle of restructuring its Adam Opel unit after GM has lost more than $16 billion in Europe over the last 12 years.

Fiat closed a plant in Sicily in 2011 and has been relying on rotating layoffs at its six other Italian plants. Fiat also is exploring a plan to export cars to the U.S. from Italy, but not without concessions for Italian unions.

On Sept. 22, Marchionne met with Italian Prime Minister Mario Monti to reassure the government that Fiat remains committed to preserving its industrial presence in Italy.

In a statement, Fiat said it will resume investment in new product development in Italy "at the appropriate time."

Marchionne also has promised to update investors on Oct. 30 when it reports third-quarter financial results.

In Italy, Fiat's plants are running at less than 60 percent of their total capacity. No company can survive running at such a low rate very long. To minimize losses, Fiat has tapped into a government fund that pays laid-off workers 80 percent of full salary. Fiat's eligibility for that program could expire in 2013, said Pierluigi Bellini, automotive analyst for IHS Automotive.

Fortunately for Fiat, Chrysler has been making enough money in the recovering North American market to more than offset Fiat's red ink.

Chrysler's U.S. market share has risen to 11.5% for the first nine months of this year from 10.6% a year earlier, while Ford and General Motors lost market share to Toyota and Honda. In the second quarter, the Auburn Hills automaker earned $436 million.

For the same period, Fiat lost $302 million, excluding the profit it drew from the 58.5% of Chrysler it owns.

"Without the money Chrysler is making, maybe the situation for Fiat employees would be much worse," Bellini said.



Source: (c)2012 the Detroit Free Press. Distributed by MCT Information Services.


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