Despite a strong second-quarter showing, Italy’s industrial giant Fiat Group, corporate parent to the nation’s flagship auto maker Fiat Auto SpA, has yet to win the confidence of analysts.

For the second-consecutive quarter, Fiat Group records better-than-expected financials. And for the second-straight quarter, analysts yawn, with some regarding the performance as a charade because they consider a spin-off of the auto division as imminent.

“We continue to caution about investing in Fiat on the basis of earnings momentum,” JP Morgan’s Philippe Houchois writes in a research note.

The terse warning is “based on the conviction that Fiat will exit the automobile industry to refocus on capital goods activities.”

While Stephen Reitman of Merrill Lynch is skeptical Fiat Group will spin off its automotive operations – a scenario vehemently denied by CEO Sergio Marchionne – he says gains inspired by such vehicles as the core-brand’s high-volume Grande Punto B-car, are less representative of consumer demand than of inflated advertising costs.

He also dismisses Fiat’s claims that its automotive spending will subside with the introduction next year of key products, such as the iconic Cinquecento microcar and the Bravo C-car.

“We see this higher spending as a lock-step increase that is unlikely to decline,” Reitman writes. “Some of the spectacular volume gains seen this year are coming off very low bases, but also require significantly higher marketing and advertising support.

“Consider also the Grande Punto will be that much older next year and already is heavily discounted by some dealers in response to competitive pressures,” he adds.

Since the Grande Punto launched in September 2005, Fiat Auto has delivered 313,000 units, which bodes well for its sales target of 360,000.

But industry observers, and Fiat itself, note the Grande Punto faces significant competition from the new Peugeot 207; Opel Corsa; Toyota Yaris; and Renault Clio III, also launched last September.

Undeterred by analyst skepticism, Fiat Group has raised its full-year net income target to 800 million ($1.2 billion) from €700 million ($891 million).

It also says its car operations will make €200 million-€250 million ($255 million-$319 million) this year, up from €200 million in an earlier forecast.

“The Group’s first-half results are well in line with (its) forecast performance for 2006 and reflect the continuing advances made in the reshaping of the industrial activities of the Group,” Fiat says in a statement.

Meanwhile, Fiat Auto’s makeup changes significantly this week with the announcement of several new initiatives and joint ventures.

    They include:
  • >A memorandum of understanding with India-based Tata Motors Co. Ltd. to build passenger vehicles, engines and transmissions for the Indian and overseas markets. Tata and Fiat are expected to share a manufacturing site in Ranjangaon, Maharashtra, which will build – among other models – the Grande Punto and a new sedan.
  • A 60-day Fiat-Tata study exploring industrial and commercial cooperation in Latin America that would focus on building utility vehicles and pickups, plus the use of Fiat’s production plant in Cordoba, Argentina for export vehicles.
  • An agreement with Credit Agricole to create a JV to facilitate Fiat Auto’s financing in Europe. The two sides hope to close the deal by year’s end.
  • 3A deal with OAO Severstal-Avto to build the new Ducato commercial van in the Elabuga area of Russia’s Tatarstan region. Funded by Severstal-Avto, the new plant would reserve 75,000 units of annual capacity for Fiat. Production is expected to begin by fourth-quarter 2007 and will be aimed at export markets.
  • A JV between Fiat’s heavy-truck division Iveco SpA and China’s Shanghai Industry Motor Corp. (SAIC) and Chongqing Heavy Vehicle Group to build heavy commercial vehicles.
  • A deal between Fiat Powertrain and SAIC to make diesel engines.